How to work out the price of a haircut in Chile

Looking at what the shop on the corner charges is the fastest way to inherit somebody else's mistake. You do not know what rent they pay, how many of their chairs are busy, or whether they are holding that price by not replacing anything. All you know is the number on the sign.

The price of a haircut comes out of three things that are yours: what it costs to keep the shop open for an hour, how many of those hours are actually sold, and how much you want left over. Here is the calculation, with a case in Chilean pesos you can redo with your own numbers.

First: the cost of an hour with the doors open

Add up the costs of a normal month. Not your best month. Rent, bills, supplies, tools you replace, software, your accountant, card-processing fees, and the wage or drawings of whoever stands behind the chair, including you.

Divide that total by the hours the shop is open in a month. That number is your cost per hour of open shop, and it is almost always higher than people expect.

Second: occupancy, which is where the money goes

This is the step nearly everyone skips. A shop open 200 hours a month does not sell 200 hours of service. It sells the hours when somebody is in the chair.

If you have two chairs open for 200 hours, you have 400 hours of capacity. If 240 of those are taken, your occupancy is 60 %, and the costs of all 400 hours have to come out of the 240 you actually billed.

The calculation, with a hypothetical case in Chilean pesos

The numbers below are invented to show the method. They are not an average of the Chilean market, not a price recommendation, and not a reference to what anyone charges. Every business sets its own price.

A barbershop with two chairs, open 180 hours a month:

• Total monthly costs: 3,600,000 CLP (rent, bills, supplies, services and the drawings of the two people working).
• Capacity: 2 chairs × 180 hours = 360 hours a month.
• Hours actually sold: 216, an occupancy of 60 %.
• Cost per hour sold: 3,600,000 ÷ 216 = 16,667 CLP.

If a haircut takes 40 minutes, that is two thirds of an hour: 16,667 × 2 ÷ 3 = 11,111 CLP of cost per haircut. That is the point at which the haircut neither gains nor loses.

From there you decide how much you want on top, and this is where two things that sound alike should not be confused:

• Markup on cost. You multiply the cost by 1.25 and add 25 % of what it costs you: 11,111 × 1.25 = 13,889 CLP. What is left over the final price is not 25 % but 20 %, because 13,889 − 11,111 = 2,778 and 2,778 ÷ 13,889 = 0.20.
• Margin on the selling price. If what you want is for 25 % of the price charged to be margin, you divide instead of multiplying: 11,111 ÷ 0.75 = 14,815 CLP.

Same costs, and one gives 13,889 while the other gives 14,815. That is not an accounting nicety: it is close to a thousand pesos per haircut. Pick which of the two you are calculating and apply it the same way across every service, because mixing the two methods makes your price list incoherent. Round afterwards to a number you can actually charge, say 14,000 or 15,000 CLP.

All of these operations can be checked on a calculator. What cannot be checked is whether your costs and your occupancy look anything like the example. Almost certainly they do not.

What to do with the number that comes out

If the result is well above what everyone around you charges, that does not automatically mean you should raise your price. It means you need to look at the two variables that produced it: either your costs are high for your size, or your occupancy is low. Look at them in that order and with your own numbers, because which of the two weighs more varies from one shop to another.

If the result is below what you charge, you have room, and you can decide to spend it on better service, on fewer opening hours, or on keeping it.

Long services deserve their own sum

A cut and beard that occupies 60 minutes cannot cost the same per hour as a 30-minute one if it uses more product and more attention. Do the calculation per service, using the real duration measured in your shop, not the duration you set when you opened.

And measure it properly: time ten services of each type. It is common to discover that the haircut that "takes 30 minutes" occupies 40 once you include the conversation, the payment and the clean-up, and that the whole calendar is built on a wrong number.

Before you change the sign

• ✓Costs for a normal month, with your own drawings included
• ✓Capacity in chair hours, not shop hours
• ✓Real occupancy over the last four weeks
• ✓Timed duration of every service
• ✓The margin you want, decided before you see the result
• ✓A date to review whether the change worked

If you do raise prices, announce it in advance and visibly, without over-explaining. A change announced two weeks ahead causes far less friction than a surprise at the till.

Where these numbers come from

Occupancy and real durations come out of your calendar, whatever it is. A well-kept notebook gives the same number as any software; what changes is the work of adding it up.

If at some point you go looking for a tool to save that work, check two specific things. The first is whether you can export your appointments for a period, because without that you will be counting by hand anyway. The second is whether the price and the duration are stored on each appointment as they were on the day: if the system rewrites past appointments when you change your rates, your historical calculations stop being worth anything.

And one currency warning that matters more than it sounds in Chile: check which currency your supplier will bill you in, and whether your service amounts are handled in whole pesos. A product that assumes decimals in a currency that does not use them will give you odd rounding in every report.

Carry on with how to organise the calendar with several barbers, how to measure the gaps left by no-shows, how to fill gaps with walk-ins, and how to choose and roll out a booking calendar.