Management

Hourly Cost to Operate Your Grooming Business

In the Summer 2019 issue of PetGroomer.com Magazine we presented formulas and charts for time-range based grooming prices (see link below). What this means is that prices are set by 1) knowing the business hourly rate for grooming services (not shared with customers) and 2) multiplying that rate times the expected time needed for the grooming service. We will provide an example just ahead.

Most groomers never set their grooming prices equally fairly for all customers using time-range based grooming prices. Not only that we have found groomers are undercharging large dogs as a result, losing potential profit. Let’s do a quick review of the last article because we have another hourly rate to introduce in this follow-up article. (The original hourly rate for grooming prices was discussed in this blog post https://groomwise.typepad.com/grooming_business_in_a_bo/2019/08/using-the-time-range-grooming-price-system-worksheets-.html).

Whether or not they know it, every grooming business has an hourly rate built into their grooming prices, and ideally that rate should be equally used in setting literally all grooming prices quoted or printed in signs or price sheets. Careful, don’t get confused with groomers that “charge by the hour.” We are not talking about charging by the hour. Most customers want to know the actual cost they face before they return to pickup their pets.

All grooming prices you set and quote should be based on one business hourly rate for grooming services. It is easy! For example, Sandy’s base rate is $90 for a Standard Poodle and she figures the entire groom takes 90 minutes. Divide $90 by 90 minutes, and we see her price is $1 a minute for the Standard Poodle, or $60 an hour. Her business hourly rate is $60, and all of her grooming prices reflect the same method of calculation. Or so she thought.

Now wait a minute. Sandy’s price for a full groom Bichon is $50, and she figures 60 minutes to complete the service. Why is it $50 when at $1 a minute it should be $60? Most groomers provide price sheets that are way out of balance like Sandy’s. In fact, large dogs are often billed $10 to $15 less per hour. That is a big loss of income for some grooming businesses. It’s important to set a business hourly rate and to apply it evenly to all stated grooming prices.

Now let’s move on to another hourly rate, but it is not related to grooming prices. We have never met a grooming business owner that knew this hourly rate. What is the rate called? Your hourly cost of doing business.

Is it important? Indeed it is if you are to make a profit which provides personal income from the business for the owner, and staff if any.

Doesn’t it make sense that your business’ hourly rate for figuring grooming prices had better be higher than your business’ hourly rate of costs to operate. If not, how will you cover all operating expenses, and make a profit?

If your grooming prices are based on selling services at $60 an hour, your hourly cost of operating had better be well below $60 an hour. If not, you could be headed for financial problems or very low profit.

Knowing your business’ hourly cost for operating is not a difficult task to calculate. Certainly your accountant could assist you. Many of the numbers you need are available in your business tax returns. In traditional accounting terms professionals use the term “break-even.” We want to keep it simple here.

Generally the lower the hourly cost of doing business the more potential profit, yet quality and safety must be maintained. We are going to show you a way to calculate a general estimate of your hourly cost to operate your business. To make it even easier we will use an example for a one person grooming business owned by a sole-proprietor.

If you want calculate a truly formal financial break even projection, use Business Plan Helper, by Grooming Business in a Box®.

The first step is to calculate your annual business operating expenses. This includes rent, utilities, insurance, phone, supplies of all kinds including product and office, professional fees like a bookkeeper, sharpener, and license and fees too. Include interest expense on business loans too.

If you are already in business, the IRS requires you to annually list all operating expenses on the Schedule C you attach to your long form 1040. It is called the Profit/Loss from Business. Easy, check out the last one you filed for a quick answer to your total annual operating expenses. If you have never filed a Schedule C you can download a copy from the IRS forms site and fill one out. Now you know your annual cost of operating expenses. Hold onto that number.

It’s time to do another simple calculation. For the tax year represented by the Schedule C, how many hours were you (or will be) open for business?

For example, many businesses open Tuesday through Saturday throughout the year. That is 260 days a year (52 weeks times 5 days a week). If you were open 9 hours a day, multiply 9 hours times 260 days. The result is 2,340 hours of operation during a tax year.

Now refer to the Schedule C total cost of operating expenses. Let’s assume the total operating expenses were $42,500.

Divide $42,500 by the total hours of operation, 2,340 hours. The result is $18.16 an hour, rounded to $18 an hour. The hourly cost of doing business is $18 an hour. Remember this is a very general estimate. Well done.

