The number two reason for a spa and or medical spa to lose in the profitability game is not having the appropriate handle on their inventory supplies and costs. Ordering products needs to be a tightly monitored process. Missing critical structures such as buying products at the right price point, having the right software tracking system, placing your own orders, monitoring sales vs. supply costs, and physically counting your products can be disastrous to the bottom line.
When choosing professional products to perform standard services such as facials, body wraps and peels, you have to compare the cost of the required to perform the service with how much you are charging for the service. The product cost for each service should amount to no more than approximately 7% of the service price charged. You may find some services are at a slightly higher cost ratio, and others come in under the seven percent. These slight variations should balance out in the end at the 7% level. If you are operating a medical spa your product mix you should come in no higher than 18%. A practice that is solely focused for example on fillers and Botox and is not doing a healthy business with machines or other treatments or services will run into trouble.
Professional product supplies for performing services would consist of anything used to perform a service. For example: cleansers, masks, moisturizers, cotton, peels, and linen poultices, etc. Professional supplies need to be separated from retail products that are purchased for resale. Request that your distributors or vendors itemize them separately for you if possible.
These expenses if not checked can mount up very quickly. The three main culprits are: the actual cost of the product to perform the service is too high, product waste and inventory control. It does not matter how fantastic a product or line may be if you cannot charge the appropriate price for service based upon cost due to your market limitations. You must find a line that is suitable to maintain a profitable pricing structure.
Inappropriate Cost – Facial $75.00
Cleanser/Toner/Mask/Moisturizer/Eye Cream/Cotton Pads $13.00
Product Cost $13.00 divided by $75.00 Service Cost = 17.3%
The second culprit is technicians using or wasting too much product. When staff is not paying for the product sometimes there is little care in how much they use or how much is rinsed down the drain. Coach your team in the appropriate amounts of product needed for their particular services offerings. Another option is to use products that are formatted for individual services so there cannot be waste.
Inventory Control Professional and Retail Products
Create a monitoring system for professional products where technicians have to turn in completed packaging before they can get new supplies. Appoint an individual to be responsible for inventory control and ordering. This person would do a physical count of inventory each week, note shrinkage (missing product) and create a master order form to track purchases. By all means do not let your sales reps decide what to order for you. They are going to be thinking about their wallets not yours. Look at your previous weeks sales and base your budget on that. For example if your service sales were $2,000 last week your professional product order should be no more $140 for spa supplies.
Your retail products should cost you no more than 56% of their retail price point if you are choosing a branded line. Margins on personalized branded products (your own brand) can be much higher. Both professional and retail products should be entered into an inventory point of sales system that tracks sales, inventory quantity, and you are able to set minimum and maximum order points. You need to have the ability to pull up reports of what has sold, set order budgets, and match to physical counts on your shelves. Count your retail lines weekly. If you have several lines or a large inventory rotate different counts each week. This will also reduce the chance of shrinkage (theft) when individuals see you are counting your products.
Also consider these final points. Retail is like real estate sitting on your shelves. If a product is not turning a minimum of six to eight times a year get rid of it and replace it with something that will sell. Look at carrying fewer lines of products. It will make your inventory counts, easier, product knowledge training a more simplified process, and allow for greater buying power with your vendors. When you use fewer vendors and buy more from them they will pay greater attention to your business. 75% or more of the product in your retail stores should not need a professional recommendation to sell it. A customer should be able to pick it up understand it and make a buying decision.
When you have the right products, have a system for monitoring sales and inventory, and do physical counts you move towards better bottom line profits.
If you need a great software system to manage and grow your business we recommend Mack Software. It provides intuitive software to efficiently run your Day Spa or Medical Spa. www.macksoftware.com