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Planning Equals Profitability, Part II

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By: Patrick Vande Weg
Posted: March 30, 2012, from the April 2012 issue of Skin Inc. magazine.

Three aspects—therapist compensation, products and supplies used in services, and the cost of the retail products you sell—are literally the lifeblood of your skin care facility. If you control them, you control the long-term success of your business for you and your employees. (See Part I of this column in the March 2012 issue of Skin Inc. magazine to learn how accounting can make or break your business.) There are many nuances for achieving the desired numbers for these aspects.

Therapist compensation. Therapist compensation should be no more than 35% of total revenue. To meet this goal, a plan must be built that is based on productivity, and pays for performance in each of the retail, service and retention areas. Set your mix of service, add-on, retail and retention goals based on what commission percentages you want to pay your therapists, and chart out the revenue goals that each will need to achieve in order for you to meet your 35% ratio. See Weekly Therapist Goals and Leveraged Payroll. Leveraged payroll is calculated by dividing the total compensation you pay a therapist into the total revenue they generate. Higher retail sales equals a lower leveraged payroll percent. Develop a sliding scale that rewards higher earners and allows you to afford those who are excellent therapists but may not be top performers. Set quarterly coaching sessions with each therapist to refocus them, and review their revenue goals and your expectations.

Products and supplies used to provide a service. These should total no more than 8% of service revenue. To meet this goal, you must be confident enough to create your own service menu protocols, and make purchases of bulk-sized products directly from a high-quality professional lab, and aggressively price-shop your sundry supplies. It’s as simple as that. It is an uphill battle to achieve profitability if you depend solely on a vendor that provides products at $15–20 or more for a $100 service. This does not mean you cannot mix in a product system or key ingredient from a spa vendor to your protocols, but using high-cost products and supplies will not allow you to grow and prosper.

What are you paying for the retail products you sell? This should total no more than 45% of retail revenue. To meet this goal, you must not be afraid to develop or purchase retail products directly from high-quality professional labs. Many of these labs sell in low quantities at very attractive prices. Many of the retail products you choose will be ones you select for back bar, as well, which reduces cost and lends itself to greater retail sales. Again, mixing in select spa-vendor products is fine and still allows you to achieve your goal. For spa vendor products, consider marking them an extra $2 or so above suggested retail prices. This helps cover commissions and allows you to at least meet a 50% markup on these products.

An underlying positivity

Most entrepreneurs have an underlying positivity about the next day. If you follow the philosophy of focusing on continuous improvement each day, no matter how incremental, you will achieve your goals.