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Sell, Grow and Profit: Benchmarks for Sustaining Your Business

By Frederic Holzberger
Posted: August 15, 2007, from the August 2007 issue of Skin Inc. magazine.

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Retain and expand
      Your growth and profitability benchmarks will depend greatly on your retention rate and retention benchmarks will vary depending on your business model. If you operate a day spa, where people come for service and leave, you need to maintain a 70% retention rate. A destination spa’s rate is much lower because it has numerous guests arriving every day. No matter your location—even if it is a convention capital such as Las Vegas or Orlando—it is important for service providers to work on the local population, hotel concierges and local business people to foster referrals. The key to retention with medical spas is to build a clientele of postoperative patients who you can continue to provide services to long after their surgical procedure. Consider partnering with the local medical spa so that you can both mutually benefit from this booming sector of the skin care industry.
      Medical partnerships. Keep abreast of what medical spa services are offered, as well as what physicians are performing on an outpatient basis. It will keep you and your staff informed and up-to-date in the industry, and allow for the recommendation of new treatments and services to your clients. 
     Taking the partnership model a step further, a growing trend is to create a room for a physician on the spa’s premises for consultations with clients. The details can be worked out so that it is economically feasible. A great way to build both businesses is to partner in hosting workshops and events.

      Mass or class? How you market your spa is your strategic point of difference to benchmark growth. Today, every product and service is either mass or class. One example of a mass retailer is Procter & Gamble. It is legendary in corporate America and is great to its people. The main focus of mass market retailing is to be the most economical and affordable supplier of product for the consumer. Its distribution channels stretch far and wide, with brands that are sold in Kmart, Wal-Mart, Target and others.
 On the other side of the coin, Estée Lauder is an example of a class retailer. Its brands can be found at Neiman Marcus, Saks Fifth Avenue, Macy’s and Nordstrom. Class is more service-oriented and comes with team members who devote time, energy and effort to selling a whole range of products that offers many options to the consumer.
      What are the expectations of clients in these two environments? Mass is inexpensive, does not provide value-added services and is considered to provide more standard, basic items. With class, consumers expect options: think of the fragrance area of your favorite department store. In the spa business, clients want to choose from a number of different facials, manicures, body treatments and massages. Consider studying your menu of services and service systems to determine where you can create exceptional points of difference in order to maintain or elevate your desired level of class. Make sure your current and future staff members understand your service-level expectations.

      Technology. Technology is also playing an increasingly important role in service industries as clients prove over and over again that they don’t have time to wait. You have to continually update your technological systems in order to provide world-class service. Overhaul your booking system because no one wants to be left on hold anymore, and make peoples’ lives easier by offering online booking. Text message or e-mail appointment confirmations, and stay on top of the latest technologies; improvements are being made every day. Consider asking your clients how they like to be contacted: via mail, e-mail, cell phone, home phone or text messaging, and if they’d be interested in learning about services that become available before or after their scheduled appointment.  Along the same lines, remember to continually upgrade and change your Web site so that viewers enjoy visiting it more and more. Consider trading services with a client who has Web design experience to keep your site updated. Daily, weekly and monthly maintenance is extremely vital to the success of a great Web site.

The profit
      The No. 1 mistake made by many spas is lack of capital. Cash flow is so important because, as you run into hurdles—and all businesses do—you must be able to sustain your way through them. Proper financing up front is vitally important so that you can have the cash on hand to infuse into your business as needed. Consider approaching your bank for a loan or enlisting a business partner who is willing to provide substantial capital as needed.
      Managing hard times. When cash flow becomes a problem, one of the first things management does is cut corners—and this is the worst thing that can happen. One of the first line items to go typically is advertising and marketing. Next in line is personnel, and finally services begin to be removed, along with anything management deems unnecessary. Owners should be very careful about cutting expenses that might further damage the business and lessen existing clients’ perception of the spa’s value.
      The first thing you should do when in financial straits is seek professional advice. A great and inexpensive source is your local chamber of commerce. Usually, many retired professionals donate their services, expertise and skills to help companies in need. Consider tapping into an organization, such as the International Spa Association (ISPA), which is a recognized worldwide authority of the spa industry. It has many resources available to assist the struggling spa owner.

      Salaries and rent. Two of the largest expenses incurred by any spa are salaries and rent, and they are the most important lines on your profit-and-loss statement on which to focus. Make sure you remain within the industry benchmarks. Along with ISPA, equipment and product manufacturers should be able to help provide you with target percentages and industry standards. If your numbers do not align with your peers’, a ripple effect will occur throughout your organization making it practically impossible to be profitable.