Finding the Opportunity For Existing Spa Operations

Skip Williams

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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:

  1. How can we reduce our cost to deliver our services?
  2. How can we get more customers through our door?
  3. 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.

Market Differentiators:

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”?

Other Opportunities:

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):

  1. 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.
  2. Take a look at what equipment they may have (that you need) that you can buy on the cheap.
  3. 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.
  4. 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.
  5. 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,

Skip Williams


4 Responses

  1. Skip, you’ve definitely given spa owners a lot to think about when it comes to surviving tough times. I’d also suggest that people look at where they are missing sales and marketing opportunities. True, people are spending their money a bit more cautiously, but that doesn’t mean you should stop working to let them know what services and products are available in your spa.

    A couple of thoughts:
    – Work on upgrading and upselling services – have your front desk staff and service providers promote your specialty facials, spa pedicures or 90 minute massages instead of the old fall backs of a basic facial, standard pedicure or hour long massage. It really helps too if the staff is able to give a luscious description about why they love the treatment and prefer it over other services.

    – Ask every client to rebook – Don’t let clients slip out the door without asking them to schedule their next appointment. Not everyone will do it but a good number of clients will be happy to plan another hour or two of stress management into their schedule and budget, especially when they’re still in the land of bliss.

    – Use the Internet. Send clients updates about new products, open appointment times or last minute specials through email, e-newsletters, your web site and blog. It is practically cost free (aside from your standard hosting costs or subscriptions) and can get an instant result in your check book and bank account.

  2. You’re right, these are tough times Skip.

    As businesses attempt to cut costs to make their profit margins there is always risk; will I lose employees?, will the guest receive lower quality products and services?, will lower morale affect the guest experience thus resulting in decreased customer loyalty and lower spend?

    To add on to your thoughts around decreasing provider costs, I’ve learned through experience and research that to negatively impact the employee usually negatively impacts the guest’s experience resulting in decreased revenues. Fortunately, there are ways to work with team members to ensure they are more committed to the business and understand the need to make adjustments.

    Often employees do not understand what the “real” cost of a service is. They only know what the customer is paying and what they are receiving. Managers should not be afraid to educate front-line staff on the cost to run the business and how this looks at the service level. Managers can also share the life time value of a guest to demonstrate the importance of every guest’s experience and the importance of return behavior. Instill in employees the important role they play in the long term success of the spa.

    To alleviate cost cutting pain, spas can become creative in building programs that support employees but are inexpensive. For example;
    – Create incentive programs that have input from the recipients.
    – Offer on-site training to advance practitioner skill levels and build team synergy.
    – Train how to properly rebook and then create incentive to do so.
    – Provide ways in which team members can contribute to spa sustainability through treatment planning, low pressure product sales, superior guest service and cost reduction.
    – Front desk staff can attend service training provided by the technicians. This helps them fully understand the offered services improving booking success.
    – Most importantly when having hard discussions, find ways to ensure that employees know how important their role is to the success of the business. Too often cutbacks are made with little information and the employee is left feeling resentful and afraid.

    When employees feel safe, educated and important they are more likely to stick around during tough times.

  3. Just to clarify, I am not suggesting that we cut Provider’s pay, instead I am recommending that we control our total cost of direct labor better. Hourly based pay in a bad economy is NOT a negative thing, quite the opposite. When we can provide great technicians with more security in hard times, most will thank you!

    On the other hand, the few that demand to be “independent business people” within the walls of your business are not helping your business to attain its goals and therefore are NOT an asset to your business rather a liability that we should encourage to leave our employment.

    Or so it seems to me…

    Best Wishes & Healthy Profits
    Skip Williams

  4. It’s not surprising at all that a consultant’s view of personnel, and an owner / leader’s view of personnel are quite often markedly different.

    To the owner / leader personnel are resources / investments/ ambassadors and the mindset is to become more intelligent about how to make them the most effective in the spa, thus increasing the effectiveness of the spa itself.

    More often than not, a consultant (an independent business person) looks at personnel as labor, part of a profit and loss statement,…Ironically, consultants are looked upon in much the same way by spa owners – part of the profit & loss statement in economically challenging times.

    Good debate!

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