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Resources & Development - Reducing Labor Costs

 

Dermascope May00 1.jpg (380548 bytes)

Reducing Labor Costs of Treatments

By Skip Williams

When I think about this months feature topic "Machines" I think about "Labor Savings Devices". The subject of "Saving Labor" and "Maximizing Profit" is one that I spend most of my time thinking, researching, and implementing.

At the risk of repeating my other writings… Managing the cost of labor should be 100 times more important than any other job of an Owner or Manager. No other expense will dictate the failure or success of a Spa or Salon as the cost of labor.

If you are still unconvinced please consider the following example (you may change the numbers to conform to your situation):

If you could reduce the average cost of each hour of treatment by $8, it might look something like this:

  • Treatments Rooms/Chairs                 =           10
  • Treatments per Room per Day           x              4
  •                                                         ---------------
  • Total Treatments per Day                 =            40
  • Days per Year                                  x         365
  •                                                         ---------------
  • Total Treatments per Year                =       14,600
  • Savings per Treatment                     x             $8
  •                                                         ---------------
  • Total Savings per Year                     =     $116,800

With this type of savings you could afford to overpay rent by a couple of thousand a month, or pay double your insurance premium and still be way ahead of the game.

The question then becomes; "How do I control and better manage this run-away expense?"

In the past I have talked about changing pay systems (Dermascope Nov/Dec 1999), and I still believe this is a very viable way to achieve major savings over the long run. Today however I would like to discuss two other pieces of the labor saving puzzle, "Efficiency" and "Automation".

Efficiency

More cost-effective use of existing labor will result in more profit.

Some Spa/Salon treatments such as Massages and Facials are usually sold by length of time and working more efficiently will not help increase profit. Others however, are sold by result, for example; waxing, derma-peels, hair color, and nails. Whenever we can perform these types of treatments in less time we can increase revenue without adding square footage, without adding personnel and thereby maximize our existing labor.

This seems pretty basic, yet I see many people balk at the price of the new piece of equipment they need. They say that they can not afford the $10,000 or $20,000, so they continue to spend many thousands more in labor than they have to.

The question is not "can I afford a piece of equipment?" the question should be "can I afford NOT to have a particular piece of equipment?" Let us look at an example to prove the point.

Say for example you wanted to do some new Hair/Aesthetic/Body process in your Spa/Salon and after your do your research you find two machines that will do the job.

  • Machine "A" costs $10,000 and can do the job in 90 minutes.
  • Machine "B" costs $20,000 and can do the job in 60 minutes.

Here is how the Math works (again please feel free to change the numbers to fit your situation):

  • Machine "A" Cost         = $10,000
  • Machine "B" Cost         = $20,000
  •                                         ----------
  • Additional Cost           = $10,000
  • Machine "A" Time        = 90 minutes
  • Machine "B" Time         - 60 minutes
  •                                         ----------
  • Savings of Time           = 30 minutes
  • Cost of Labor               x $30 per hour
  •                                         ----------
  • Saving per Treatment = $15
  •  
  • Additional Cost           = $10,000
  • Divided by Savings      /  $15
  •                                       ----------
  • Treatments to Pay-Back= 667
  • Treatments per Day     /  3
  •                                       ----------
  • Days to Pay-Back         = 222 (or 7.4 months)

Your mileage may vary depending on cost of labor and treatments per day.

Three a day times 60 minutes equals 1095 hours of labor per year

Three a day times 90 minutes equals 1642 hours of labor per year

You save a total of 547 hours of labor per year or $16,410.

Many of you may have thought it would take years to pay back the additional $10,000. Sixteen thousand dollars additional in the bank for the same amount of sales is significant. Not to mention any additional taxes or benefits, additional square footage, personnel or equipment it might take to sell those 547 hours without the better, more expensive, machine.

When you "do the math", it can also tell you NOT to buy equipment that cost more only for needless bells and whistles.

Often working more efficiently does not involve buying a piece of equipment at all. It may mean using a product that will do the job faster, or it may mean coming up with a more efficient way of preparing for or performing the treatment. Encourage your staff to find more cost-effective ways to do their job, and be sure to reward them when they do.

Automation

Okay Skip, I went along with you on the "Efficiency" thing but you have really lost your mind when your talking about "Automating" my Spa/Salon!

You may be picturing conveyor belts and robots, but that is not quite what I mean. The value of "Touch" can never be underestimated, people will continue to come to your facility primarily for facials and massages that will never (and should never) change. There are however a few "adjunct" treatments that take little or no labor.

Consider the "Tub Treatment", a simple elegant drain/fill aromatherapy whirlpool tub, where a client enjoys a 20-30 minute immersion treatment prior to a massage or facial. I often read with interest Dr. Bergel’s articles on Hydrotherapy and the important therapeutic benefits of simple immersion baths (see Dermascope Nov/Dec 1998 or www.H-E-A-T.com).

The "Tub Treatment" or "Immersion Bath" is a great example of an "automated" treatment; it does not require a Certified Therapist to perform any labor-intensive service. The Client sits there and allows the water, the peloid, and the jets to do there magic.

I have learned from Dr. Bergel and others that these treatments can be more therapeutic than wraps and are even considered "kurs" (cures) in much of Europe. They may like the therapeutic benefits, but I like these treatments for a completely different reason… Profit!

Here is the Math (again please feel free to change the numbers to fit your situation):

  • Tub Cost                      =        $3,000
  • Installation Cost            =        $7,000 (this may vary widely)
  •                                           ----------
  • Total Cost                    =        $10,000
  • Price per Half Hour         =        $25
  • Cost per Treatment        -         $4
  •                                         -----------
  • Profit per Treatment        =       $21
  • Treatments per Day         =         8
  • Profit per Treatment        x        $21
  •                                         -----------
  • Profit per Day                =       $168
  •  
  • Days to Pay-Back            =     59 days (or 2 months)

$200 revenue per day times 365 days equals $73,000 per year.

Total product and labor costs for year equals $11,680, (or 16%) or a profit of $61,320.

No matter what we do, the "hands-on treatments" (where direct expenses usually run about 45% to 65% of revenue) will never enjoy a 16% ratio on expense to revenue. Incorporating this type of treatment into your existing operation can add significantly toward your bottom line, indeed I have seen this treatment alone make the difference making a profit and go out of business. Likewise it goes along way toward reducing our total labor cost as a percent of revenue.

You can see when the alternative is $30+ per hour labor an automated treatment like this has a very quick payback and lots of profitability. It will never take over the popularity of massages and facials but it makes a lot of sense to incorporate it in every package you sell and because of their low cost, use it as a promotional tool that helps you sell your other services. Do not forget the therapeutic benefits as well, this could be a great alternative to "wraps" without all the labor.

Consider also automated water massage, oxygen therapy, exercise equipment, virtual reality equipment, and any other "adjunct" services you might be able to sell in your facility that take little or no labor.

Frankly the larger the capital investment made in your facility the more it tends to limit your competitors from competing. We have a term for this and it is called "Barrier to Entry", simply put, the more expensive we make it for someone to compete with us the LESS competition we will have. Anyone can hire an employee, few have the capital it takes to buy "expensive" equipment, but if you spend the money your "profit" can be dramatically increased, what more could you ask.

I can not speak to the therapeutic values of the wide variety of devices out there, I will leave that to the Experts in those fields and your own judgment, but from a profitability standpoint these types of devices make a lot of sense. When you look at how many hours of labor $10,000, $20,000, even $30,000 will buy you, paying that much for a machine does not seem so expensive after all.

 

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