photos: Shutterstock.com Page 76 lneonline.com Les Nouvelles Esthétiques & Spa November 2014

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1 Keep Them Coming Back Loyalty Programs and Client Retention by Dori Soukup In the early 1980s, American Airlines goal was to increase retention and provide their clients with something extra special. The airline created the first frequent flyer program that allowed travelers to accrue miles and gain benefits as long as they were flying with American. American Airlines was one of the first companies to offer a customer loyalty program in the country. It set the standards for the entire industry. Since then, loyalty programs have gained significant popularity. According to a recent study, companies spend more than $2 billion on loyalty programs per year. Statistics show that the average American household belongs to about 14 different rewards programs. Page 76 lneonline.com Les Nouvelles Esthétiques & Spa November 2014 November 2014 Les Nouvelles Esthétiques & Spa lneonline.com Page 77

2 business keep them coming back business keep them coming back If you want to increase your guest retention rate, it s your turn to offer your clients a loyalty program that ll keep them coming back. What type of loyalty program should you offer? There are several types of programs to offer consumers and no matter which one you choose, it s important to keep it simple. Below are two of the most effective loyalty programs: acharge A FEE TO JOIN THE LOYALTY PROGRAM. For example, Barnes and Noble charges its clients $25 to join their loyalty program. Then, its members can save 10 percent on their purchases for the entire year. For a person who frequents Barnes and Noble weekly, this type of program provides great benefits. The savings at the end of the year are significant. The program sustains customer loyalty, and the $25 it costs to join is well worth it for the customer. You can follow the same model as Barnes and Noble, but I recommend you charge more. For example, you can charge $150 to join, but give a significant value, indicating that they are almost joining for free. Example: Two $25 Gift Cards to be Utilized One at a Time A Complimentary Consultation Valued at $50 A Complimentary Makeover Valued at $50 A Loyalty Welcome Kit Five to 10 Percent Off Every Spa Visit and/or Retail Purchase You are giving the client the $150 enrollment back in value. This allows you to raise cash flow and encourage the new member to visit the spa on a regular basis. As part of the loyalty program, the client benefits by receiving a small discount with each spa visit. This is very simple; there is no need for tracking or much program management. (See our October article Call of Duty Creating Membership Programs for Loyal Customers ) b GET CLIENTS TO JOIN FOR FREE AND EARN POINTS FOR EVERY VISIT. You can reward them by allowing them to earn one point for every dollar they spend. Once they reach a certain amount of points, they can redeem their points toward gifts, services or products. You will need to determine the amount of rewards you are willing to offer. For example, if someone spends $500, they will earn 500 points. If you wish to offer them a 10 percent reward, you will need to select a $50 prize they can have once they reach 500 points. If you are offering this type of loyalty program, I recommend you offer merchandise as a reward because your cost will be only $25, but the client will receive a value of $50. This practice allows you to decrease your loyalty cost to five percent in rewards, but it appears to be a 10 percent value. Select gift items that you can brand with your logo such as robes, T-shirts, hats and water bottles. THIS METHOD HAS MANY BENEFITS: Provides Your Loyal Clients with Desirable, Quality Gifts Promotes Your Business Through Branded Gifts Shows a Higher Perceived Retail Value While Reducing Your Loyalty Cost Saves Money and Increases Retention If you want to increase your guest retention rate, it s your turn to offer your clients a loyalty program that ll keep them coming back. The point system can also be used as a marketing tool. If you have some slow slots within your schedule, you can reward your clients with double points on slow days or hours. Instead of offering discounts, offer double points for promotions. You can ask your clients to write reviews to earn points. Or Like your Facebook page to earn points, and so on. One very important factor to keep in mind is how well you manage the program. If you launch a loyalty program but don t keep your clients engaged and excited about it, they will lose interest and won t see the value in it. Therefore, they make take their loyalty to another place. Brittany Nuzzi, spa director at White Orchid Spa in Vero Beach, Fla., had this to say about her loyalty program: We are located in a beautiful resort, but we also love to cater and capture the local market. Having a loyalty program has helped us offer benefits for local clients to [...] take advantage of higherend spa experiences and products at a slightly discounted rate while building up rewards points with each purchase. Nuzzi also offers a new client special where a referred person can save on their first visit, encouraging them to try multiple treatments, while the existing client receives a $25 credit in loyalty points on their account. By implementing this program, clients know how much their business and continued support is appreciated. It also builds trust and adds value to the White Orchid Spa offering. HOW IT WORKS Points accumulate throughout the year and can be redeemed at any time up until March 31 of the following year. Points may be redeemed as they are accumulated, so clients can use them when they choose! No waiting to reach tiers just simply using them as they see fit. At White Orchid Spa, clients can receive points for services, retail, referring a friend or pre-booking their next appointment. We love the loyalty program; it has helped us increase the retention rate by rewarding our clients, Nuzzi said. Many spas do not offer loyalty programs. Instead, they are stuck on offering discounts and doing Living Social and Groupon. Those types of marketing strategies are far more expensive and attract non-loyal clientele, whereas if they would offer a loyalty program, they would be attracting the right person who would be loyal. Kim Knapp from Skin Apeel in Boca Raton, Fla., offers a loyalty program that also helps her with retention and allows her to reward her clients. Our experience since our loyalty program inception has been most positive. We reward our clients with points ongoing for continued patronage and new referrals, Knapp said. The choice to snail mail beautiful reward cards adds the element of surprise, which works in our favor to prompt immediate spa visits. TOOLS NEEDED FOR YOUR LOYALTY PROGRAM Make your loyalty program super special from the beginning. Once a new person joins your loyalty program, they should receive a welcome gift containing: A VIP card A VIP T-Shirt with your logo Your spa menu Most Frequently Asked Questions A referral card to pass on to others Product samples from your brands Your brochure or flyer with gifts they can claim with their points Offering a loyalty program gives you a great opportunity to promote your business and recognize your VIP clients with special value while motivating your clients to keep doing business with you. Implement a loyalty program and increase your guest retention! n Dori Soukup is an executive coach, author, professional speaker and the founder of InSPAration Management. She speaks at conventions all over the world and hosts public and private seminars. Her Spa Biz- Tools and strategies have helped thousands of spa professionals experience exponential growth and profits. She can be reached at [email protected]. Page 78 lneonline.com Les Nouvelles Esthétiques & Spa November 2014 November 2014 Les Nouvelles Esthétiques & Spa lneonline.com Page 79

