Saturday, November 1, 2008

The Kindest Cuts

We'd all like to sell our way out of a downturn, but the fact is, it's time to make some hard decisions and begin cutting expenses. There are a few questions to ask yourself when contemplating spending money:

1. Is this a "nice to have" or a "have to have" item or expense?

2. Does it "touch" the client (literally or experientially)? It is not worth keeping a frayed or stained robe in circulation to save a few bucks. Protecting your reputation is, as they say, "priceless!"

3. Will a cutback in this area seriously damage employee morale? It's inevitable you'll have to reduce spending in areas that affect employees. But make sure they know you are working hard to protect their core compensation and benefits.

You've probably already started on your "low hanging fruit" cuts. Here are some ideas that may be further up the tree.

1. Reduce your inventory. Identify the SKU's that make up the lowest 20% of product sales by dollar volume. Get rid of them. If you've sold less than ten of any product this year (unless it's a new product or very high ticket) get rid of it. Put these discontinued items on sale at a deep discount and wring the cash out of them. Try to get your annual inventory turns up to six, across the board.

2. Look at ways to make your support team schedule more efficient. Can a salaried manager step in for a couple of hours to cover lunch breaks, preventing you from having to bring in a staffer early or keep them late? Do you have to stay open as late as you do now? Not all reduction in operating hours makes sense. If your revenue production staff is paid by the treatment, you have just support staff overhead expense. Often just a couple of additional treatments will warrant keeping the spa open. It's important to have a "big net" to catch potential clients these days. Reducing hours may hurt more than help.

3. Look at employee perks. We're having to suspend a longtime perk, a free monthly employee treatment voucher. In its place we're putting a more liberal treatment "trade" policy and a way for employees to continue to enjoy treatments at a deep discount. Will it be a hit to morale? Somewhat. But we think we can show that there will still be plenty of opportunities to experience treatments. We've primed our team that "business as usual" is over.

4. Reduce training wages. Employee training is a big line item in many spas. Yet good training is generally perceived as a big perk for spa employees. What they learn in your spa is often a "portable" or resume-enhancing skill. We've dropped our hourly rate for training from $10 to $8.

5. Reduce the number of services on your menu. In a recent meeting with the team, estheticians suggested that we cut out three seldom-performed protocols which used a total of 13 products, none of which we're re-ordering.

6. Rework your protocols to use fewer supplies. If you use a laundry service, you pay by the piece. Lavish use of hot towels is typical in many spas--you can probably cut back without impacting the quality of the service. Create awareness of towel-use expense--post a humorous sign on the topic. Make sure no one is pulling a towel when they need a dust rag! Even a 10% reduction in linen consumption can make a noticeable difference in the bottom line.

7. Control the use of costly back bar. Even without a formal dispensary system, you can require estheticians to check out expensive peels and other high end supplies. Avant Garde spa in the San Francisco Bay Area recently instituted kits for all esthetic supplies save the basics (like cleanser and toner.) All masks, peels, creams, ampoules, etc. are dispensed to esthetician's individual kits. The sales reports must sync up with the products used. Unfortunately, during downturns, employees often give away upgrades on the sly to boost their tips, much like a bartender giving away a free drink. Avant Garde's owner Blanca Caballero reports savings of close to $1,000 per month on esthetic backbar costs.

8. For spas that have their own hot water systems, switch to an on-demand hot water heater. It will pay for itself very quickly in reduced utility bills--and you won't be as likely to run out of hot water.

9. During downturns, fingers can get sticky. Install a web-based security camera system that you can monitor from wherever you are. A decent system will run about $1,500, an investment with a fast return.

10. Outsource HR duties and payroll to a PEO (professional employment organization.) We've just started with a company called Avitus Group, a Montana based PEO, and are thrilled with the level of service. We tried the same with Paychex a couple of years ago and were disappointed. Payroll companies are increasingly trying to "bolt on" this type of service. However, it's the core business for Avitus and it shows. Our amazing HR rep says he's available by phone 24/7 and--guess what?--he is! Now Avitus is handling time-and-energy-draining activities like work comp claims, enrolling former employees in COBRA, or handling family leave. That leaves us free to concentrate on delighting our customers.

11. For newer spas, if you're doing a pay-per-click marketing campaign like Google Adwords, get professional help. While Google Adwords seems foolproof, and seems to be set up for the amateur user, mistakes are expensive!! It's estimated that 30% of the money spent on these campaigns is wasted. A couple of hours with a good PPC consultant is well worth the money. Like any other online marketing, PPC has gotten a lot more complex and sophisticated. Click fraud pales in comparison to simple keyword choice errors. (Need a PPC consultant? Contact David Victor,

12. Does your spa offer guests Points and rewards for their referrals, spending, etc.? To maximize cash flow, you may want to encourage them to defer use of their Points until next year, when sales may be stronger. (Fingers crossed) We've created the Sweethearts Club, enabling guests to bank their Points for Valentines gift cards, when we will redeem them at double the value.

13. Save money by moving more of your marketing online. Be sure to monitor your online reviews and "work" sites like Yelp for maximum exposure. Contact negative reviewers and treat them as you would a client who calls and complains. Don't demand a rewrite if a guest returns for a redo; the guest usually amends their comments of their own volition. Your review site appearances improve your search engine ranking. Solicit clients to post reviews on Yelp or Citysearch by including a link in your online newsletter.

14. Scale back the employee holiday party. Make it pot luck. Everyone knows times are tough. Make it fun, but don't feel obligated to keep up appearances with a fancy event you can't afford. If you're still doing an event at a restaurant, make it a weekday brunch rather than an evening event. They're shorter, don't involve alcohol, and usually don't attract guests. We have a "Wynnie Awards" ceremony with ours to recognize exceptional team members.

15. Some of the best ideas for saving money will come from your staff. Spa employees know how to be thrifty. Tap into that resourcefulness with a big, shiny new suggestion box in the employee area. Recognize everyone who participates and celebrate the ideas you're implementing.

Remember, the mantra is, "Is it a 'have to have' or 'nice to have'?" Remind your team, when they protest this or that change, that the mindset that worked in the past won't work in the future. Spa folk are not risk takers and they tend to dislike change. Helping them see that it's riskier to not change will encourage their participation and cooperation.

Have more cost saving ideas? Please share them with our readers!