Spa Business Management

Julie Register at DiscoverSpas thinks the spa industry is stuck in the chasm that separates early adopters (current spa clients) from the mainstream market (everyone else):

Spas need to make the jump:

Read the article, It's Time for The Spa Industry to Cross "The Chasm" and Step into "The Tornado".

What do you think? As industry, are we stuck in the chasm? If so, how do we get to the other side?

Posted in Spa Business Management, General • Comment »

Peggy Wynne Borgman points us to Setting the Table:

Posted in Spa Business Management • Comment »

I once had a girlfriend that I could not commit to. It seems she wanted a long term, stable relationship. Because I was not able to commit to this type of relationship she decided she had to date others. Soon I found myself competing for her affections, and difficult to get a date with. Eventually I found myself alone and looking for another girlfriend!

While relationships with employees are not intimate, the dynamics of the relationship are very similar. If we hire them and do not provide training, then force them to build their own clientèle, and do not offer them a stable form of compensation, then why are we surprised when they end up working for our competition?

It is not about money. My ex-girlfriend ended up marrying someone that made far less money than I did. It is about commitment. People, at least the good ones, will not build relationships with employers (or friends) without a commitment. While money is certainly a component of any employment relationship, commitment on the part of the employer is a much greater component. Sometimes however, there are “gold digger” girlfriends; the same is true in employment situations. In both circumstances, neither makes a good candidate for a relationship!

If you have employees that have an “it’s never enough money” attitude, there is a chance that they may be a bad fit for your employment situation, but a far greater chance that you as an employer have “a fear of commitment”.

Our industry is famous for this phobia. The other industries learned long ago that employees must be nurtured, they must be provided with a stable form of compensation, and that praise, discipline, and benefits are essential parts of any employment relationship. The Spa Industry continues to think of itself as the carefree boyfriend that can attract quality companionship without commitment.

When will it learn that it will be an unfulfilled industry with a long road of disappointments ahead until it decides to change its attitude and GROW UP?

Skip Williams, the author of “The Reluctant Spa Director and the Mission Dream”, is a recognized speaker and author in the spa arena, recently voted “Spa Person of the Year”, with over thirteen (13) years of experience in the Management, Financial Development & Operational fields, in the Spa and Hospitality Industry as Spa Director, Controller and Business project Consultant. He brings his previous years of analytical business experience in a broad variety of manufacturing, retail and service businesses to studying Resort Spas, Day Spas, Medical Spas, Wellness Centers, and Salons: their profitability, how they operate, and what makes them successful. Skip is also Vice President of Resources and Development.

Posted in Resources and Development, Spa Business Management, General • 3 Comments »

We've talked before about how scam artists are targeting spas, and here's a nice reminder from Anita Brown:

You can see where this is going. The money order was later discovered to be a phony, and the spa is out $2,000.

It's also wise to be on the lookout for common credit card frauds.

Posted in Spa Business Management • 4 Comments »

Overview

New Mexico has joined the growing list of states that regulate gift certificates. HB0127 was signed into law by Governor Bill Richardson last month, and takes effect July 1st, 2007.

This law, like many of the others, has the best of intentions but really ends up hurting small businesses. It is my sincerest hope that eventually, our legislators will look past the mentality of "I have no sympathy, because businesses just use your money and hope you will lose the card!" (actual quote from an unnamed NM State Legislator). Without going into a diatribe, some of the high-level problems with this statute are:

• Five (5) year expiration date – For a product- or service-based GC, there is a significant chance the product or service will no longer be available or cost significantly more than what was originally paid for, at five years. Also, the five years is a long time for the small business to keep a liability on the balance sheet.
• No fees, including at time of sale – The language used is imprecise, and can suffer from many interpretations. A conservative – and reasonable – interpretation would be that no fees of any form can be charged against the GC, including but not limited to gross receipts tax, shipping and/or handling charges, surcharges or convenience fees.
• Modifies 7-8A-2 NMSA 1978, Presumption of Abandonment, to the Uniformed Unclaimed Property Act (UUPA) – GC’s are considered abandoned property, if "unclaimed 5 years after December 31st of the year in which the GC was sold." This means GC sellers must turn in the money obtained from GC sales to the Tax and Revenue Department of New Mexico, if not redeemed. This legislation assumes GC revenue is “free money,” and doesn’t appreciate the many costs that go into selling, maintaining and redeeming GC’s: CC transaction fees, handling fees from service providers, and staff time.

