Managing a successful medical spa requires more than just providing excellent services; it also involves keeping a close eye on your financial health. Ensuring your financials are in line with industry standards is key to achieving long-term profitability. In this guide, we’ll break down the essential financial metrics every medical spa owner should monitor.
Key Financial Metrics for Medical Spas
Monitoring the financial health of your medical spa starts with financial statements. This blog will focus on the Profit and Loss statement. Here are the key metrics to track month over month to ensure your practice is trending in a healthy direction. Please note, these metrics are expressed as percentages of total sales.
1. Cost of Goods Sold (COGS)
In the medical spa industry, COGS typically includes the cost of products and supplies used in treatments, such as skincare products, injectables, and laser treatment consumables. Ideally, your COGS should be no more than 30% to 40% of your sales. This range ensures that you’re pricing treatments appropriately and managing supply costs effectively.
2. Gross Margin
Gross margin is your revenue minus COGS, reflecting how much of your revenue is left after covering the cost of treatments. A healthy gross margin target for a medical spa is 70%. This allows for a comfortable buffer to cover other operational expenses while still leaving room for profit.
3. Payroll
Payroll costs, including wages for providers, support staff, and administrative roles, typically range from 25% to 35% of sales in the medical spa industry. Make sure to include payroll taxes, benefits, and insurance in this category.
One oversight many medical spa owners make, especially in the early stages, is underestimating the value of their own role. Even if you aren’t paying yourself a full salary yet, it’s important to factor in how much it would cost to hire someone to do your job which often is the cost of hiring a licensed medical provider if you’re performing treatments yourself. Including this cost in your payroll calculations gives you a clearer picture of your true financial health.
4. Facilities Costs
Your target for facility costs like rent, utilities, and maintenance should be under 10% of sales. Medical spas often require high-end environments, so balancing a beautiful, welcoming space with affordable rent is key. While early-stage spas may have higher facility costs, aim to bring this number down as you grow.
5. Advertising and Marketing
Marketing is critical in the medical spa industry, where attracting and retaining clients is essential for growth. Typical marketing spend ranges from 2% to 5% of sales. Maximize free or low-cost marketing tools such as social media, client referrals and re-bookings before investing heavily in paid ads. However, if you’re in a growth phase, consider boosting your marketing efforts to bring in new clients and promote high-ticket treatments.
6. Other Operational Costs
These include expenses like software subscriptions, professional fees, office supplies, and insurance. For medical spas, other operational costs should be no more than 5% and 10% of sales in order to maintain a healthy profit margin. Effective cost management in this category ensures you can allocate more funds toward growth and client experience.
7. Net Income
Finally, a healthy net income for an established medical spa is between 15% and 25% of sales, with a minimum target of 10% for startups or less established spas. Aiming for a 20% net income margin when budgeting ensures that your business is not only profitable but also sustainable in the long run.
A Tool for Tracking Financial Health
Our team at Liguori Accounting has created a straightforward financial tracking spreadsheet designed specifically for medical spa owners. Click here to download this free spreadsheet. It’s simple to use and will help you track key metrics over time, producing clear graphs to visualize your financial health at a glance. If you want guidance in utilizing this tool, reach out to our team today.
Budgeting with Profit in Mind: The “Profit First” Approach
Looking for a good resource for budgeting and financial planning? Our team recommends the book Profit First by Mike Michalowicz. This method flips the traditional budgeting process by prioritizing profit from the start. Instead of calculating profit after all expenses, this approach suggests setting aside a target profit and then budgeting your costs accordingly.
For medical spa owners, this approach helps you set clear goals for profitability while ensuring you’re managing costs and revenues effectively.
Final Thoughts for Medical Spa Owners
Tracking these key financial metrics will help you run a successful and profitable medical spa. Remember, it’s crucial to continuously monitor and adjust your financial strategies as your business evolves. By staying aligned with industry standards and using tools like our financial spreadsheet, you can make informed decisions that support both short-term success and long-term growth.