Listen in to learn about the strategic use of gift cards, subscription memberships, and the critical importance of tracking key financial metrics. By mastering these elements, you'll be better equipped to manage your expenses, build customer loyalty, and ensure long-term profitability. We’ll also discuss the essential data points every MedSpa should track, including profitability by service type, retail sales, and customer lifetime value. With a solid cash flow plan and organized data, MedSpa owners can make informed decisions to drive success.
What You'll Hear:
- Strategies to manage cash flow fluctuations in MedSpas.
- The risks of investing in expensive equipment early on.
- Understanding and avoiding lifestyle creep in your business.
- How to build customer loyalty through subscription memberships.
- The strategic use of gift cards for cash flow.
- The importance of tracking profitability by service type.
- How to calculate and use customer lifetime value.
- Key financial metrics for MedSpas.
- The value of having a well-organized cash flow plan.
- Acting on data-driven insights to improve business outcomes.
Tags:
medspa owner, aesthetics, injector, wellness, weight loss, fractional CFO, bookkeeper, tax preparation, financial advisor, accountant, wealth management, payroll, insurance, retirement planning, investment management, insurance, 529 planning, estate planning, cash flow planning
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Read The Transcript:
Say goodbye to financial guesswork and hello to a thriving MedSpa business. This is MedSpa Money Matters, the podcast that helpsMedSpa owners like you take control of your finances with confidence. This podcast is hosted by MedSpa Financial, a fiduciary financial planning and tax firm that helps MedSpa owners across the country.
I'm Jonny McMullen. With me is the founder and financial wizard of MedSpa, Scott Wisniewski. We're here to simplify the numbers so you can focus on what really matters: your patients and your business. With that, let's get started.
Scott Wisniewski: All right. In our opening episode of the podcast, we went over the importance of organized cash flow when it comes to a MedSpa business.
We mentioned things like variability or seasonality and revenues and how especially given likely high fixed costs through inventory management, equipment costs, maintenance, staffing, payroll, rent, your tech stack, maybe loans. All of those expenses don't stop even when the revenue is fluctuating. So today, we want to discuss how a MedSpa owner can add predictability and better managed fixed spending, even when there are periods of time throughout the year when income will inevitably ebb and flow throughout the various months.
Jonny McMullen: Yeah. This is far from a catch 22 situation, but it definitely presents challenges accounting for those slower periods throughout a calendar year, just to start from the perspective of like a year one business first. I think that's where cash flow challenges really show themselves, both as well as in theMedSpa business space as a whole, but also through the decisions of the ownership structure.
It's very easy to have a vision of the business you want to build and go all in on that. Well, if you start by adding a major pieces of equipment that may not have the ROI you're hoping for, at least early on, that could lead to a costly liability on the books. Combine this with the unknown factor of future revenues and fluctuations in revenue for your specific market, it could quickly implode.
I think the best way to avoid this is to keep things as predictable as possible, even if it actually doesn't result possibly obtaining the highest revenue number you maybe able to achieve. And what I mean by that, revenue isn't the only goal. So there's a common saying in personal finance of a concept called lifestyle creep, right?
As your income goes up, so can your expenses so much so that you're really no better off from a net income perspective despite higher gross revenues. If you circle that back around to a MedSpa business, if you have higher revenues, maybe you have more equipment, maybe more employees, more services and all that could lead to one, better future revenues, and two, a better work-life balance for you and that'd be a positive, right?
But many times higher revenues that come with automatically filling that difference with new expenses, it can especially early on subject you to greater risk and lower revenue periods. So you know, what does that look like? Again, talking about newer MedSpa businesses mostly here, but it may mean limiting the full menu of services you eventually would like to provide, at least early on.
It may mean leasing equipment instead of buying it. And I'm taking fielders on customer's response to that equipment to make sure there's enough demand there to justify purchasing it at a later date. It may mean doing more work yourself, right? It was just putting more of the load on yourself.
When cash flow is less known, the risk for failures is greater. So at least early on, prioritizing risk aversion, even if it could lead to less profitability, that often is the smarter move.
