Simplify Stock Finances and Improve Profitability
The best way to manage salon stock
In this article we look at:
Simplify Stock Finances and Improve Profitability
Taking a leaf out of Tesco’s book - every little helps.
In this article, we look at stock and how to manage the finances around it, so you stay in control of your stock, not the other way round.
I’ll also share a simple approach to ordering for absolute clarity, along with practical guidance on purchasing decisions - what’s a deal, what’s a trap, and when to order.
Stock is often misunderstood. Not just by those managing it, but sometimes by those recording it too - which doesn’t help you understand your finances. My goal here is to explain stock management in a way that’s simple, practical, and genuinely useful for salon owners.
Two types of stock. Two different uses.
Most salons treat all stock as one big pot. From a financial point of view, that’s where the confusion begins.
In reality, salons have two different types of stock, serving two different revenue streams. Separate them properly, and your numbers start to make sense.
Retail stock
These are products you buy to sell to clients. Shampoos, conditioners, styling products, skincare - anything that leaves the salon in a bag.
Retail is a standalone revenue stream.
Professional (consumable) stock
These are products you buy to deliver a service. Colour, bleach, treatments, masks, disposables.
They are not sold directly - as they form part of the cost of performing a service.
They may come from the same supplier, they may even sit on the same shelf (although for clarity, I recommend storing them separately). But financially (and this is important) they behave very differently.
Why This Matters
Retail is a separate revenue stream. Keeping it separate allows you to clearly see:
- Cost vs sales — exactly what you spent on products compared to what you sold them for.
- Gross margin — how much profit retail generates after product costs are removed.
- Return on investment — whether the cash tied up in stock is delivering worthwhile profit.
When retail and professional stock are mixed together, these numbers become distorted. You lose clarity, and purchasing decisions become instinct rather than fact.
Imagine you’ve already separated retail and professional stock physically. Now it’s time to separate them financially too.
Stock and Bookkeeping
How Retail Stock Should Appear in Your Accounts
When you buy retail stock, from an accounting point of view it is not an expense straight away.
Instead:
- The products sit in your accounts as Inventory
- This appears on your Balance Sheet
- It represents cash tied up on your shelves
Only when a product is sold:
- The sale appears as Retail Revenue
- The product cost moves out of Inventory
- And is recorded as Cost of Retail Sales in your Profit & Loss
This matching of sale and cost shows your true retail profit.
In simple terms, you should be able to see two clear figures:
- Retail sales (net of VAT) — for example: £10,000
- Retail product purchases (net of VAT) — for example: £7,000
Meaning your retail profit (before staff commission) is £3,000.
Clear. Measurable. Manageable.
How Professional Stock Appears in Your Accounts
Professional stock works differently.
Because it is used to deliver services it:
- is treated as a direct cost of services
- appears in your Profit & Loss
- is matched against Service Revenue
This allows you to see whether:
- your service pricing is correct
- your product usage is under control
- waste is creeping in unnoticed
Without this separation, service profitability across the business is difficult.
Practical budgeting tips & more
Rather than trying complicate things, set a simple monthly replenishment budget for professional stock as a percentage of the previous month’s service sales.
For example:
If your salon generated £20,000 in net service revenue, you might set a maximum professional product budget of £2,000.
I’m not suggesting 10% is the right number for everyone, it depends on your services and products. Well run hair salons operate closer to 6%, while beauty businesses often sit nearer 8%.
The key here is not the percentage, it’s having visibility and control.
One Small Habit That Makes a Big Difference
When ordering stock, ask suppliers to raise separate invoices:
- one invoice for Retail Stock
- one invoice for Professional Stock
That single change:
- keeps bookkeeping clean
- prevents miscoding
- makes monthly reports meaningful
- saves time for you and your bookkeeper
Simple. Practical. Effective.
The Result
When stock is structured correctly - on the shelves and in your accounts - you can:
- see true retail profitability
- understand real service costs
- spot over-ordering early
- avoid cash sitting idle on shelves
- make better buying and pricing decisions
And most importantly:
Your numbers start working for you, not against you.
A Simple Rule to Remember
Retail stock is bought to be sold.
Professional stock is bought to perform a service.
Treat them differently in your accounts and managing stock becomes far easier.
Final Practical Tips
Buy smart, not just cheap
Suppliers run promotions at predictable times of year. Planning ahead and buying consumable stock in bulk during sales can significantly reduce service costs.
For example, a beauty salon buying six months’ supply of wax at a discounted rate improves the profitability of every waxing service delivered.
Be cautious with “great deals”
New product lines can look exciting, but opening orders often leave you with stock your team doesn’t naturally use or recommend.
If your current range isn’t being retailed effectively, adding another line rarely solves the problem.
Audit stock monthly
Every salon has products that don’t move, both retail and professional.
A quick monthly stock review highlights movers and non-movers, allowing you to create offers or clear slow-moving items before they tie up cash.
Use your POS system properly
A good POS system should give you visibility over stock movement and costs. Some do this better than others — but even basic reporting is better than guesswork.
Consider specialist tools
For colour-intensive salons, systems like Vish Colour Management are an excellent way to control colour usage and product costs with real precision.
Ian Egerton
Founder, Loop HR