There are many ways to help protect consumers, while avoiding hurting small businesses. For example:

• Require the expiration date and key terms and conditions to be prominently displayed on the GC.
• Prohibit expiration dates of less than a year, unless charitable. Five years (or indefinite) is too long.
• Require a phone number and contact information on the GC, where a holder can call to inquire as to the status of the GC.
• Require businesses to honor their GC’s.

New Strategies to Maximize Revenues Given Gift Certificate Laws

I believe this applies to everyone, not just New Mexico spas and salons.

When you sell a GC, it cannot be counted as revenue, since it's actually a liability. The money goes on your balance sheet as a liability, where it stays until one of three things happens: The GC is redeemed, the GC expires or the GC is turned over to the state. The goal here, is to move the GC amount from the balance sheet to your income statement. You can only do this, if your GC is redeemed or you expire the GC.

Therefore, if you're in a state that does NOT regulate GC expiration dates, you benefit by having a reasonable expiration date because it helps you achieve your goal of recognizing that money as income. My recommendation in these jurisdictions: Use a one (1) year expiration date, but if someone walks into your spa or salon with an expired GC, take it! You have an opportunity to obtain a new customer, or at the very least, a happy recipient who may refer new customers to you.

If you're in New Mexico or one of the other states that regulate GC expiration dates, the strategy changes. You can ONLY recognize a GC sale as revenue if the GC is redeemed. You need to think about strategies that cause folks to redeem your GC's. In New Mexico, waiting the five years to expire a GC doesn't really help, since you're now required to send in the funds to the State of New Mexico, given the modification to the UUPA (more on this in an upcoming blog article).

No or long-term expiration dates also create potential issues for service-based GC's. Over time, products or services may no longer be available or increase in price. You are only required to honor the value paid for GC's. Do you need to put the value-paid for a GC on the GC? No. Should you create a policy with respect to long-term, service-based GC's? Yes.

Here are our recommendations:

• Expire your GC's if you can, within the parameters of the law, and always accept your GC's even if expired.
• Work hard to get customers to redeem their GC's:
• Consider promotions for GC holders.
• Use SpaBoom to send out newsletters and reminders to your GC customers.
• If customers lose their GC's, look it up and print a new one. SpaBoom makes this easy, if you use SpaBoom to manage your GC's.
• Over 60% of GC buyers prefer service-based GC's, and those buyers spend more, on average, than dollar-based GC buyers.
• Continue selling service-based GC's, and maintain the personal touch by NOT placing purchased amounts on the face of the GC's.
• Create a policy around service-based GC's, by offering the service for a year and converting the GC to cash-value after a year. In SpaBoom, you can add to the "GC fine print:" under Setup, Basics, with the following language: "Reverts to cash-value after one (1) year."
• To reiterate, I do not believe you should consider including the cash value on all GC's.
• Get ready to start filing reports to the State of New Mexico, and sending in the cash for unredeemed GC's. Many states have some form of UUPA on the books. SpaBoom will be publishing more information about this shortly. Stay tuned.
• When buying or selling a spa or salon, do NOT forget about the GC liability. Simply hanging a sign, "Under New Management," will not prevent customers from demanding redemption of their GC's, and can create serious legal consequences if not handled properly.

In Summary

If you're in New Mexico, you must change the expiration dates of GC's sold on or after July 1st, 2007, to five (5) years or more. Start changing your mindset, and your policies, regarding longer-term GC's. Start thinking about how to get folks to redeem their GC's.

Consult with your tax expert or attorney, to make sure you're doing things properly.

Finally, stay tuned. SpaBoom will be publishing more information about the GC laws in all states, as well as UUPA compliance. We are also thinking about better tools to help you with legal compliance, as well maximizing GC profitability. Do you have suggestions or ideas?

Posted in SpaBoom New Features, Spa Business Management, General, Spa Gift Certificates • 5 Comments »

I'm on the board of directors for the New Mexico Spa Association and at our past few conferences, Massage Envy has been mentioned or brought up. In every conversation there are basically two points of view about Massage Envy. The first relates to some level of anxiety and concern about their business model, and how that might erode already modest (if any) profits. The second relates to how Massage Envy isn't a threat, because they don't want customers who shop by price anyway, and prefer the customers who are paying for the experience.

After obtaining a massage from Massage Envy, I don't believe either position is quite right.

Let me explain.

As a vendor to spas and salons, I do my best to visit and pay for services from those spas and salons who are SpaBoom clients. I'm located in Albuquerque, and have visited quite a few of our clients located here (and there's still many more to visit). Every experience has been enjoyable, but different.

I visited Massage Envy last week, and have to say the experience was also enjoyable — who doesn't like to receive a massage — but different.

