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33 years ago, I conducted my first business analysis on a six-bed tanning salon in New Jersey. The rudimentary model I developed back then has now evolved into an advanced, industry-centric excel program. Over the past three decades, this program has helped thousands of salon owners to better understand the true costs associated with operating their businesses, while also providing realistic sales, cash flow, traffic flow and profit projections.
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The program and calculations have stood the test of time and are often used as the foundation for business plans and to help salon owners obtain funding for equipment, build-out and leases. It has also been used by those seeking to buy or sell a business.
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And as our industry has evolved and business models changed, I have kept pace and expanded the program to include spa services, spray-tanning, wellness systems, etc. Today, this vast bank of information provides a unique, hands-on perspective and vantage point from which to better understand the true inner workings of our industry.
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Following is a collective review of studies conducted during the past 18 months. Please use this information for comparison purposes only. Actual results will vary and are influenced by location, demographics and the owners’ ability to effectively operate the business.
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Gross Revenue Per System Per Year
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Each piece of equipment that you offer in your salon, whether they are different levels of UV-tanning equipment, spray-tanning systems, wellness pods or spa services, etc., represents a significant cash investment and also occupies valuable real estate inside your business. Accordingly, each device must contribute proportionately to the bottom line.
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UV-Tanning Systems
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- Levels 1 & 2: $8,000-$15,000.00 per system per year
- Levels 3 & 4: $15,000-$25,000 per system per year
- Level 5+: $25,000-$35,000.00 per system per year
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In addition to the gross revenue per system, you should also collect data on the total number of sessions and/or the hourly usage of each system during the past 12 months. Then, compare those figures against the session, package and membership sales generated for each unit.
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You may find that you have too many of one level of equipment and not enough of another. You will also discover which equipment is producing the most revenue for the salon – and which units you should consider replacing.
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Also, when calculating the revenue per system, it is important to compare the revenue generated with the actual purchase price of the system. In this way, you can determine whether you are using each system to its full potential – and getting the most return for your investment.
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Equipment Operating Cost Per Session (Lamp Use & Electrical Consumption)
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Once you have calculated your revenue, it is very important to understand exactly how much it costs to operate each tanning system on a per-session basis for lamp use (depreciation of lamp life) and electrical consumption. Too often, salon operators will pay their electric bills each month without knowing what percentage of the bill is for equipment usage and what percentage is for general lighting, air conditioning, etc. This is very important information, as some tanning equipment (primarily high-pressure units) may cost upwards of $4 per session to operate. Such costs can dramatically reduce profits, and you could possibly be losing money on some tanning packages that include that equipment level.
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At the end of this article, you will have the opportunity to request a free equipment operating cost calculator. Following are some estimates you may use as guidelines.
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- Levels 1 & 2: 32-36-lamp unit with 2-3 HP facial lamps: 50-90¢/15-20-min. session
- Levels 3 & 4: 40-48-lamp unit with 4 HP facial lamps: 90¢-$1.50/12-15-min. session
- Level-5: 52-lamp-unit with 4 HP facials, shoulder tanners, aqua mist, etc.: $1.25-$2/10-12-min. session
- Full-Body, 360° HP unit: $2-$4 per 10-20-min. session
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How EFT and Membership Sales Affect Foot Traffic
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About 20 years ago, the tanning salon industry became more focused on selling EFT-based memberships rather than packages of sessions or minutes. This strategy has helped many salons to greatly increase sales and profits on a year-round basis. However, it may also have inadvertently contributed to a reduction in physical foot traffic.
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Here’s why: when you sell a tanner a 30-session package, they will use all 30 sessions regardless of how long it takes them to do so. When a tanner purchases a 30-day package, it’s up to the customer to find the time to visit your facility. And as we know, the hectic pace of day-to-day life, etc., often limits actual session usage for many EFT tanners.
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To be sure, there will always be those customers who seem to live at your salon. However, my studies show that the typical EFT tanner uses only 6-9 sessions per month. At the same time, these customers contribute more to the bottom line than those who only purchase your services by the session.
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Many salon owners’ report that upwards of 20 percent of all revenue-paying EFT customers rarely even use their memberships. What this means is that while some models and levels of your equipment may not be getting used “physically,” they may still be generating revenue via EFT sales. So, before replacing any equipment, make sure you have enough units to handle traffic flow for the busiest times of the year.
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Profit Center Contributions
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For my analysis, I use the salon’s UV-tanning equipment as the financial foundation for the business. I then treat all other products and services as ancillary profit centers – in much the same way that a hotel would treat revenue from the bar, restaurant, gift shop, etc.
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Spray-Tan Systems
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Spray-tanning sessions, whether via automated systems or hand-held devices, contribute more and more to the bottom line as the popularity of this service continues to grow. In many salons, the automated spray booth is the highest revenue generator – surpassing even that of the latest and greatest Level-5 UV unit.
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Automated Spray-Tan Systems
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- Gross Revenue Per Year: $20,000 – $40,000 per system
- Spray-Tan Equipment: Operating Cost per Session (Solution, Disposables, Labor, etc.)
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Just as with your UV systems, you need to know how much it costs to operate your sunless equipment on a per-session basis.
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For example, if you pay $100 for a gallon of spray solution and each session uses two (2) ounces, your solution cost is $1.56 per. ($100/128 oz = .78 per oz x 2 oz = $1.56)
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Next, you would add the cost of disposables such as hair bonnets, footies, floor mats, etc., as well as the time it takes an attendant to clean the unit between each session. Based on my studies, the cost to operate a typical, full-body automated spray-tan booth ranges from $3 – $7 per session. So, while the revenue can be great, you need to be sure that you have accurately calculated the actual operating cost per session.
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This is even more important for hand-held spray-tan devices, as labor costs can greatly impact the net revenue per session. For example, if you pay a spray-tan tech $15 per hour and it requires 30 minutes to deliver a spray-tan, (prep time, clean-up, etc.) you have $7.50 per session in labor alone. Total costs can range from $10-$15 per session.
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- Hand-held Spray-Tan System Gross Revenue Per Year: $7,500-$30,000 per system
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Lotions, Skin Care Products
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Retail skin care products should be a major profit center for your salon. And based on my studies, the contribution can range from 10% to upwards of 30% of total gross sales.
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As with UV-tanning and spray-tans, success is attributed to the salon owner’s ability to create an effective “buying environment.” That is, the salon can generate higher sales via a combination of professional sales training, sales incentives and the bundling of select products with salon services.
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Lotion and Skin Care Product Sales
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- Percentage of Total Sales: 10%-30%
- Gross Revenue Per Year: $15,000-$45,000
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Revenue Per Customer Per Year
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After reviewing the financial contribution of your equipment and profit centers, the true litmus test for measuring the financial health and potential of your business model is the analysis of the actual dollars each customer spends per year. While these figures can vary widely, many salon owners are surprised to find how little each customer actually spends annually, and how much potential exists for growing their businesses.
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Gross Revenue Per Customer Per Year
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- Standard Range: $75-$150
- Highest Level Measured: $220
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Take the test. Calculate your annual total gross sales (less all sales taxes) and divide this amount by the total number of active customers who spent at least $1 in your salon during the past year.
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Crunching Your Numbers
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Review your sales for the past year for each piece of equipment featured and each profit center. Look for areas of strength and weakness – and then take proactive measures to increase your sales and profits. You can find ideas in my past articles!
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If you would like more information on how to crunch YOUR numbers and receive the equipment cost calculator compliments of IST Magazine, email jerry@istmagazine.online.
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The rudimentary model I developed back then has now evolved into an advanced, industry-centric excel program.
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