Now it is time to compare the two hourly rates for the business:

  1. Hourly Rate (for pricing)
  2. Hourly Rate (for cost of operation)

In the last issue of PetGroomer.com Magazine the grooming business owner working alone set her prices based on a $60 an hour rate for pricing. Let’s use that figure here.

We know the hourly cost to operate a business was $18 an hour in the last example, and $60 is the business hourly rate for figuring grooming prices. What is most important is that the hourly cost ($18) is much less than the hourly rate used pricing ($60). That’s critical to earn a profit for a sole-proprietor owner.

Our rule of thumb for a sole-proprietor business is the hourly rate for setting prices should be 3 to 4 times higher than the hourly cost of operating the business. The $60 hourly rate is a little more than three times higher than the $18 hourly cost of operating. Right?

The $42 difference between the $60 hourly rate and the $18 hourly rate is the gross income for the sole proprietor. Remember the sole-proprietor groomer still has taxes to pay on the profit from the business. There may be additional costs such as loan principal to pay as well. If you want to calculate that formally, use Business Plan Helper.

However, our quick rule-of-thumb estimating here is a good quick indication if you are on the right track with both prices and costs.

Remember your business hourly rate for figuring grooming prices should normally be 3 to 4 times higher than your hourly cost of operation for sole-proprietor, one person businesses.

 

 

 

 

 

 

 


Using the Time Range Grooming Price System Worksheets

We suggest you first read two articles in the Summer Edition of PetGroomer.com Magazine 2019, free reading online. They are:

How to Easily Set Your Grooming Time Standards (page 29)

Time Range Grooming Prices (page 39)

Click here or click cover below.

Cover-pgcom-magazine-v9-issue-3-july-september-2019-final-cropped-600

GET YOUR COPY OF THE TIME RANGE GROOMING PRICES SYSTEM EXCEL SPREADSHEET

The articles in the magazine above had several illustrations for Time Range worksheets that you can manually copy or print. However we will send you a custom Excel spreadsheet version (even better features) on request. Remember, only accept Excel (.xls) files from a trusted source. Never open them from an unknown source and when you did not request the file!

Email us your request. findagroomer@earthlink.net (use active link in the Contact section of this blog). During office hours we will email the Excel file to you at no charge. Below are some written instructions for the Excel version but we suggest you listen to the audio file instructions too.

WRITTEN AND AUDIO INSTRUCTIONS TO USE THE EXCEL FILE

The layout of the Excel version is simplified and easiest to use. If you requested a free copy of the Excel to be sent to you, but want to learn more immediately, here is a PDF illustration of the Excel version.

Download Grooming-box-time-range-pricing-system-hour-field-version-1-excel

You cannot use it as a spreadsheet of course, but you can start learning about its benefits now while you wait for your free Excel version.  This is best view on a desktop monitor.

For Excel audio instructions use this link:

Using-time-range-pricing-worksheets-version-1x

For Excel written instructions, read below:

Based on our firsthand experience we know for certain that most groomers do not use a "business grooming hourly rate" to set the prices for their grooming services. Some come close, others don't. Most often the variances happen when setting their prices for large dogs and substantially coated dogs with more styling requirements.

Equivalent consideration given to grooming time is a fair basis for all grooming services. You don't have to charge by the hour for each groom. We are not suggesting you literally charge by the hour for every client. We are talking about using time to set prices you can even post and distribute in writing, advertising or on a website if that is your choice.

In a nutshell, what are you selling to pet owners? YOUR GROOMING TIME. There may be costs such as product used for every groom, but those costs enable you to charge for your time. You, the service provider, are the keystone of your business operation. Doesn't an attorney charge for their time? Sure. It makes sense to set your price ranges based on a business hourly rate applied to typical time ranges for grooming any breed or mixed breed pets. It is the ONLY way to make sure your profitability is accurate for every groom, and your prices are fairly computed for your entire clientele. 

Example your business hourly rate is $60. Even if you have bathers and/or groomers, use that hourly rate for the business. No special rates per groomer or bather. 