What this means is, Massage Envy has successfully created a niche for themselves, by offering low-cost, moderate-quality massage for the non-discriminating client. If a spa has a Massage Envy in its neck of the woods, and they don't have a strong, obvious differentiator, I do believe they will need to compete on price to remain competitive against Massage Envy.

You may disagree with me, but do yourself a favor: Go clandestine and pay the $39 introductory price for a massage at Massage Envy.

Then, go back to your spa. Really think about the type of clients you have, your differentiators, your quality of service, and the availability of potential clients in your region that your differentiators appeal to. Do you have a winning mix? If not, reformulate. Work harder at marketing. Provide incentives for client referrals.

Make it clear what your differentiators are. This is tough. Unlike the car business, your prospects cannot "kick the tires" of a massage. So, if your differentiator is experiential based, come up with methods that allow potential customers to experience your difference. Here's a suggestion: Have a "free massage" day, once a month or once a quarter. Or, make some PR for yourself, and invite the local police and fire departments to come in for a free massage.

Don't suffer "Massage Envy envy." Don't become anxious and give up. But… don't sit on your laurels and pretend that everything is the same, either.

Posted in Spa Marketing, Spa Business Management, General • 207 Comments »

Art and Science!

I love to talk about the blend of "Art" and "Science" and how vital it is in our daily life and in our business. Almost everything starts as art but doesn't become marketable until someone turns it into a science. An example of this is writing a book, which most would agree is an art, but publishing it and making it available to the public is a science. Writing a song, creating a movie, or inventing something is an art but making them a saleable product is a science.

When we make a science out of the production of the art we also make it simpler and more efficient to reproduce that art. When writing a book, if we force ourselves to sit down at a certain time of the day, work for a specified period, and utilize tools such as computers, spell checkers, and printers to create our art, doing these things will turn our creative process into consistently reproducible results.

A Spa is full of creativity; many would say that we are artists when we perform our services; however it is the conversion of that Art into Science that will truly give us our success in the Marketplace. This is why turning all the many things that we do each day from answering the phones, to performing the services, to cleaning the facility, to closing the sale into a logical process is so important.

We do not have a true business and we can not achieve brand building without consistency in the way we deliver our products and services. This is achieved through the creation of a process and then working that process until results are achieved or adjustments become apparent.

How do we achieve this critical conversion from Art to Science? Through the creation of systems, operational procedures (see our Ready-to-Use Tools) and through the commitment to continuous daily improvement in our businesses. We should always be seeking to do it better, deliver it more efficiently today than we did yesterday, and demanding the consistency from out employees that our business and our clients depend on.

Skip Williams, the author of “The Reluctant Spa Director and the Mission Dream”, is a recognized speaker and author in the spa arena, recently voted “Spa Person of the Year”, with over thirteen (13) years of experience in the Management, Financial Development & Operational fields, in the Spa and Hospitality Industry as Spa Director, Controller and Business project Consultant. He brings his previous years of analytical business experience in a broad variety of manufacturing, retail and service businesses to studying Resort Spas, Day Spas, Medical Spas, Wellness Centers, and Salons: their profitability, how they operate, and what makes them successful. Skip is also Vice President of Resources and Development.

Posted in Resources and Development, Spa Business Management, General • Comment »

Understanding the Differences Between a Day Spa and a Resort Spa

Sometimes we get caught up in the fact that we are all part of one big industry performing many of the same tasks and trying to do the best that we can within a new and burgeoning marketplace. Sometimes we are so close to our day to day operations that we fail to see the forest through the trees. It is easy to draw similarities between Day Spas and Resort Spas, because we do the same type of work. What is harder to see is how different we are through our Clients’/Guests’ eyes, and how they have quite different expectations from each type of Spa. As a Consultant, I find that often my Clients do not always have a clear picture of these differences, and consequently end up offering the wrong menu of services to their Client/Guest or worse yet, building the wrong facility.

For example: You are a savvy traveler; you have been to some of the finest Resorts in the world. You sometimes wish that you had such a Spa in your backyard and you figure that others wish for the same thing. So you plan to build a Day Spa that is reminiscent of these fine Resort Spas that you have been to. However, if you understood the dynamics of why Day Spas are different and what makes them successful, you wouldn't be so confident in your decision to build this Spa.

