With all the talk about inflation and interest rates, it’s understandable that a potential recession might be looming in your mind. According to Forbes Advisor, gross domestic product (GDP) is down, but the labor market and corporate earnings are up. So are we in a recession or not? And is there such thing as a recession-proof med spa?
While nothing is truly recession-proof, med spas can be recession-resistant. Procedures like injections are routine. The “lipstick effect” indicates that even in times of severe economic downturn like the Great Depression, consumers still indulge in small luxuries and beauty products. Aesthetics services make buyers feel good. Plus, the target demographic for med spas is typically more affluent and established. In general, med spas are in a good position to handle a declining economy.
Maven founder and CEO Jessica Nunn recently spoke on a panel with American Med Spa about how medical spas can prepare for a recession. Read on for key takeaways from the conversation and a few steps to take as we see where the economy heads.
Are We in a Recession?
Right now, consumer confidence is shaky. Maven’s clients are typically concerned about two things:
- Hiring is difficult. Med spas might be down one or two employees, but with workers currently in demand, it can be hard to find replacements.
- Inflation. Med spas don’t want to lose money because costs are rising.
Even financial experts disagree on whether it’s a recession. But there’s one thing we can know for certain: Eventually, a recession will happen. There have been 19 recessions in U.S. history, and they’re a natural part of the business cycle.
Whether we are or aren’t entering a recession, the most important thing a med spa can do is prepare to survive any economic cycle. Try these six tips below to build success into your business.
6 Tips for Creating a Recession-Proof Med Spa
1. Stick to the fundamentals of business.
The number one suggestion for riding out a recession is the same one we’d give in any other season: Run an efficient business. Keep clean financials and monitor them regularly. Measure key performance indicators (KPIs) and compare them monthly and quarterly. Look for leaks in cash flow. When an economic downturn hits, you can withstand the storm. And if patient visits do decrease, gather your team together and make good use of the time with training, brainstorming new ideas, and teaching new skills.
2. Be proactive, not reactive.
Most small businesses instinctively stop spending and hunker down when times get scary. Don’t do this! It’s tempting to want to stop spending money, but operating from a place of scarcity will not lead to growth. Continue marketing and attracting new patients. Be smart with your spending by promoting services with high profit margins. Get ahead of the curve instead of trailing behind.
3. Have cash flow on hand.
A rule of thumb for businesses is to have up to six months’ worth of operating expenses on hand. We also like to tell our clients to open a line of credit, even if it’s just $50,000, while your practice is doing well. Build a strong relationship with your bank and have credit in your back pocket if you need it. Once a recession hits, it might be much harder to get the credit and cash flow you need.
4. Look at trends.
The best benchmark to compare against is actually your own business. For example, consider your gross profit margin. This is the profit you pay for consumables and the cost of treatments. Maven suggests aiming for a gross profit margin of 75%, with a take-home goal of 15-20%. How much gross profit margin were you making at this time last year? Does it vary by month or season? Which services typically bring in the most profit margin? Your revenue mix, number of locations, geography, and target market will differ from other med spas, so you are your own best indicator of trends.
5. Create value, not discounts.
Another way to stay ahead of economic changes is to offer value-adds, rather than discounts. Consider packaging services together and asking vendors to help you offer patients more bang for their buck. And if vendors raise their prices, so can you—it will be okay, we promise! Then, you can figure out how to help customers pay for the treatment they want. Membership plans and patient financing can create a patient for life.
6. Grow while others shrink.
Is there an opportunity to grow while other companies are holding back? Consider a growth strategy that includes treating more patients with more services. Invest in mergers & acquisitions (M&As) if you have the means to, looking for businesses with a good revenue mix and similar core values. Economic downturn can bring tremendous opportunity if you’re ready for it.
Finally, you can surround yourself with other smart business owners—a community to offer ideas and support. Cmmunicate clearly with your team and lead by example. If you do these things, you’ll not only survive, but you’ll be even better on the other side.
More Financial Resources for a Recession-Proof Med Spa
Our team at Maven wants you to feel confident as you head into the next season. Here are a few more resources to help you along the way:
- 3 Ways to Operate a Financially Efficient Med Spa
- 5 Simple Financial Tips for Med Spas
- How to Increase your Med Spa Cash Flow
- Which Financial Numbers Should I Track in My Small Business
We can also serve as your guide. Maven helps med spas and other small businesses connect the dots between their financials and their business strategy. We’ve survived recessions before, and we’ll do it again! Contact us today for a free financial analysis and to learn exactly how we can help you.