Scott Wisniewski: Yeah, there's a strategic balance that needs to be in place, especially early on. And as you progress with the business and data starts to wash out, then decisions become easier.
Another area where you can make yourself vulnerable, especially early on, is mispricing or underpricing of service offerings. The temptation is there to get customers in the door. That anxiety of not having a filled schedule day to day is what mostMedSpa owners fear most. But if it comes at the cost of future retention, you may still be unknowingly setting your business up for failure.
Pre-consultations as an example, sure it can get more interest in the door and will hopefully inevitably lead to more treatments, and early on your capacity can cater to that. But you can quickly find you're spending too much time, either yours or another employee's not making money. It's actually more of an expense at that point in that regard.
It also sets atone that can be difficult to pivot away from over time. If you offer free consultations, that's the expectation from referrals from existing customers.Each revenue pursuit really has to be planned for in the short and long term and the cash flow generated from each pursuit needs to be understood as best as you can.
Subscription memberships are effective. What they do is generate that recurring revenue right now and helps build customer loyalty. Gift cards are also a must have.Bundled service packages, something like five sessions for the cost of four, etc. Point systems or loyalty programs, host treatment bundling and upselling, referral programs, event-based packages for businesses. The more you build your business around what your customers value psychologically in addition to the customer experience, the better your practice will be. And we always come back to as much reliable and long term data as we can obtain.
Jonny McMullen: Yeah, there's so many layers that are valuable in just something like a gift card for a business owner, for one, roughly 20 percent of gift cards go unused completely for whatever reason, like lost, forgotten, expired, or it was a gift that they just never saw themselves spending, right? So you're effectively creating insane margins, the best margins you could ask for, by just generating revenue out of thin air.
And the revenue can cover the associated costs of implementing something like a gift card program pretty consistently and rapidly. And you combine that with the fact that not all gift cards typically get fully redeemed. We're talking maybe five to 10 bucks left on the card and you multiply that over however many customers that actually partake in the gift card program.
Then there's aspect of two out of every three gift cards results in an upsell. So someone who never would have spent money on a service or product suddenly will spend money on that because they have a gift card kind of sharing in the cost that they're out of pocket is reduced and it also helps reduce things like fraud.
So building in these types of revenue models, especially predictable ones into your practice is so important. What it does is it moves out that volatility. You'll never escape seasonal reductions in inflows, but you can be strategic in combating it by creating consistent revenue models starting day one and even into just the most seasoned businesses, if they haven't already been implemented.
But getting back to the cash flow itself, your method and system for tracking, that's vital.Consolidating revenues and generating at least a monthly profit and loss, that's so important. This can be done directly through an accounting software program, which can exist inside or be completely separate from your practice management software.
You have to have both. And there has to be a commitment to managing and learning about your data. You should be able to know things like, or be able to at least look up profitability by service type, retail sales, the number of memberships, the net profit margin, the revenue per service, the retention rate, customer lifetime value, booking rate, staff metrics, like productability and their hourly rate, their earnings rate. There's also marketing metrics. What's your cost per acquisition? Can you reliably calculate these metrics and predict them ongoing?And so much goes into this, but all metrics play off and comprise those top line hard numbers in your cash flow and your financials.
So you may buildup to pretty reliably know what your true monthly breakeven is for your business and that's great to know, but can you not only understand the components that make up that figure, but also strategically act on them if necessary? Can you scrap a service offering or reduce labor costs in an area, or even if it's worth it to, add additional costs, right?
Or increase that breakeven given how it relates to revenue or even pivot into certain services performed in certain months or certain incentives given in certain months that have historically been, seasonal down months, things like that. Are you able to reliably track that data, but also pivot and use that data to make real time decisions that will impact and benefit your business?
Jonny McMullen: Scott, if a MedSpa’s business finances were a face, what would they look like?
Scott Wisniewski: Without financial planning, definitely a little saggy, maybe some fine lines.
Jonny McMullen: Ouch. But we can fix that, right?
Scott Wisniewski: Absolutely. A financial facelift is just a call away. We’ll help MedSpa owners map out their goals, increase profitability, and secure their financial future.
