The Different Types of Clientele and the Risks They Carry

When we measure success as a stylist, we oftentimes will talk about how booked out we are, right? How long a new client would have to wait to get into our books for a first appointment, and that's a big factor to consider whether or not we can afford a price increase or any other structural change. But there's a critical nuance that oftentimes is not taken into consideration when it comes to being quote-unquote booked and busy, and it comes up very often in my coaching calls with hairstylists when evaluating the health and foundation of their businesses. You see, I had gone to a really cool business conference this past year that was all about learning how to build a business that you could sell, and we learned what investors look for in businesses as far as green flags and red flags go, and it was massively insightful.

The main thing that an investor is going to be evaluating in a business when considering an investment is risk. Now, while there are a ton of types of risks to consider, one that I found to be very fascinating and could relate back to our industry was client concentration risk. So, client concentration risk is the potential downside of relying on a small group of clients for the majority of your revenue. If a large portion of your revenue comes from just a few clients and they decide to cut back their appointments or they themselves face financial hardships, the impact on your income is significantly higher.

Relying too heavily on a few key clients creates instability because your business becomes dependent on their loyalty and spending habits. Diversifying your clientele base by spreading your revenue across a larger pool of clients, although that has its potential downsides itself, which we'll talk about in this episode, lowers this risk, ensuring that losing a small percentage of clients doesn't jeopardize the foundation of your business. So, here's an example with easy-to-understand numbers. Imagine you have five high ticket clients, all right?

And each of them pay $1,000 per appointment and they visit you every four weeks. This means that you're making 5K a month from just those five clients. Sounds amazing, right? But if just one of those clients leave, you get a 20% drop in income and you're now down to $4,000 a month.

So, recovering that loss means you have to find another client willing to pay 1K every month, which can take significant time and effort. Now, let's say you have 20 mid-ticket clients who each pay $250 every four weeks. That also totals to $5,000 a month, but if you lose just one of those people, you're only losing 5% of your income, which would be $250. Replacing that client is much easier because the investment required for a mid-ticket client is more accessible to a wider range of people.

Now, before I go on to break this down further, I wanna put an emphasis on the potential downside of this risk. Every business will carry some sort of risk, pros and cons with their business model, and that will look different for each business owner and what they find to be worth it for them at the end of the day. There's no right or wrong for how you decide to run your business, as long as you are happy with the circumstances and you find the risk and the cons to be worth the pros. So, with this episode, I'm not sharing with you what's right or wrong or what to do differently, but simply just things to consider when making decisions about how you build, run, and change your business overall.

So, if you're ready to get into it, let's go So, let's start this conversation off with how this affects you as a business owner being able to raise your revenue. As you know, in order to significantly increase your revenue, oftentimes that means you have to increase your prices. The nature of your client concentration needs to be taken into consideration when it comes to if you can raise your prices, how much you can raise your prices, and also how quickly you can raise your prices as well. So, like I said at the top of this episode, considering how far out you are booked is oftentimes what we'll use as an indicator of success and determine if you'll be able to safely sustain a price increase.

So, for example, you may be booked solid for three months, which sounds badass, right? And it is, no matter what. However, there is a critical nuance of that that should be taken into consideration and is never talked about. So, let's break this down by example.

So, let's say that you have Stylist A. Stylist A is booked out three months solid, they're doing 100 appointments in that three-month span, and their book is full of clients who come to see them every four weeks. Therefore, they are seeing about 33 clients three times each over the three-month span. Then you have Stylist B.

Stylist B is also booked out three months solid and are taking 100 appointments within those three months. But the difference is Stylist B's book is full of clients who come to see them every three months or more. That means that each of those appointments are with a unique client. Therefore, this stylist is seeing 100 clients over the span of three months.

So, in review, Stylist A has 33 clients coming to see them three times over a three-month span, and Stylist B has 100 clients coming to see them over a three-month span only one time each. Long story short, Stylist A has a smaller amount of clients who visit more frequently, and Stylist B has a large amount of clientele who visits less frequently Now, both of these models work just fine, but the difference in how they'll be able to sustain something like a price increase is vastly different. Now, let's say that Stylist A increases their price by 10 bucksFor their four weaker clients, that's an extra $120 a year. And the increase in price will be perceived more often.

If Stylist B does the same thing and increases their price by $10, that's only an extra $40 for their clients who visit four times a year. Now, although it's the same increase in dollar amount, it will carry more risk in fallout with Stylist A, because it's a larger amount of money for the client to spend, and they'll be spending it more often. Versus Stylist B's clientele is likely to not blink or care very much, because they visit less often. Now, let's say that because of this increase, both Stylists A and B lose 20% of their clientele.

