Just as it is beneficial for you to understand your service margins, it is also beneficial to understand your product margins.
The standard mark up on branded skin care products is 100%, or 50% gross margin. In other words, if you purchase a product for $50., you sell it for $100. If you are selling private label products, this situation will change dramatically. With private label brands, you can see anywhere from 150% – 600% gross margins, which of course will allow you much greater flexibility with promotions, staff retail commissions and the like. Knowing what you are left with once the sale has been made can be quite an eye-opener.
Although the margins may seem lower than you expected, the reason we must diligently press our staff to increase these sales abilities is two fold: First, retail sales help ensure our client’s will return in the future as they see continued results with at home maintenance (what our client’s use on their skin 24/7 far outweighs what we can do for them in the treatment room in one hour); and secondly, we have the potential to sell a lot of retail in 5 minutes – much more than we could ever sell in services.
Remember that increasing sales is one of three ways to increase your bottom line. Along that train of thought, the second way to increase your bottom line is to increase your margins; and the 3rd way is to cut costs. These service and product margin analysis spreadsheets will help you monitor all three, thereby contributing undeniably to an improved bottom line.
Develop a Chart to calculate Product Margins
Column #1 – List your Product Item
Column #2 – Record the Product Retail Price (selling price to client)
Column #3 – Insert your Cost % to purchase the product
Column #4 – Calculate what that comes to in dollars
Column #5 – Insert the average Commission % you pay your staff to sell that product
Column #6 – Calculate what that comes to in dollars
Column #7 – Include your Miscellaneous Costs (shipping, receiving, merchandising, etc.)
Column #8 – Total your COGS (Add columns 4, 6 & 7)
Column #9 – Calculate your Gross Margin (Product Retail Price – COGS)
Column #10 – Convert your GM to a percentage (Product Retail Price – COGS ÷ Product Retail Price)
Column #11 – Rank you products.
Concentrate on those most Profitable Services and Products
Once you have determined your most profitable services and products, this information can be used by you on a daily basis to aid you in making important decisions regarding everthing from your marketing campaigns, to your floorplan.
If you still need alot more on Spa Finances, you will find every detail within our Spa Finances Business Manual as well as our Spa Business Management Education Courses