In a Resort Spa we call our customers “Guests” in a Day Spa we call them “Clients”, that says a lot about the difference doesn’t it? Resorts are successful when they sell a “Spa Package” because they need to sell as much as they can during the Guest’s short stay, while Day Spas need to sell in “Series” because they need the Client to come back time after time, to create a desired habit, and the Day Spa makes its money over months and years of Client loyalty. Because Resort Spa Guests are “getting away” often for romantic or family vacations, they go to the Spa with someone else more often than when they go to a Day Spa. They are also more “experimental” and looking for a Spa visit that is more “experiential”.

When they visit a Day Spa it is usually alone and looking for results, be it beauty or wellness, it is more about results than the experience, it is usually for maintenance, not about relaxation or pampering. That is not to say that relaxation and pampering can’t happen in a Day Spa, or that results can’t happen in a Resort Spa. However those are not the core reasons for the Spa Goers’ visit, it is a bonus they may receive.

I like to think of the Day Spa like a good Café, a place you eat at weekly. You go there because you are hungry, they serve good food, and they deliver what you would expect. On the other hand, the Resort Spa is like a Fine Dining restaurant, you don’t go there because you are hungry, you go there for the experience, and usually only on special occasions.

The Café counts on loyalty and many future return visits, it could not afford to offer high end Fine Dining service or experience, and you could not afford it on a regular basis if they provided it. So it would be a mistake for a Café to try to emulate a Fine Dining restaurant, in much the same way it would be a mistake for a Day Spa to emulate either the facility or amenities of a Resort Spa as well as its menu of services.

I know we always talk about “the customer experience” and it is important indeed, however, there is a big difference in selling “an experience” vs. selling “results”. People will buy an experience once, but it becomes harder and harder to sell the same experience over and over to the same neighborhood, and if you try you will only sell Spa services on a special occasions.

A Resort can sell “the experience” because they know that statistics say that only a very low percentage of Guests will ever return (even if the experience was perfect), and almost none will return within a 12 month period. Conversely, a Day Spa would starve if most of its Clients never returned or only returned once a year.

So the difference between Resort and Day Spas from the consumers point of view (even if it is more intuitive than analytical) is; “give me a wide variety of services that focus less on results and more on ‘the experience’ when I am away from home, and give me a very narrow focus of specialties that can deliver incredible results each time when I am at home.”

Day Spas should NOT try to be everything to everybody, the most successful ones are the ones that focus on one or two specialties and become better at them than anyone else in town, that is how they build a reputation in their community, not by being a “one stop shop”.

Square footage and the use of the space are important in both types of Spas. It goes without saying that a common mistake for a Spa is having too much amenity space and not enough revenue space. That mistake is even more critical in a Day Spa environment where the price points are lower and the rent and advertising expenses (unlike a Resort Spa) need to be factored in. It is for that reason that “waterfall Jacuzzis”, Steam, Sauna, and other amenities that take copious space are often inadvisable in a Day Spa environment, while completely acceptable at a Resort Spa.

Spa Management for Resort Spas have to be concerned with the overall Guest Experience even outside the Spa, as the goal is just as much about “putting heads on beds” as it is about making budget in the Spa.

To conclude, understand what you are and who your market is. Specialize if you’re a Day Spa, have a wide offering if you’re a Resort. Keep the amenities to a minimum when you’re a Day Spa, and don’t get carried away with amenities when you’re a Resort Spa. Understand the goals of your business and don’t try to be something you are not (or should not) be. Have a focused niche when you’re a Day Spa, have a broad menu of services when you’re a Resort Spa. “Results” is the watch word for Day Spas, “Experience” is the goal for Resorts.

I hope that this little article will help you to think through what is appropriate for your Spa. It isn’t always easy to stay focused on “The Mission”, it is easy to try to be more than we are, but understanding your Guests’/Clients’ needs as well as your own strengths and weaknesses are paramount in making your Spa a success.

Skip Williams, the author of “The Reluctant Spa Director and the Mission Dream”, is a recognized speaker and author in the spa arena, recently voted “Spa Person of the Year”, with over thirteen (13) years of experience in the Management, Financial Development & Operational fields, in the Spa and Hospitality Industry as Spa Director, Controller and Business project Consultant. He brings his previous years of analytical business experience in a broad variety of manufacturing, retail and service businesses to studying Resort Spas, Day Spas, Medical Spas, Wellness Centers, and Salons: their profitability, how they operate, and what makes them successful. Skip is also Vice President of Resources and Development.

Posted in Spa Marketing, Spa Business Management • 4 Comments »

Developing a Winning Management Team: The key to a More Productive and Profitable Spa

Have you run the gamut on finding new ways to keep a handle on your business, only to be frustrated? Are you wearing all the hats and feel like you’re going crazy? Have you tried hiring a manager, coordinator or director and are disappointed by the outcome?

