Are you prepared to make your ROIs be all they could be in 2014? A few tweaks might just do the trick
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January can feel like a bit of a letdown after the high energy of the holiday season, and it isn’t always easy to get back to business as usual. However, this is an ideal time to carefully consider your financial forecasts and budgets for the coming year. How do you plan to grow sales and profits in 2014? One bright spot on the horizon is that December may have been a banner month for your gift card sales, and the lucky recipients of those gifts will be calling you to schedule appointments, giving a lift to what can be a slow time of year. This gift card redemption period may present the perfect opportunity to focus your efforts on booking clients into services that produce a higher Return on Investment, or ROI, for your business.
One of the typical activities of spa management is examining monthly sales reports and identifying high-demand treatments. After you’ve been operating for a few years, you’ll have a pretty good idea of your monthly performance numbers in your various departments. But sales do not necessarily equal profits, especially in the spa industry. Spa services have two main costs associated with their delivery: 1) the cost of the labor, and 2) the cost of the products used in the service. Then there are the ancillary items, such as linens, the physical space required to deliver the treatment, and the equipment investments required. For example, delivering an individual microdermabrasion service doesn’t cost a lot, but acquiring the machine does.
In spas, there is often no real science behind the determination of a menu price for a treatment. In restaurants, the rule of thumb is that menu items are priced at five times the cost of the meal’s raw ingredients, but few spas use any such equation. The biggest factor in spa service pricing seems to be the “neighborhood effect”—we evaluate our nearby competitors’ menus and price ourselves accordingly. If we examined our treatment sales reports through the lens of individual service profitability, however, we might then consider a marketing plan that maximizes sales of higher margin items.
The Cost Factor
Labor costs, the highest single expense in the spa, gets everyone’s attention. Spa managers generally know their treatment costs by department, if not for each individual service. For example, the skincare department typically carries the highest delivery expense when measuring product costs against retail price of the service. This makes sense, given that most esthetic cabins are packed with high-priced serums and moisturizers. (To review a calculation of back bar costs, see “Back Bar Math”, right.)
But service costs can be highly variable, both within a spa and within a spa department, and too few spa managers focus enough attention on this aspect of service profitability. It may be expected that the skin department’s professional supply expenses will be approximately 7% of sales, but that is an average across the board. If you were to look specifically at hair removal services such as waxing, sugaring and threading, you would see that product costs for those services are less than 2%, while advanced facials may yield a higher individual cost, closer to 10% of the treatment price.
In determining ROI on a service, one of the considerations has to be the amount of space and time the treatment takes to deliver. When it comes to direct product cost per treatment, massage is among the lowest of any of the top-selling spa services, at approximately 1% for massage oils. But massage clients use robes and linens, generating laundry costs, and often take up a treatment room for an entire hour or more. On the other hand, makeup applications, waxings and even manicures have low associated product costs, don’t require a lot of physical space, and can be performed in a brief time frame, allowing for quicker turnover.
Maximizing Space
Obviously, just because the cost of providing waxing services is lower than for facials, that doesn’t mean your should automatically focus more on the former than the latter. But you might want to be more strategic about how you use your physical space. For example, if a spa has three facial rooms and a loyal skincare clientele, with clients enjoying regular facials and peels and generating upwards of $125 per hour, you may want to nix the idea of booking an eyebrow wax into one of these treatment rooms. Brow and lip waxes can be done in a well-lit makeup area, preserving larger windows of times in the treatment schedule for higher-priced services.
Conversely, in spas that do a lot of body waxing, it might make sense to convert an under utilized area into a waxing room. This space can be quite small, as it only needs to accommodate a portable treatment table pushed up against a wall, and a wax trolley. It can also be located near the front of the spa, so that patrons need not change or use locker room facilities. However, warns Normajean Fusco, owner/president of Nufree finipil, make sure you use a hair removal product that does not stick to skin or require high temperatures, so it is easy and ready to use quickly. Then you can direct the client to your retail department to purchase ancillary products for pre- and post-service use.
Nina Milano, founder of la therapie Spa at Preston in Cary, North Carolina, as well as the new Lorena Luca Spa in Raleigh, relates that while facial waxing does provide a high ROI, body waxing has become less of a focus. “We’ve noticed over the last few years, especially with the opening of local wax-only facilities, that we actually don’t experience significant return on body waxing. The cost of wax has gone up and the return is very small. Facial waxing, on the other hand, takes minimal time and supplies, therefore producing better profits.” Milano adds, however, that most of her spas’ marketing emphasis is on massages, because to date she has found that these services “produce highest ROI for our spas.”
A Retail Connection
Another factor to consider in determining ROI is whether a treatment leads naturally to retail sales. Such sales may or may not be ROI-friendly, depending on your profit margins, but they can deliver ancillary benefits such as boosting client retention. We see this in the skincare department: the esthetician’s ability to add low-cost micro-treatments to boost the sales price, along with the lead-in to retail generation, means that the well-marketed skincare department can be the sales engine for the entire spa.
At AvantGard Spa in San Carlos, California, founder Blanca Caballero has noticed that the services producing the highest ROI are the ones with the potential to recommend retail. “Our spa’s highest return area is the Brow Bar,” reports Caballero. “Before creating this department, our makeup sales were dismal, but now this department has two full-time esthetician/makeup artists and a simple 15-minute brow appointment can earn the company plenty of profits. Not only do our brow services create greater frequency of visits (every three to four weeks), but because the Brow Bar is in the front next to the store, guests can shop while waiting. The technician has so many makeup retail opportunities. Our currentretail-to-service ratio in that department is 90% to 100%.”
Caballero further reports that the spa’s key to success was in finding the right staff, especially estheticians and cosmetologists who have worked in retail at a department store and who love makeup. The spa boosts its marketing efforts by sending an e-mail birthday wish offering a free brow shaping to every guest on its list.
Spray tanning systems also carry a low cost-per-treatment, after the initial investment. However, they require a dedicated space with good ventilation, which might end up being an underutilized treatment room or shower. Preston Wynne Spa in Saratoga, California, recently created a technician-free revenue opportunity out of what was once a tiled Vichy room by adding a modular infrared sauna and charging a modest amount for its use, packaged with massage services.
Jenny Hogan, media director at industry supplier Universal Companies, suggests a few simple add-on service options that can create high profit: “These add-ons are a quick and easy way for your spa to increase profits, while adding value for your clients,” she advises, noting that her company’s Intensive Lash & Brow Tint, offered at a brow bar, costs only .53¢ per treatment, and its Eco-Fin paraffin alternative, presented in sanitary single-use packaging, costs about $2.49 before labor, although the treatment itself can be priced at $10 to $15.
So as the phone begins to ring in January, you might want to consider developing a few promotions that combine the typical high-demand services with some less-popular but high ROI options in order to realize higher profits. Of course, you need to give clients what they want, but you will better maximize your profits with some strategic and creative promotions of treatments with a lower cost structure.
