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5 Thought-provoking Profi t Models
By: Leslie Lyon
Posted: January 30, 2013, from the February 2013 issue of Skin Inc. magazine.
It’s very difficult to make money—let alone be profitable—when boxed into a no-profit model. If you have a genuine, honest-to-goodness interest in profitability, the following profit models, adapted and interpreted from The Art of Profitability (Business Plus, 2003) by Adrian Slywotsky, will provoke some thought. Identify which ones you use, how they might be improved upon, and which ones might be adapted to better your business.
1. Customer solution profit
Do this before anything else! The customer solution profit model is based on front-end loading your time for long-term pay off. Uncovering your clients’ needs and desires means that your philosophies, products, services and solutions become interwoven into their daily lives. It is at this point that your costs go down and your revenue goes up. Instead of providing small, incremental, unprofitable improvements to the things you already do well, focus on the needs of your clients to create meaningful solutions to their real-life problems.
Assign a question of the day—one question that every team member will ask each client, and implement revolving three-point mini surveys at check out or online—with action-oriented record keeping.
2. Pyramid profit
Create a sales “system,” offering a product at more than one price point to distinct markets, including low-end loss leaders, mid-range items and high-end profit-generators. For example, Mattel sells a mid-range Barbie at $20–30, but risks imitators undercutting. So, the brand develops a $10 Barbie that is barely profitable but shuts out the competition. All accessories remain compatible, lending to continued profitability. At the top of the pyramid, Mattel introduces a series of $200 collector Barbies. Mattel now has a very successful three-step sales system.
Consider developing a multi-tier system for select facials. Each facial would have explore, excite and experience levels with varying prices, durations and complexities, based on your target client. Align your tiers with profitability.
3. Multi-component profit
Business opportunities vary in profitability. Find your most profitable one by selling the same product via several businesses. For example, Coke sells in grocery and convenience stores, restaurants and vending machines. Each of these outlets has dramatic differences in price per ounce, yet anybody might purchase a Coke at every price point. Maximize your profitability by deliberately targeting your most profitable business outlet and developing it into your highest purchaser outlet.
Sell a private label product line from your spa, e-commerce website and local trade shows. Focus resources on increasing sales where you make the most money.
4. Profit multiplier
To multiply profits with this model, re-engineer one treatment or product to make money in different ways. Why keep reinventing the wheel? Lower your expenses and enjoy profits from numerous products spun off from the same original asset.
5. Entrepreneurial profit
Consider profitability as a way of thinking. Cost containment and reductions are crucial. Demand best pricing from your sources, but also request more cost-effective ways to do business. Play with the math to continually reduce your break-even point, and base all decisions on profit-seeking outcomes. Preach frugality to your staff, with absolute commitment, to ensure each member is responsible and respectful of product and resources.
Keep inventory well-managed, and monitor product testers and samples. Ensure all available hours in the spa are sold to avoid gross profit erosion (wages paid on zero revenue) and that systems are in place to avoid costly errors. Also, shut off lights and machinery when not in use, and don’t leave the tap water running, for example. Every decision makes a difference.
Leslie Lyon is president of Spas2b Inc., a full-service spa business development company based in Ontario, Canada. Involved with the health and beauty industry for more than 30 years, Lyon currently is an educator, consultant, speaker and freelance writer for prominent spa trade publications and websites worldwide.