I know the feeling. After owning a salon and spa myself, I can relate. The demands on spa owners in this ever changing society are more intricate than ever. No longer is it possible for one person to effectively handle all the functions of a successful salon or spa business.

Well, imagine a highly motivated team who shares in your company vision, goals and objectives, who is committed to your organizational success! A team working together who is highly motivated to achieve your company's objectives! It all begins with a Management Team. A Management Team is the catalyst for your future business' success.

Your company is a reflection of those who manage and over see it. A Management Team provides your salon or spa with the developmental direction necessary to keep pace with the changing competition, environment and your organization's growth. Organizations are more effective when teams of people, with the right mix of skills, work together to achieve a common goal or set of goals. This team approach can help companies overcome the common stumbling blocks of misaligned goals, slow or no growth and lack of profitability.

Running a successful company in a Management Team structure is hardly a new concept and has been an industry standard for decades in large corporations. If you take a look at any Fortune 500 company you will see this system of duty distribution at work.

The fundamentals of building a successful salon or spa must address the five functions of a customer service business: Marketing, Finance, Education, Sales & Customer Service, and Human Resources. Making decisions by viewing topics from five different vantage points simultaneously increases the chances of making correct decisions.

The purpose of your Management Team is to facilitate on your vision. The owner’s job is to show them your destination; where you have been, where you think you are now and where you want to go. When everyone has the same goal (vision) and everyone has their “area of responsibility”, then a real sense of team is established. In a Management Team one person is responsible for a specific function of the business and “represents” the people who are affected by their area. The concept of “areas of responsibilities” is important because one person is not expected to have the know-how to carry out all the functions on their own. Instead, they have an innate interest in their area, and are committed to the company’s success and are better equipped to get things accomplished. Each team member needs to be exceptional at what they do, but not necessarily great at everything.

In well-run organizations, managers must understand that they are a piece of a puzzle that helps to complete a big picture. Only when people work together, seamlessly, can there be hope of accomplishing the company’s vision.

In short, a successful salon/spa is seldom run by one individual

To read more about this topic, please reference the complete article!

Ana Loiselle, President of the Secret Salon and Spa by Design in Royal Oak, Michigan. A former salon and spa owner, Ms. Loiselle can be reached at 248/546-4312 or at www.thesecretconsultant.com.

Posted in the SECRET, Spa Business Management, General • 7 Comments »

Today, we make the integration of two great spa software companies a reality! SpaBoom now sends your Instant Gift Certificate sales transactions directly into your Harms Millennium software, using a special GC-SDK created by Harms!

How does this work? Assuming all of the requirements are met, and you perform the setup steps, SpaBoom will send all the Instant GC information to your Millennium system.

One big caveat is CC information, as opposed to GC information. Due to onerous CC rules by the credit card companies, SpaBoom does NOT send CC information into Millennium. This means you cannot use Millennium to process the CC's obtained from your SpaBoom sales. SpaBoom has a number of CC processing options available. Please contact SpaBoom for assistance or questions regarding CC options.

Today, we enter beta testing, with the intent to release this to all our customers within two or three weeks.

Please be sure to tell us if you're a Harms Millennium customer, and would like SpaBoom to automatically send your Instant Gift Certificate sales into Millennium!

Posted in Millennium by Harms, SpaBoom New Features, Spa Business Management, General, Spa Gift Certificates • 8 Comments »

It's tough to improve something in your business if you can't measure it and see your progress. But here's the rub: you need to be very careful what you choose to measure.

Let's say that you've grown your spa to multiple locations, or that your front desk is really bustling, and so you decide to implement a call center. That's a bit of fancy name, it could just be one person in a closed office that answers incoming calls. But let's use "call center" as way to talk about front desk staff dedicated to incoming calls. There's some great reasons to have a call center, like allowing your front desk that's at the front desk to focus on the client standing in front of them.

Now, you've got this easily measurable separate cost for the call center. As you grow, so does your call center, and you want to keep the costs down. A common measurement in call centers is the amount of time spent on each call. By reducing the call time, you can handle more calls with the same staff, and keep your costs down. Just by measuring call time and discussing it, you'll encourage your call center manager to focus on reducing call time, even if inadvertently.

But the goal isn't to reduce your call center cost, but to increase your profits. An extra 5 minutes on the phone can get that prospective client to book an appointment, or upgrade from your basic facial to your much more profitable, full-blown service. What you want to measure is the additional revenue minus the additional expense of having your call center. Make that the number you discuss and build incentives around, and that will drive the behavior that you really want.