3 Year-End Retail Performance Evaluation And how to improve it! by Dori Soukup

4 Spa owners always express their dissatisfaction with a lack of retail sales. It s a fact that the spa industry doesn t maximize the opportunities available from retail. Most focus on delivering treatments without making retail and home care a part of the whole experience. This leads to the loss of thousands of dollars in potential revenue to both the spa owner and the team! Let s start by evaluating your retail sales, followed by solid strategies to make the upcoming New Year your best yet for retail sales. Assess your current performance. Run reports or calculate the following: 1. Retail volume per guest Knowing your retail volume per guest is the best way to measure your performance. It identifies how much you re averaging in retail sales for every person who walks into your facility. Formula: Total Retail Revenue Overall Number of Guests = Retail Volume Per Guest (VPG) 2. Profit per square foot It s essential to know how much revenue your boutique is generating per square foot. Formula: Overall Retail Revenue Square Feet of Selling Space = Revenue Per Square Foot Formula: Retail Sales Generated by the Department Number of Guests = Department VPG 5. Sales by brands This is important to determine negotiation strategies with certain vendors, and helps determine whether you should keep a brand or not. Formula: Sales by Brands Overall Sales = Percentage of Sales by Brand 6. Most popular products Identifying your best sellers will help you manage your inventory and give you the opportunity to position them in the right place within your boutique. Run a report by products sold and sort it by most revenue generating. 7. Least popular products This is a must so you can replace poor selling products with a better option that will sell and generate revenue. Identify lowest revenue by product. 8. Percentage of retail of your overall revenue This is a number you need to know. Your retail should represent at least 40 percent of your overall revenue. Knowing where you are will help you set new goals and take action to achieve them. Formula: Overall Retail Sales Overall Sales = Retail Ratio of Overall Revenue YEAR-END REVIEW GUIDE 3. Sales by each therapist Measuring sales by therapist is very important. It helps you manage your team s performance. Formula: Overall Therapist Sales Number of Guests = Therapist VPG 4. Sales by department Identifying top retail sales by department will help you focus on how to make all departments more profitable. Once you discover your current retail performance, you can set new goals and targets to strive for. Fact: Although many spa leaders want to increase their sales, in most cases they don t make it happen. Why? Because of the lack of retail systems, performance expectations and consequences. If you want to succeed in retail, you must take the following steps. lneonline.com Page 85