Stylist A started with 33 clients, and after the price increase, is left with about 26 clients. Stylist B started with 100 clients, and after the price increase, is left with about 80 clients. So, going from 33 to 26 is a lot scarier than going from 100 to 80, because you still have a large pool of clients to support you. So, in theory, Stylist A will absolutely be able to raise their prices and sustain it, but it might have to be at a slower and lower rate than Stylist B if they don't want to see significant fallout.

Now, to be clear, these are just simple and possibly unrealistic numbers, but hopefully it paints the picture for you of the point that I'm trying to get across here. And again, there are tons of pros and cons to both of these models. For example, Stylist B relies on a lot of client acquisition efforts, which can be a lot of work. But it pays off greatly, because it allows for large increases in revenue in short periods of time.

Where Stylist A won't be able to increase their revenue as quickly, but doesn't have to rely on a lot of clients to fulfill the majority of their revenue, reducing workload, and you could argue, making client acquisition easier. Now, we also have to take into consideration not just the quantity of the clients that you have, but also the nature of the money that they spend with you or the services that they're getting. For example, you could have a small number of high ticket clients, a larger number of low ticket clients, or a mix of both. Now, let's break down the pros and cons of each.

First, let's start off with a small number of high ticket clients. An example of this could look like an extension specialist. So, the biggest pro of this model is that you can work less and still make a lot of money. Like we talked about at the beginning of this episode, you could make $5,000 a month by just taking five $1,000 clients.

Other pros include, with fewer clients to manage, you can take a much more personalized approach to nurture them during and between visits. And this can help increase retention, because it's easier to go above and beyond for a smaller client base. There's also less overwhelm with your client communication and admin tasks, since you aren't juggling as many people or schedules. But this does not come without its cons, the biggest one being risk.

This is a textbook example of client concentration risk. When you rely on a small number of people for the majority of your revenue, losing even one client can be a huge hit. And it's a lot harder to replace that client, because high ticket services require more effort to market, sell, and retain. These services take more time, a higher level of expertise, and often a more sophisticated marketing and sales approach.

Next, we have a large number of low ticket clients. So, this could be just your good old haircuts, right? The biggest pro of this model is that it's lower risk, because you have a much larger pool of clients. If you're dealing with price increases, structural changes, or market shifts, losing a few people doesn't impact your income as much.

It's also generally easier to sell lower ticket services and increase frequency of visits to make your income more consistent. But more clients comes with more overwhelm. Managing communication, scheduling, and client administration becomes a lot. Seeing more clients can also be physically demanding if it means you're often working longer hours, seeing more people per day, or cramming more appointments into your schedule.

That makes it harder to take time off or scale back your hours without disrupting your business and inconveniencing clients. Lastly, we have a mix of both high and low ticket clients. The biggest pro here is that you're making income in multiple ways, which gives you a sense of stability. Changes like price increases or structural shifts become less risky, because you aren't relying too heavily on one segment of your clientele.

But this model comes with its own challenges as well. In my opinion, the biggest con is that your income can become a little bit unpredictable. If you're offering a mix of low, mid, and high ticket services, and those services have similar timing, it can be hard to project exactly how much you'll make in a week, in a month, in a year. And it also makes it harder to get clear on key metrics that drive your business decisions, like your new client retention rate, because your services and client frequency can vary so much.

So, to wrap this up, we dove into a lot today, having a lot of clients with low frequency of visits, having fewer clients with high frequency of visits, having fewer clients with high ticket services, having more clients with low ticket services, and balancing a mix of both. But here is the thing. There is nothing wrong with any of these models. They all have their pros and cons.

The beauty of being a business owner or even just a marketer is that you get to choose which one aligns with the business you want to build. But here's what I want you to remember. The models that you choose will greatly impact the consequences of your decisions, whether it's a price increase, a structural change, or anything else. These details matter, and they should always be taken into consideration.

This is exactly why one-size-fits-all advice doesn't work a lot of the times. And in my programs, I focus heavily on personalization and live support to consider all the moving pieces of your business. That way, you're getting guidance that actually fits your unique situation and sets you up for success. Now, I hope this episode was insightful for you, my friend.

Thank you so much for tuning into the Modern Hair Stylist podcast. Peace out, girl scout. Bye-bye.

End of transcript. © 2024 Hunter Donia LLC.