More and more salon owners are looking at introducing a membership program into their salon.
They certainly seem very attractive at first glance, however before you rush headlong into introducing any type of membership program, there are some very important elements you must consider. What may bring you short term gain may also bring you long term pain and this can be true of these types of programs if meticulous planning and analysis is not done before you get underway.
Let’s look at the common ingredients in these programs that make them so appealing to salon owners:
- You receive payment in advance for treatments provided.
- There is an extended time during which your clients are locked into your salon.
- Member’s additional appointments reduce gaps in your appointment book and therefore provide more consistent hours of work for your therapists.
- Additional appointments provide extra retailing and plus selling opportunities.
- Clients are often more inclined to try new services because they are not paying out any money on the day.
All of these points appear desirable on the surface, although some membership programs may contain elements which can adversely affect your business; elements which may increase your turnover but at the same time decrease your profitability. To avoid this happening in your salon, it is important to consider what type of program, if any, is going to financially enhance your specific business.
Increased services to your clients, especially discounted services, do not necessarily equal increased profitability. The fact of the matter is that turnover, no matter how large, does not equal profit, and profit is what pays your bills and provides you with an income.
It is essential therefore to consider if a membership program is going to deliver increased profitability for your salon rather than simply increased turnover.
What are the good, the bad and the ugly things you need to know about membership programs?
A membership program can bring substantial amounts of money into your salon over a short time period. By offering clients exceptional value for money, you will entice many of them to invest up front. This can be a real blessing if you need a quick injection of cash in your business for that new piece of equipment or to get on top of some overdue accounts. However (and this is the bad and ugly bit), it often involves offering a substantial discount on services in exchange for your clients paying in advance. On top of this, even though it may not be costing a great deal for salon products used to provide additional services, you are still paying for staff wages, super and workers insurance which often makes up the bulk of the cost in providing the service.
Now, for those of you who have heard me prattle on about this subject in the past, you will know that I am not generally in favour of offering discounted services, and for a good reason. Discounting your services can ultimately lead you to financial doom and gloom, so there are some important points that need consideration before running out and starting your own membership programs.
No business can survive if they are not making enough profit to pay their bills. Many salon owners either do not know how or have simply never bothered to work out for themselves just how much profit their services are returning. It is critical to have this information before you contemplate introducing a program based primarily on offering discounts.
Key points to consider about your membership program BEFORE you get started…
1. You must first determine how much profit you are making on the services you currently provide. For instance, if you are making $15 (after all expenses including wages, super, product and consumables) out of every $100 of service income, then you have a gross profit margin of 15% on your services. If you offer this much discount (or more) then you are in effect providing your services at a loss. Always leave a safety gap between what you are making and what you are prepared to offer as a discount, just in case your profitability is not as high as you calculated it to be.
2. To avoid financial ruin, you must have enough profit built into your services so that when your client buys a program, you will still make at least a small margin of profit. If you are a low price-point salon, membership programs may not be for you. No salon can run forever without making a profit on their services.
3. Cap the number of memberships you offer at any one time so that you are not filling your appointment book with services that yield a low return. The last thing that you want is to have a salon full of clients receiving no profit services every day of the week. Only sell enough programs to fill the gaps in your appointment book.
4. Exclude any high cost, low profit services from your program offer. Every salon generally has loss leader services that are already poor or zero profit earners. You may also need to consider whether you are going to allow your clients to share their membership program with friends and family.
5. Calculate how many programs you will have to sell in order to earn the required amount of money and don’t be tempted to sell any more than what you absolutely need to. You can always run another program later if you require extra cash.
6. Decide what your actual program offer will be. Some programs require the client to purchase all of their services upfront and in return for that, they receive a healthy discount which then drives their salon dollar further. Other programs allow the clients to pay a deposit and then the salon deducts a set amount from their client’s bank account weekly so that they can accumulate salon credit which they can use when they are ready. This works a little bit like a never ending lay-by program.
7. Wrap a time frame around when your membership program will start and finish. The last thing you want is members taking up valuable salon time having discounted services during your busy periods such as Christmas. The length of the membership itself will depend largely on the value of the memberships you are selling. Be realistic about the amount of time you allow your members to use their program as you do not want disgruntled clients who have not had enough time to get the value they were expecting.
8. Train your staff to add retail sales to every member service. This way you are at least able to generate additional profit from this activity. It is also important that your members are encouraged to try other extra services so that they use up their memberships more quickly.
9. Create a membership contract clearly outlining what you are and aren’t offering and any special conditions attached to the program and ensure your clients sign a copy prior to their program commencement.
10. When everything is in place and ready to go, let your clients know by email, text or phone call that you have a small number of memberships available. Remember to put a limit on their availability as scarcity is a great motivator to purchase.
So, let’s put it all together. Preparation is the key to success with salon membership programs. You should consider not only the short term gains you will make but also the long term impact it will have on your business in terms of financial viability.
Salons that are already making low profit margins may not be suited to membership programs that require additional discounting due to the fact that they simply cannot afford to discount their services and still stay afloat.
Always monitor the impact that your membership program is having on your business and be aware that just because memberships may be working for the salon down the road, it doesn’t mean that they will deliver the same results for you. You only have to look at the number of gymnasiums that have shut up shop to know that memberships are not always the ultimate money making machine in the long term.
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