Posted in Spa Business Management • Comment »

PROFITS ARE THE KEY TO ANY BUSINESS. MAKING more money is what everyone wants, yet in the spa industry, it's becoming more and more difficult to show a profit. Owners and managers need to learn to grow their businesses with true measurements and to protect their bottom lines, but many never address their numbers and profitability until it's too late. It can be stressful trying to speculate what the future holds for your own spa if all you have is wishful thinking. All too often, spa owners perform facials just to make ends meet.

But understanding the financial aspects of running a business can be a challenge if you've never taken an accounting or economics course; certainly, no one spent time during their esthetics training on spa finance. With little financial back ground, it's no surprise that spa owners are wavering. The good news is that growing and protecting the profitability of your business isn't an impossible undertaking—It just takes the proper know-how.

You must focus on two major areas for growth and profitability: one, establishing a true form of measurement to project, track and monitor the growth (or lack thereof) in your business; and two, gaining a complete understanding of how to protect the cash you already have coming in.

Keys to Success

Let's begin by tracking five key areas; good numbers in the following components have proven to be successful indicators of increasing sales revenue.

New clients. Knowing how many new clients visit your spa each month allows you to project your sales, know when to hire new employees and gauge the success of your marketing dollar investments.

Client retention. Too few businesses pay enough attention to client retention. The ability to keep clients fuels your spa's growth and should be the focus of your energy. For tracking purposes, a retained client is any new client returning for a second, and visit within 90 days. Setting a retention goal of 50% is an excellent place to start; if you aren't able to meet this goal, you must consider why—there may be a customer service or technical training problem. The key to retention is education. I can't express enough the importance of keeping retention high—by retaining 50% of your new clients each year, you can expect a 15% growth just from this area of your business. If you're serious about growing your business you need to find a way to reward your staff for retention.

Client frequency. Examining the frequency of your clients' yearly visits on a month-by-month basis will help you better project future sales and understand the flow of your retained client base. When the economy is bad in your area it isn't uncommon to watch the yearly frequency rate drop. However, you can use this opportunity to rework your marketing strategy to prepare for slower months. When you can be flexible with a changing economy, low frequency numbers will have less of an impact on your spa's overall profitability.

Average ticket sale. The average ticket sale is the combined sale total of products and services a client has paid, taken on an average. Most owners believe that raising the average ticket sale means raising prices. But the easiest way to increase the average sale is to add services or retail products to a client's ticket. Every spa should have in place a unique approach to adding on services or retail products during a scheduled service.

Retail sales. If you haven't heard it often enough in the spa industry by now, retail sales must be the center of your attention because retail sales and retention go hand and hand. Here are some statistics gathered by Festoon Salon (www.festoonsalon.com) in Berkeley, California, that prove the point:

• If a client purchases two retail products, there's a 60% chance of her return.
• If a client purchases one retail product, there's a 30% chance of her return.
• If a client purchases no retail products, there's a 10% chance of her return.

Another important fact in retail sales is that you'll net approximately a 10% profit from services, but retail sales can yield up to a 40% net profit.

When I think of profitability in the spa industry, one name comes to mind: Douglas J Salon and Spa, anchored in Okemos, Michigan. Brothers Scott and TJ Weaver own several locations throughout the state, including two Aveda Concept Schools, two Exchange Salons for Advanced Education and two new schools scheduled to open in fall 2006 and spring 2007. The Weaver brothers have a mindful approach to profitability: "If you're experiencing low retention, then you'll probably find that you have low retail sales as well," says TJ. "Knowing and understanding the average ticket sale is the key to getting them to spend more," adds Scott. "You know your marketing dollars are working because they're in your spa; the next step is discovering how to drive the sale forward."

If you're experiencing low retention, then you'll probably find that you have low retail sales as well.

Gross and Net

Once you have a system in place for increasing sales, how do you protect your cash flow? To understand the process, you must know some accounting basics.

When looking at your spa's profit-and-loss statement, the two most important factors are your gross profit and your net profit. To find your spa's gross profit, take your total retail and service sales and subtract variable costs, or cost of goods sold (e.g., payroll, payroll taxes, backbar items and products for resale). These costs are considered variable because they vary with the amount of business you do. What's left is your gross profit. Your gross profit margin (the percentage of your gross profit to total sales) is a very important financial indicator. If your spa isn't delivering a 45% to 50% gross profit margin, you'll have a hard time managing any bottom-line profitability.

The biggest key to an outstanding gross profit margin is a sensible compensation plan.

