Running Head: MAXIMIZATION OF BEAUTY Ligia Zambrano 1

Profit Maximization within Sally Beauty Holdings, Inc.

Ligia I. Zambrano

Strayer University
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The process by which a business decides the price and output level that returns the

highest profit is referred to as “profit maximization”. There are various methods used by

businesses to reach and attain their profit maximization at each level of production. The profit

formula derives from total revenue minus total cost; to maximize the profit the formula of

marginal revenue equaling marginal cost is based on the certainty that within a perfectly

competitive market total profit will reach its maximum when marginal revenue equals marginal

cost[ CITATION Far10 \l 1033 ]

Profit maximization is always top priority for businesses; in times of economic

uncertainty such as now companies are looking to maximize profit on every good and service

sold. Sally Beauty Holdings, Inc. (NYSE: SBH) is a worldwide specialty retailer and distributor

of professional beauty product, supplies, and services with reported revenues of more than $2.6

billion annually. Through the Sally Beauty Supply and Beauty Systems Group businesses, the

company sells, distributes, and services with approximately 4,000 stores, including close to 200

franchised units, throughout the United States, the United Kingdom, Canada, Puerto Rico,

Mexico, Japan, Belgium, France, Ireland, Spain and Germany.  Sally Beauty Supply stores offer

more than 5,500 products for hair, skin, and nails through professional lines as well beauty

services within certain locations[ CITATION Hom10 \l 1033 ] Lastly, SBH has a multi-price system

which offers discounts to beauty specialist, preferred clients, and then the regular day to day

consumer-which is always, granted access to different sale products weekly as well.

SBH seems to reach their profit maximization by utilizing the method of total revenue

minus total cost strictly based on the volume of their product, goods and services. With their vast

amount of goods SBH purchases everything in bulk reducing their total cost to the minimum for
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each unit allowing them to reach maximum profit easily on the units sold. A company must

decide on whether to focus on revenues, cost, or both factors [ CITATION Far10 \l 1033 ]

SBH focuses on both factors based on their various pricing methods. With SBH offering

the same product at three different prices we can determine that though a beauty specialist may

pay five dollars for a box of hair bleach, a preferred customer pays six dollars, and a non-

frequenting consumer pays eight dollars for the same box of hair bleach SBH is maximizing its

profit on the product considering both the cost of getting the hair bleach to the shelf as well as

considering the revenue that each level of consumer produces.

SBH is maximizing profit to the fullest extent by differentiating price by level of

consumer activity-an excellent idea currently utilized by many companies from airlines with

frequent flyer miles that result in a free ticket to ice-cream shops that issue cone cards that result

in a free cone once the card has been “punched” ten times. These companies all consider both the

revenue and cost of their goods as it pertains to their consumers.

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References

Farnham, P. G. (2010). Economics for Managers. Boston: Prentice Hall.

Financial Tear Sheet: Sally Holdings, Inc. (2010, July 29). Retrieved July 29, 2010, from Sally
Holding, Inc Web site: http://phx.corporate-ir.net/phoenix.zhtml?c=203305&p=tearsheet

Home: Sally Beauty Holdings, Inc. (2010, July 29). Retrieved July 29, 2010, from Sally Beauty
Holdings, Inc. Website: http://www.sallybeautyholdings.com/
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