5 the goal is to reach the playoffs and then win the championship. In order to do that, the coach tracks statistics from every single game. You need to do the same. Track performance daily and watch your profit line grow! Once you set your expectations as a leader, it s essential to tie compensation to performance. A team member who isn t recommending doesn t deserve to earn the same amount of money as the ones who do recommend. Tying service commission to retail commission is a sure way to make the team recommend more. Compensation plays a big role, and it must be addressed if you want to improve performance. YEAR-END REVIEW GUIDE 1. Retail System and Team Training For any business to succeed, it needs systems. Systems ensure consistency, accuracy and growth. Without a proven effective system, your retail success is uncertain. The system should include belief and purpose in the profession. When I ask spa therapists why they chose a career in the spa industry, the number one reply is to help people. That s a great answer, however we are not helping them if they leave empty handed. Here s how you can really help your guests! First, identify the guest s needs or concerns and then make appropriate recommendations. It s the professional obligation of the team to educate and recommend solutions to guests in order to truly help them. Solutions should include treatments and home care products. As a leader, implementing a recommending system and training the team on how to make recommendations is your recipe for success! Training is an essential component of your success. It should be conducted often, and must include role playing. Just like in sports, the team listens to the coach, they have a game plan, then they go out on the floor to practice what they learned. That s role play but in the spa industry, therapists frequently say I hate to role play. Many spa leaders accept that reply and don t enforce the process. Can you imagine a basketball or a soccer player telling his coach they don t want to role play? How long will that player be on a winning team? You get my point role playing is a must. The more they do it, the more comfort and confidence they will have with the entire recommending process. If you re serious about increasing your retail sales and profits, implementing a system and training your team is a must! 2. Performance Expectations As a leader, you receive what you expect and what you measure. To improve performance, setting performance expectations is necessary. What are the team s professional obligations? You will need to outline them in detail. Set targets for both treatment volume and retail volume per guest. Then measure often. Don t wait until the end of the month to realize they didn t hit the target, because by then it s too late to save the month. Just like in sports, 3. Rewards and Consequences As a leader you should have a rewards program to recognize good performers. At the same time, you should have established consequences for those who do not step up and perform. The lack of consequences is the biggest mistake I see spa owners make. If the team doesn t recommend, they have no consequences. Every day, guests come and go and they leave empty handed. This habit is costing spa owners major revenue. This is the only industry I know of where the team can perform only half of their responsibilities (treatment without retail) and still keep their job. If you want to generate revenue from retail, you will need to set performance standards, and set consequences if they don t reach their retail targets month after month. What are you willing to do? You can train and coach them, but if they still don t sell retail, what will you do? How much are you willing to lose monthly because your team doesn t view retail as part of the responsibility of their position? It s essential for owners and spa leaders to adapt a new philosophy concerning retail sales. Begin by viewing it as a major part of the spa s offering, your business growth and your sustainability. Focus on retail sales and you will experience exponential growth! n Page 86 lneonline.com Les Nouvelles Esthétiques & Spa November 2014

6 INVENTORY MANAGEMENT TIPS YEAR-END REVIEW GUIDE Take Stock Of Your Stock by Dori Soukup November 2014 Les Nouvelles Esthétiques & Spa lneonline.com Page 87

