Look Around and WAKE UP! Leases, Payroll Cost, Service Pricing & Growth

Monte Zwang

The past month seemed to be filled with calls from spa owners and physicians who built and opened their businesses somewhere around 2005-2007.  They saw the trend, and drank the Kool-Aid.  Landlords seized the opportunity too, marketed their property as though it was the greatest thing since sliced bread and negotiated hard leases and over-sold the potential of their locations.  So after 4-5 years of not hitting over-optimistic sales projections, the impact of market rent on too large a facility has taken its toll on the operators.  The reality is that rent should be no more than 10-15% of gross sales.  When it is, there isn’t money for other things, like payroll.

Speaking of payroll, we became the indentured servants to our employees.  How often did we hear that the “going rate” for service practitioners was 45 to 60% of service sales? For these commissions we were guaranteed that they would bring their substantial following of clientele streaming through our doors.  Now wait a minute, if we provide an arena to attract this clientele and fill the schedule, aren’t the customers an asset of the business?? Please don’t misunderstand what I’m saying. I feel the employers have the responsibility to provide a phenomenal work environment.  I want my clients to operate a business where people want to work because of the great working conditions.  After all, how we treat our employees will be directly reflected in how our employees treat our guests. But, assets are assets, and who controls them must be clearly defined (at times by contract at others in a personnel manual). So, I ask you, have you adjusted to a fee per service compensations program for service providers or a modified hourly pay?  Straight commissions don’t work, and if you are paying attention to the unemployment numbers around the country and the enrollment in the spa and aesthetic schools, you may find a way to lower your payroll to about 40%.  By the way, did I mention that many of the calls I received last month were from operators who had service payroll between 55-60% of service sales?  These numbers didn’t work then and don’t work in todays market either, especially if we have guests coming in on reduced price services.

We’ve talked a lot about getting wellness involved with your business.  The doctors have jumped on the medical weight loss band wagon in a big way.  Not all of our clientele can afford bariatric weight band surgery or medical HCG programs. Weight loss and weight management is more than nutritional supplements. It is a preventive program that is a marriage of personal training, exercise, nutritional counseling and education. Is it me or have many fitness centers and gyms not taken advantage of developing these synergistic programs? Weight loss and makeovers has a psychological impact as well.  Is this an opportunity to co-market services with a psychologist or mental health professional?

How much is too much? During a recent vacation, I went searching for a massage. I looked around for my options.  There were day spas, sports medicine/physical therapists, chiropractors and hotel spas.  I wanted my 60 minute escape and I was willing to pay for a fair price. What I wasn’t prepared for was the range of prices in a resort market $120, $130, $140, $145, $150, $155 were all offered for a 50 to 60 minute massage. I felt like I was at an auction. Yes, price fixing is illegal and I do not support it.  What I do support is a fair price that provides a good value. What makes one massage worth $120 and another worth $155? How do these prices impact the expectations of the guest and where do we cross the line regarding losing touch with providing a value to our clientele?

Creating a value is something our guests have told us is important by voting with their attendance our businesses.  If they are there because they have been told to go by their physicians, price is less of an impact because chances are the massage therapist is being reimbursed by insurance.  When it is their own dollar, they spend it with a whole lot more discretion. With price come expectations.  My question is how much is too much?  Are we pricing ourselves out of the market? Can we provide what we do at a profit? Not if the major cost component of providing the service (labor) increases every time we increase our prices.  We might want to look at this a bit differently.

We need to be conscious and aware that we are marketing what is perceived to be a luxury at a time when people do not want to spend money on anything that does not provide results and (short or long-term) benefit. Money is tight and we cannot be perceived as trying to squeeze every possible dollar from our clientele.

Interesting issues.  Again, there is no easy answer but there are answers and solutions.  Each of us must find the balance of profitability, morals, guest service and hospitality that works in our particular business situation. Sometimes seeing things through a second set of eyes is helpful. We’re here to talk if you want, and as always, the first call is free. Don’t hesitate to give us at 888.727.5489 or e-mail at Monte@WellnessCapital.com.

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