The biggest key to an outstanding gross profit margin is a sensible compensation plan. "Salon owners and managers need to be sure they're fair with their employees, yet be careful not to overcompensate. A spa's compensation plan is usually its largest expense," says Scott. If your spa's gross profits are below 45%, you should consider reworking your compensation plan.

The second figure to calculate is your net profit, or bottom-line profit. To do this, take your gross profit and subtract any fixed expenses such as rent, utilities, advertising and any other costs not associated with service payroll and products. These expenses are considered fixed because, for the most part, they stay the same each month. After you've subtracted your fixed expenses, the amount that's left is your net profit—what you'll take home after all of the bills are paid. A good net profit can mean the differ¬ence between a successful future and just getting by.

There are many forces at work to endanger your thin slice of the profitability pie. I've found that most salons and spas are lucky if they yield a 3% net profit. When I work with my clients, however, I budget them for 15%. The key word here is "budget"—to achieve a healthy profit, creative budgeting must be in place and a limit must be put on spending.

Now that you have an under-standing of how to increase sales and how your gross and net profits are derived, you can begin using this knowledge to your advantage. Success doesn't happen by acci¬dent; it's a result of careful plan¬ning. When you put the correct chain of events into motion, you'll find that purposeful action always yields successful results.

Ana Loiselle, President of the Secret Salon and Spa by Design in Royal Oak, Michigan. A former salon and spa owner, Ms. Loiselle can be reached at 248/546-4312 or at www.thesecretconsultant.com.

Posted in the SECRET, Spa Marketing, Spa Business Management • Comment »

Here's an easy tip for increasing your holiday gift certificate sales: Make sure your voicemail greeting mentions that more information is available on your website, and that gift certificates can be emailed or printed from home.

As this holiday season swings into full gear, you don't want to lose sales because there are more incoming calls than you have incoming lines or people to answer your phone. Also, many last minute buyers will try to call after hours.

One of the best voicemail greetings I've heard lately, is from Serenity Now! Massage Therapy. They update their voicemail greeting early each morning, before they open, and quickly address the most common issues that generate phone calls.

Jessica at Serenity Now! knows how to sell. Take a look at her website, and notice how easy it is to buy a gift certificate.

Posted in Spa Marketing, Spa Business Management, General, Spa Gift Certificates • Comment »

Starting with letters and then following technology to faxes and now, email, the infamous Nigerian Scam just keeps going. Variations are popular, too, and a recent post on BodyworkOnline highlight a couple of scams specifically targeting massage therapists and gift certificates.

The first takes direct inspiration from the Nigerian scam emails:

It then goes on to ask for bank account information.

The second example was posted by Brandy at karmassage, a simple email query for GC information:

She responded asking for more specifics, writing:

Great advice! Of course, real clients will ask for GC information via email. But it doesn't hurt to be careful. And be on the watch for Nigerians dressed as strange-sounding Londoners.

Posted in Spa Business Management • Comment »

Gift cards and gift certificates are the new "in" gift, expected to go from 14% of holiday spending last year to 17% this year. But, thanks in large part to onerous fees imposed by banks for Visa and MasterCard gift cards, a backlash is brewing against gift cards with harsh rules and fees. An article over the weekend in the Wall Street Journal, The Gift That Keeps On Taking, is a good example of the kind of attention this issue is getting.

The media is teaching consumers to be more careful in their selection of gift cards and gift certificates — creating an opportunity for your spa to stand out from the gift card competition.

A gift certificate from your spa doesn't have those onerous upfront fees or ongoing service fees, not too mention being a very personal and thoughtful gift.

As another example, California no longer allows expiration dates on gift certificates from a single retailer, but does for gift cards like those from banks that can be used at multiple retailers. Since you shouldn't be using an expiration date in California anyway, use it to your advantage! Promote that your gift certificates don't have an expiration date.

Consumer's Union has a nice summary of gift card laws that covers most states. To get the full scoop, you'll need to find the specifics from your state Attorney General's office. Consider getting out in front of consumer protection laws on gift certificates, and turn it into a competitive advantage for your spa.

Posted in Spa Marketing, Spa Business Management, Spa Gift Certificates • Comment »

Spa packages can be hard enough on your profits; adding a discount makes it worse! How do you escape this? By creating your packages ONLY from specially named versions of your regular services! You’re charging more for them but they can’t be found individually priced on your spa menu. Pay commissions at the standard prices!

It really works and you finally make money on packages!

Posted in Preston Professionals, Spa Business Management • 5 Comments »

Problem: You offer too many packages and some that are excessively long.