Miniature Schnauzer: 45 to 60 minutes time range

If the Business Hourly Rate is $60 hour, the price range is $45 to $60. Always use 15 minute ranges for every breed, mixed breed or cat on the worksheets. The price for the lower time range, $45 in this example, is for a typical Miniature Schnauzer full grooming, commercially clipped not hand stripped. The pet would be within normal standards of hair overgrown, not excessively soiled, not largely behavioral where extra time is required for its care and comfort, and not requiring an abnormal amount of dematting. If those factors are present, including the possibility of being quite obese as some groomers do charge extra for that characteristic, the high range compensates you for the added time factors the groom required. In this case your higher range up to $60 would compensate for the added time.

Here is a sample of inequality in time-based pricing we often see when businesses are not getting accurately paid for the time spent. It usually occurs in the price ranges for large dogs and/or naturally heavy coated pets with demanding styling time.

Assume your time range for a Toy Poodle is 40 to 55 minutes. At a $60 hourly rate for grooming price range would be $40 to $55. Compare this situation to a Great Pyrenees with a time range of 120 to 135 minutes. That's exactly 3 times more grooming time than a Toy Poodle. Therefore, the grooming price range should be exactly 3 times more than a Toy Poodle, $120 to $135. After reviews of hundreds of price sheets of grooming businesses we found the odds large dogs not being adequately priced was almost certain. In the example above, the Pyrs grooming range was more likely to be $90 to $110, not $120 to $135.

By using time-based grooming prices you can ensure that all pet owners are paying your expected business hourly rate. Your business income will increase without "overcharging." The Time Range Pricing System ensures your profitability for every groom. It is likely you will see more income for your business at year end once you put the system in place. It is entirely fair to all of your clientele because you are simply basing your prices on the set business rate for your grooming time. 

You may ask, what is my business hourly rate. We will be covering that topic in a future post.

Add-on Fees

You may add to the grooming prices in your completed worksheet. The most common add-on fees are:

  • Dematting fees for pets with above normal matting.
  • Special care treatments, such as vet-prescribed treatments which must sit on a pet for several minutes.
  • Exceptional behavioral pets requiring above normal grooming times.
  • Creative grooming.
  • Add-on "spa" services and optional product.
  • Hand-stripping versus commercial grooming if not already specified on your worksheet.

Worksheet Instructions for Excel Version:

Enter your business hourly rate in dollars and cents at the top of each table. We suggest the same rate for both tables. Such as $60.00. 

For every line of both tables listing dogs and cats enter a TIME stated only in minutes. The range of time from low to high should always be 15 minutes. For example, Afghan bath only service 60 to 75 minutes. Enter 60 in the Minutes Low column and 75 in the Minutes High column. Immediately you will the spreadsheet has calculated the Afghan price range in dollars and cents as you enter the time numbers.

Important enter MINUTES ONLY, not HOURS. If a groom is expected to take 1 hour 30 minutes to 2 hours, convert hours and minutes to just minutes. In this case example you should convert the time entry to 90 to 120 minutes. 

Minimum Grooming Charge Option

If you believe there should a be a 1/2 hour minimum grooming fee for all clientele, do this. Once you have completely filled in the worksheets, review the Low and High Minutes columns for any figures under 30 minutes.  Assume your worksheet shows a Doxie bath-only service is 20 to 35 minutes, adjust the 20 minutes to 30 minutes. The new range would be 30 to 35 minutes. You are not likely to have many of these adjustments but it does ensure that you always receive your minimum 1/2 hour grooming charge.

Business Operating Costs

Some groomers how their operating costs are being recouped. For example, the Great Pyrenees groom uses more shampoo, conditioner, electricity and the like. Our answer. Yes it does. As you will learn in our future post on this subject, your Business Hourly Rate entered on the Time Range worksheet covers all overhead, including rent, utilities, license, fees, insurance, payroll taxes, benefits, literally everything considered an "operating expense" on a standard Profit/Loss Statement used in bookkeeping. In fact if you are a sole proprietor the Schedule C you file with your long form 1040 is an example of a Profit/Loss format. 

Attorneys charge by the hour in a similar fashion, but may bill you for out of pocket expenses such as paying a court filing fee on your behalf. That's fair. Groomers do not really have these type of out of pocket expenses. Attorneys have included their rents, utilities etc in their hourly based fees, and you can too. Again, we will explain precisely how to figure your business hourly rate in a separate post here in this blog.