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Figuring out my service profits

A question submitted to Spas2b:

What things should I be considering when I price my services so that I can make a profit?

 

Our Response:

You will probably know about where your services should be positioned if you have:

  • Consulted with your suppliers on average service prices for each treatment;
  • Done a service costs analysis (as shown below), and
  • Conducted an analysis of your local competition.

When determining your service profitability, or margins, your service costs analysis might look something like this:

  1. Take your service selling price – say $100.00 for a basic facial
  2. Calculate product costs (either a dollar amount or a % of the service selling price) from that price = $10.00 (in this case we used 10% of service selling price for ease of calculation)
  3. Add in any miscellaneous costs (shipping, studio supplies, etc.) from that price = $5.00 (in this case we used 5% of service selling price for ease of calculation)
  4. Total those costs ($10.00 + $5.00 = $15.00)
  5. Subtract them from the selling price: = $100.00 – $15.00 = $85.00
  6. From this remaining figure ($85.00), decide what you will pay your therapists for that treatment = $21.25 (in this case we used 25% of  $85.00)
  7. Add that labor cost ($21.25) to the two other costs above. ($10.00 + $5.00 + $21.25 = $36.25) This sum represents your COG, or cost of goods
  8. Subtract your COG from your selling price ($100 – $36.25), and this calculation is your gross margin dollar per treatment ($63.75)
  9. To determine your gross margin %, divide your gross margin dollar per treatment ($63.75) by the service price ($100.00) and multiply by 100 = 63.75% Gross Margin.

If 63.75% gross margin is acceptable and affordable to you (considering that this will be only one calculation on margin out of all the services on your menu, and also that from these gross margin calculations, all other costs of doing business must be deducted), then your price is ok. If the margin is too much lower, you will need to analyze your product and labor costs per treatment in order to find the balance, or raise your treatment selling price.  Leslie Lyon

 

Knowing your Service Margins makes all decisions easier.

See Margin Spreadsheets and so much more on Spa Finances within our Spa Business Management Education Courses & Training Tools

 

About Leslie

Spas2b Inc. is a full service Spa Development company, specializing in Online Spa Management Distance Learning Courses, Spa Business Manual Instant Downloads & Resources, and Spa Consulting Services.
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