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Have you done your homework since our last post? If you have, hopefully you have some clarity of purpose, better insight into what makes your Spa special, and are prepared to see opportunity in this cloudy economy.
When I consult with Spas to help “turn around” their profitability, I always look at fixing three things and in this order:
- How can we reduce our cost to deliver our services?
- How can we get more customers through our door?
- How can we reduce our overhead?
Our natural inclination is to look at overhead expenses first, but if we think about it, there is little we can do to reduce rent, utilities, insurance, our own salary, etc. . That is why this is last on the list. You may be able to play with the hours for front desk staff, but most of you have done almost all that can be done in controlling your overhead. Nonetheless, it is not unusual for overhead to be $15,000 – $30,000.
Your overhead is what I call your “personal Mt. Everest”. This is the mountain you must climb every month, and unfortunately most Spas and Salons have to start at the bottom of the mountain each month as we start each month with zero sales.
The reason so many Spas (even during good times) find it so hard to climb their mountain is because their feet are tied and they are only allowed to make little baby steps up the mountain. Let me explain:
Most Spa Owners have known for a long time that Provider compensation has been eating them alive, here is why:
After we subtract 40% – 60% commissions from each dollars worth of revenue and then subtract workers compensation, employers share of taxes, the supplies and laundry it takes to deliver each service we are lucky to be left with 20 – 30 cents out of that dollar to pay for all that overhead (your mountain).
So the reality is that we have very tall mountains (overhead) and are only allowed to climb that mountain with 20 – 30 cent baby steps (contribution margin). So a Spa with $20,000 worth of overhead will have to perform $65,000 – $100,000 of services just to break even! This is why my number one job is to reduce the cost to deliver services. That way we can take 40 – 50 cent steps reducing our break even to $40,000 – $50,000.
Also when we work on number two, “more customers through the door” , those dollars will be of greater value. You see if we are not making much on each revenue dollar then more dollars only means more baby steps. Instead we want to un- shackle our feet and take nice big strides up the mountain. This gets us to “profitable” much more quickly, and allows us to make money even if we happen to have less revenue this year.
So what does all this have to do with the economy? Our compensation system in this industry has been broken for a long time. Most owners know this but have been too scared to fix their system for fear of a “walkout” or losing Providers to competitors. However, in a cold economy not only does this become a greater necessity but it also becomes easier to fix when Providers have fewer options as to where to go and they learn that if the business doesn’t tighten its belt then there will be jobs for no one.
NOTE: Please see one of my articles on Compensation or attend one of my lectures on the subject for more information. Better yet, the Day Spa Association has some of these lectures recorded, call them and find out how to get one.
During your “field trip” (homework assignment from last post) you learned about your competitors. If you were honest with yourself, and took an analytical approach you now see what attracts customers to your Spa as well as your competitors.
You also probably noticed things that they do not do nearly as well as you do, or perhaps charge a lot more for. These are great candidates for your “Market Differentiators”. These are the things that the public has to know about you, these are the things you should be shouting in all of your marketing material.
It is better to do one thing GREAT than several things mediocre! Find your specialty, tell me not what service you have, instead convince me what it is that you can do for me as a customer. How will I look, how will I feel, appeal to my vanity, my pocketbook, and my inhibitions, not what new equipment you have or service you can provide.
In a down market our Clients will be more careful with the money they spend. If you wish to compete on price alone then the world will go out of its way to do business with you. This presents a new set of opportunities if you can control your expenses to such a point that you can cater to a more “value oriented” customer then you will have more business than you know what to do with.
If on the other hand you cannot be the cheapest in town then you must become the best. So what is your specialty, what is your “unique marketing position”, what is your “market differentiator”?
In economically difficult times many of your competitors will be going out of business. Such is the evolution of business, only the strong will survive! You are the strong, you are the fighter, and now you must be the hunter as well.
During your field trip you noticed competitors out of business. Where do you think their customers have gone (or will go)? Did they evaporate? How can you win those Clients? It is time to poach those Clients! Here are some ideas as to how to poach (perhaps you can think of more):
- If you know the “going out of business” Owner, then ask them if they will sell you their customer list. You may think of this as kicking them when thy are down, but believe me, they are desperate and they need to get their hands on some cash. So be careful not to overpay.
- Take a look at what equipment they may have (that you need) that you can buy on the cheap.
- Recruit Providers from the closing business, make sure you instill some humility into these new Providers and make sure they know that you will be doing things differently than they may be used to.
- Send a mailing to the neighborhood in and around these businesses inviting them to give you a try. Never, repeat never, say anything negative about the closing competition, and always empathize with the situation.
- Flyer the cars in the parking lot (if legal) again inviting them to try you out.
The point is, if you look hard enough and think differently than you have in the past, you will see great opportunity out there. This industry is about to consolidate (big time) and you want to be part of that consolidation, not a victim of it.
Next week we will talk about opening a Spa in this economy and how to leverage it to your advantage! So if you are thinking about opening a Spa you will want to tune in for that, in the mean time I invite DSA members to provide feedback as to how you are weathering the storm, and members feel free to post questions as well.
Best Wishes & Healthy Profits,