7 YEAR-END REVIEW GUIDE At the end of each year, business owners must close out their books. Part of the closing process is the accounting of year-end inventory. Inventory management can be more complicated if you don t have a Point of Sale system to track sales and inventory during the year. A spa has several product mixes to track inventory on, such as: retail products, professional products, treatment tools and accessories. This article includes general tips to help manage your inventory and calculate year-end inventory. This will establish the total valuation of your boutique inventory for the end of your accounting period. Step One: Post all retail transactions for the year Make sure you enter every retail item purchased and sold in your system before you close out the year. This will help establish your on-hand inventory and provide you with the total amount of products sold. The process will not only help you manage your inventory, but it will also help assess your retail success with some brands versus others. It will assist you with making smart decisions as to which brands you should keep and which you should discontinue. Run annual reports for the following: Beginning of the year inventory Total products sold total revenue Total units sold Total orders Step Two: Reconcile inventory Print current inventory reports, then count on-hand inventory. If you find differences, this is known as shrinkage. Inventory shrinkage usually is caused by theft, damage and returns. Record your adjustments to balance the inventory account with the physical count. An entry must be made in the general journal at the end of the accounting period to account for shrinkage. Shrinkage is calculated as such: Physical inventory - On hand or book inventory = shrinkage Calculate the cost of ending inventory using the Retail Inventory Method. The first step is to calculate the retail value of ending inventory by subtracting net sales from the retail value of goods available for sale. Cost Retail Beginning Inventory $ 49,000 $80,000 Purchases $209,000 $350,000 Goods Available for Sale $258,000 $430,000 Net Sales $400,000 Ending Inventory (Retail) $30,000 Page 88 lneonline.com Les Nouvelles Esthétiques & Spa November 2014

8 Step Three: Inventory concepts: Results you must know! a. Calculate turnover Knowing your turnover rate will help you realize how successful you are with your retail efforts. Calculating turnover Annual Retail Sales Average Inventory (at the beginning of each month of the previous year) = Turnover Good turnover = 3 Better = 4 Best = 6 Let s say your inventory is $10,000 each month x 12 = average inventory of $120,000 for the year. If sales were $600,000, what would the turnover be? $600,000 divided by $120,000 = 5. Very good! b. Stock to Sale Ratio Another important concept relevant to your success is the Stock to Sales ratio. Calculated by taking: Monthly sales beginning of monthly inventory = stock to sales ratio Example: If sales are $10,000 and the inventory is $30,000, the stock to sales ratio is 3 to 1. Stock to sale ratio must have 3:1 three month supply of inventory. Any less, you risk stock-out. The ideal ratio is 3 to 1 or 4 to 1. Understanding how your investment in inventory corresponds to your monthly sales amounts will reveal recent spikes in inventory. Divide your inventory balance by sales for the month to find your inventory-to-sales ratio. Perform this ratio every month to see if the ratio is increasing or decreasing. D. RETAIL SALES RATIO If you have a boutique, you want to make sure that you re generating revenue. As a leader, you must know what percentage of your overall revenue accounts for retail sales. Formula: Net Retail Revenue Total Spa Revenue = Retail Sales Percentage To ensure inventory success, a spa leader must assign one person to be in charge of inventory management and monitoring performance. Make sure to establish minimum and maximum levels by creating a flagging process in your software system. Use purchase orders for ordering, have a receiving policy to properly inventory merchandise, price all products and create a beautiful boutique for your guests to enjoy, enticing them to purchase and repurchase your products. n YEAR-END REVIEW GUIDE c. Open to Buy Retail and professional open to buy budget retail concept: This replenishment strategy determines the inventory you need or can buy for the following month. Formula: Sales - beginning of the month inventory and product order = open to buy Know your minimums and maximums. Never buy more than a three month supply. Dori Soukup is an executive coach, author, professional speaker and the founder of InSPAration Management. She speaks at conventions all over the world and hosts public and private seminars. Her Spa BizTools and strategies have helped thousands of spa professionals experience exponential growth and profits. She can be reached at [email protected]. November 2014 Les Nouvelles Esthétiques & Spa lneonline.com Page 89