• Can be costly to track and train employees to perform
• Are often complicated and time-consuming to schedule
• They expose your business to big business losses when cancelled
• They decrease your retail sales

Solution: Reduce your packages to 3 in total and most less than 4 hours in length.

• Always include a strong retail producing service (such as a facial) at the end of the package to increase the chance of purchases.
• This plan opens more of your prime time appointments for established clients — the most loyal, referral active and retail buying clients you already have!

Posted in Preston Professionals, Spa Business Management • Comment »

DiscoverSpas points us to the ISPA 2006 Consumer Trends Report — nothing shocking, but some good stats on the industry and a few interesting tidbits:

• 31% of all US spa goers are men, barely inching up from their 2003 study at 29%
• The average spa goer has visited a Day Spa 2-3 times in the past 12 months
• 57 million US adults have been to a spa in their lifetimes and 32.2 million in the last year
• Stress reduction is the biggest driver for spa visits

The study points out one trend I particularly like, which SpaBoom spas already know:

Posted in Spa Business Management • Comment »

Ah, credit cards. Most of us love 'em as a consumer, and hate 'em as a merchant.

Whether doing business on the Internet or not, credit card fraud is a problem for all businesses, and can impact you no matter how careful you are.

Here are two actual instances of credit card fraud we've heard of over the past few months. Could you find yourself in a similar situation? We'll give you some helpful tips to help reduce your exposure, after these examples.

The Boyfriend's Credit Card

One spa had a regular. For a year, she came in once a month, usually lavishing herself with exotic services and making regular product purchases. One time, she started using her boyfriend's credit card to make her purchases. The spa reluctantly accepted the new credit card — because after all, she was a regular — and they even called the boyfriend who gave them his verbal approval to use the card. This happened for several more months, with some months raking up several hundred dollars of product sales. After 5 months of this, the regular stopped showing up. Soon after, they received chargebacks for all the previous purchases on the boyfriend’s credit card. Sure enough, the boyfriend denied he had ever given permission for the regular to use the card.

The Overseas Purchase

Another spa received a phone call for an over-the-phone purchase of product. Lucky them — it was an order for almost $5,000 worth of product. There was just one catch: The caller was overseas. Nigeria to be specific. He spoke perfect English, and explained that the reason he’s ordering her product, is because he’s an American who can’t get decent products in Nigeria. So, he wanted to order in bulk to last awhile. He even had an American billing address “to prove he’s an American.” The spa accepted the order and shipped the product, only to learn later that it was a fraudulent order using a stolen credit card. The product is hung up in Nigeria, and the spa is out the cost of the product.

These two examples highlight how even discriminating merchants can become the victim of credit card fraud or abuse. Remember the following:

• Consumers can dispute credit card charges (called a chargeback) up to 6 months after their purchase.
• Most banks will immediately take the funds out of your account and charge you a fee for every chargeback, and some will even charge you additional fees to dispute the chargeback.
• It is difficult to dispute a chargeback, and winning depends on a number of factors (Did you imprint or swipe the card? Can you prove it was the card owner that presented the card? Can you prove they received the product or service promised and of the quality agreed to?)

Eventually, you may get caught up in credit card fraud. Don’t get angry or upset. It's the cost of doing business. However, please consider following these suggestions to reduce your exposure to credit card fraud:

• Always ask for identification when accepting credit cards. Make sure the picture, names and signatures match.
• Require people to use their own credit cards (i.e. don’t let someone borrow another’s credit card). Remember the Boyfriend’s Credit Card example.
• Don’t ship product out of the US.
• Don’t ship product to anywhere but the billing address. If the customer really needs the product to be shipped elsewhere, ask questions. Does the other address make sense? I.e. a work address located in another state (doesn’t make sense). If it’s a gift for another, is the order abnormally large? If so, have the customer fax in an order validation, with a signature and copy of their credit card and driver’s license.
• If anything appears out of the ordinary, don’t be afraid to call the issuing bank for the credit card (phone number is always listed on the card), to make sure the credit card is valid and circumstances are appropriate.

What other tips or suggestions do you have to reduce credit card fraud?

Posted in Spa Business Management, General • 6 Comments »

In American Spa magazine, Peggy Wynne Borman asks a good question:

We tend to recommend paring down your services menu for Instant Gift Certificates for exactly this reason: too much choice can make it very difficult to choose. Anecdotally, a very long services menu appears to reduce online sales.

As Peggy's article on The Simple Life points out, simplifying your services menu can also streamline your operations and increase your profits.

Posted in Spa Business Management • 1 Comment »