Pricing Strategies: Are You Leaving Money on the Table?

Pricing Strategies: Are You Leaving Money on the Table?

 

When it comes to spa operations, one thing that I think is often taken for granted is the service menu. Treatments are priced and listed, and then no one looks at it for a couple of years. But how would you feel if a restaurant you frequented NEVER had anything new or different to offer? A little menu re-engineering is in order on a regular basis, so that neither your customers nor your staff gets too bored with what you are offering.

The recessionary environment has somewhat faded, but it was an important wakeup call for many spas. The treatments and products that we offer are not essentials, and consumers are still very careful with their discretionary dollars. The National Retail Federation predicted retail sales increases of about 3% this year, consistent with what they’ve averaged for the last 10 years. In other words, not a lot. And yet, we still have to make sure that we do raise spa prices occasionally, just to avoid lulling our customers into thinking they’ll never change. And the fact is, the treatment menu should be a major sales tool.

Strategic Change is Good

First, consider the “what” that comprises your menu. It can be helpful to run a sales report for the previous year, and consider eliminating any treatments that you sold less than, say, 25-30 of. That’s only 1 every other week, obviously not a big seller. Clearing out a menu item makes room for another that may have better turnover, or margin, or both.

If you haven’t raised prices in a couple of years, it is likely time to examine the current environment and weigh your opportunities. Begin by creating a spreadsheet listing your competitors and their prices on basic services, and add yours to it.  You want to be able to see at a glance where your price for a basic facial or 60-minute Swedish Massage lies in comparison to others in your area. Look more closely at spas or salons in your competitive set, but don’t neglect massage studios and facial clinics – they’re competing for your customer too.  Make sure that your prices are consistent with your position in the marketplace, whether you are you a high-end facility, value-priced, or somewhere in the middle. 

Once your ideal ranges are created, you can consider raising prices on a few specific treatments. For now, if you are adding services to the menu, since they are new you can set them at the high end of the range you want to create.  Avoid raising prices on all of your treatments at one time, this can have a greater negative impact on clients who typically enjoy 2 or 3 different services.  Try raising some nail prices in the spring, and perhaps bring up a few facials or massages in the fall. And by the way, there is no law that your prices need to end in “0” or “5”! Try pricing some treatments in a more random way; $68, $76, $83. This probably looks more realistic to a client than having symmetrical pricing.

Remember, if your clients never say your prices are too high, they’re not quite high enough.  Don’t price yourself out of your market, but make sure you charge what you are worth.   

Delving Deeper into Menu Logistics

It’s helpful to enter the entire contents of your existing menu into an excel spreadsheet, which makes it easy to view and manipulate your data.  Plus, you can use the spreadsheet to create treatment rate or commission tables for your compensation plan at another time.  Group services together by department; looking at your menu in this more abstract way makes it easier to determine retail prices for services.  Once you’ve created the spreadsheet, re-order the services, and make sure to start with the highest-priced item, and let the others fall into place in order of price, ending with the least expensive.  Spa menus always seem to start with the lowest priced service in a category, and most clients don’t read any further.  Show me a sales report in which 80% of the facials performed are the entry-level facial, and I don’t need to see the menu to know it is presented in this way.  Starting with the higher priced items will likely encourage clients to read more about their options; they may settle on a service priced somewhere in the middle, but not as low as the entry-level price. 

Support for Upselling

Next, and perhaps most importantly, consider your technician compensation plan.  If your plan emphasizes performance metrics such as average ticket, does your menu provide the structure to make upselling of services easy?  I recently encountered a service menu with no facials priced between $85 and $135 – that’s too big a jump for 90% of your clients, who will all stick with the less expensive option.  If your price structure on facials is $85, $93, $98, $103, and $112, and you add in a menu of micro treatments priced from $8 to $22, you’ll be able to find the sweet spot for any customer and give multiple upselling options to your staff.  When the service providers have a menu that supports upselling, they are more likely to practice with every client, and they will be transformed from order-takers to sales creators. 

For more excellent reading on the psychology of our human clients and choices, try the first chapter, “The Truth About Relativity,” of Behavioral Economist Dan Ariely’s excellent and fascinating book, Predictably Irrational.

 

 

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