Are you dialed into the cent on your expenses or
are you ballparking the cost of operating your spa or salon?
How do you know what your expenses are to operate your spa or salon? How much does each of your services cost to provide?
You may be guesstimating or you may not have any idea at all. However, you do need to understand the financial truth of increased cost of supplies for high volume promotions or discount you may offering that has decreased revenue and the effects on your bottom line. This can be felt keenly if you are a small salon or spa. Also, you may be just starting out and trying to determine where you fit in your local or regional market in terms of service pricing. It is key to understanding the expense side of things first and foremost. It has been said by many, but bears repeating: The best way to make more money is to spend less.
There are a lot of obvious parts of the expense and some not so obvious. Once you have a good idea of the exact cost you can begin to dial into more detail and really understand the cost and determine how or where you can cut the expenses. For the sake of this example, I will list the most common expenses below:
• Overhead- rent and utilities
• Service Provider payroll
• Cleaning services- in-house or contracted
• Spa or Salon Equipment- newly purchased and maintenance of existing equipment
• Amenities of locker room/relaxation areas
• Professional products
• Sundry items
• Reception staff payroll
For this example let’s say you rent and facility overhead is $4500/month for your 3000 sq. ft. spa. Add to that the additional $600 in utilities and maintenance of your facility each month. Let’s speculate your average volume of service at 400/month. This means the built-in cost is $12.75/service, not factoring in the retail component which in some cases makes up the entire rent if you have a stellar team!!
The highest expense next to overhead is our service provider payroll of our businesses. That payroll cost ranges anywhere from 30-50% of the service provided. On the average $100, 50-minute Swedish massage, you will pay anywhere from $30-50 in payroll for the service provider.
Next, professional supplies, when you consider how many massages you get out of each gallon of oil or lotion: you can know the exact cost of professional supplies for that service. It is as simple as checking the date of purchase/circulation of that gallon of oil and then reviewing your schedule to determine how many massages were performed during that time. Another way you can figure this out is to check your current inventory compared to your last purchases and then calculate the number of massages your spa has performed during that time. Say you spent $100 on 3 gallons of oil/lotion in the month of April and you performed 100 massages during that month. The cost of massage professional products= $1.00.
Your linen costs are the same. If you send your laundry out, it is usually done by article or weight. You can average 1-2 days of laundry and then calculate the number of services performed during that time to give you the average cost per service. Therefore, if your laundry cost for a weekend’s worth of linens if $300 and you performed 150 services during those two days you can safely calculate that your average service/linen cost is $2 per service. This not only helps you to monitor the regular expenses, but it is important information if you are planning to expand or looking for a way to cut down the cost of doing business.
The same things can be calculated for your locker room amenities based on the overall purchases and the number of total guests serviced in the spa salon. You spent $600 in toilet paper, tissue, teas, fruit, magazines and wine to service the 400 guests you saw last month. For this conversation, let’s say the average per guests is $1.50. Not every client will use every amenity item you offer, but the offering is the extra touch that sets you apart from your competition. In order to do this well and without breaking the bank you have to know where and how you spend your operating money.
If you handle everything in-house and your average support payroll is $3000 per month to service those 400 guests, from reservations to reception and checkout. You can calculate your per service cost for support is $7.50. So now we can quickly add up just how much the cost of doing your average $100
50-minute Swedish massage service is:
Service Provider payroll-$30
Total operations cost of doing a $100 50 minute Swedish massage= $54.75 and if
you pay your therapist higher pay, the expense can increase to $74.75/massage
At this calculation you think, “YES, a profit of $45.25 or even $25.25 per massage. This is great!” Then, there are insurance expenses and administrative fees like payroll service or time required doing payroll that dip into that profit margin and the decrease in profit if you offer any discounts etc. We all know that massage is the most popular and the most profitable service on the spa menu, along with haircutting in the salon. So, keep in mind the expense/profit ratio varies with each service depending on the supplies and equipment needed. That is why the cost of the services should be analyzed along with cutting unnecessary expenses.
Keep this helpful information in mind while you forecast the monthly expenses you have and the growth you will need in revenue and volume for your business to achieve your financial objectives and reach your goals without guesswork.
Good luck and happy expense managing!