Jonny McMullen: I like it. Smooth, firm, and ready to glow.
Scott Wisniewski: Exactly. MedSpa owners, let’s work some magic on your finances. Book a call today at medspafinancial.com.
Scott Wisniewski: Right. Yeah, it all comes back to knowing your data, having your organized data prepared and acting based on that data when necessary. That's why something like benchmarking is also, can be very important to help inform your decision. Do you know your metrics for your business and your market? How does that compare to another similar business in a similar market?
Is there room to become more profitable by concentrating on certain services or doing the opposite? Diversifying your revenue sources because you're saturating your market in a certain area. Very few MedSpa owners have the financial expertise to organize the cash flow, let alone optimize it. And even if they do have the expertise to handle things on their own, there's a time cost for doing it yourself, where you're essentially paying yourself to handle it. Your hourly rate should exceed a level you pay to outsource it. And that assumes everything is being effectively managed. If it isn't, then it just gets even more costly.One thing we feel strongly about when it comes to personal financial planning is where we suggest diversification in your investment assets.
We don't suggest diversifying your advisor team, right? Too many cooks in the kitchen does apply in the case of practice management, cash flow management, tax management, and all the other planning areas your business requires. And that includes yourself in that equation. The data you provide an accountant that you prepare yourself may not be adequate for what they need to generate tax estimates or limit tax liability when filing, or even establishing your business entity structure.
So you could very well be adding time to your schedule and handling these things yourself while simultaneously increasing the workload for a hired third party, which theoretically will cost more, if not cost you in terms of solutions and advice.So for my vantage point, there's really three different, call them like data aggregators or data points that every MedSpa needs.
First, you need good, clean, organized books, right? Financials, profit and loss statement, balance sheet. And then second, you need what we call a cash flow plan. So a cash flow plan is kind of like an x-ray for your finances, where we're taking inventory of all your inflows and your outflows of your money, both as an owner, but also individually on a monthly basis.
So imagine January through December, your cash flows are broken out by month for the entire year on the columns, right? And then on the rows you have in either an inflow or an outflow, right? So you've got revenue expenses. Those expenses are categorized, not in a super detailed way, like you'd see on a P&L, a profit and loss statement, but they are categorized to a certain extent.
Things like payroll, maybe your pay, business expenses, the amount of cash that the business has, and then you go down to how your personal income is going to be personal expenses, savings areas. So it's not uncommon to have anywhere from 60to a hundred rows for a cash flow plan, right? So you get your 60 to a hundred rows on the left hand side, and then your columns with the months.
We are utilizing the base knowledge from the P&L of historical data to inform the future data on the cash flow while also maybe putting some stretch goals in there or just anecdotal experience of how we think the business is going to grow in the future or what expenses you may have in the future that you don't have now that is going to allow your business to scale.
Okay. And then the third is going to be benchmarking. So benchmarking where your business is right now, certain KPIs, key performance indicators of your business, and then comparing them to similar businesses. And so these three data points provide the framework or the structure to allow you to make super informed business decisions now, and gives you the best intent at predicting the future of the business, right? So you can take the current amount that you have in your business at the moment, project that out one month, all the way out for the next 12 months with these assumed cash flows and see what the sensitivity of call it this model or your finances are based on particular decisions.
So having this framework in place will not only do what I mentioned, but address some of the cash flow pinch points that we mentioned at the beginning of the episode, which are especially relevant for a MedSpa, buying a new big piece of equipment or increasing your rent cost or a new employee.
These are all, you know, could be massive pinch points for a business, especially starting out. And having this data rich structure in place, again, will help you make really informed decisions.
If you have any questions or you’re ready to work with us, head over to medspafinancial.com and click the“Book Free Call” button.
Thanks for tuning in, and we’ll see you next time on MedSpa Money Matters.
Disclaimer: This podcast is recorded and made available by MedSpa Money Matters and is provided for general informational purposes only. The content discussed does not constitute accounting, legal, tax, financial, or any other professional advice.Listeners should not act upon any information presented in this podcast without consulting an appropriate professional.
