As the U.S. economy sinks deeper grooming business owners can expect some of their clients to stretch the time between grooming appointments. The impact on owners will vary regionally. Unaddressed, owners are likely to find their gross sales of services decline.
There is way for owners to compensate and maintain their gross sales. The answer is to grow the business, add more clientele. How does the owner determine just how many more clients they need to add to their client base?
The math is simple enough. The biggest challenge for most owners is they don’t regularly measure their client base and a couple financial variables like “average service fee.” If that is you, don’t worry, start now. If you are following The Madson Management System in From Problems to Profits, or Pet Grooming Business Plan Helper, the calculations will be easier.
Here’s the most basic sales projection formula every owner should memorize:
# of Clients (x) Avg. # of Appts Scheduled Yearly (x) Avg. Svc. Fee $ = Projected Gross Sales $
Note: Advanced users of The Madson Management System should use this formula 3 times, one for each of the client ratings, “A” Clients, “B” Clients and “C” Clients according to the Madson People and Pet Marketing Program (Chapter 12).
Example: The ABC Salon
Step 1: Performance Before Decline
300 Clients (times) 6 Appts/Year (times) $40 Avg Svc Fee = $72,000 Gross Sales of Services
Step 2: Evidence of Decline by Clients Stretching Appointments
300 Clients (times) 5 Appts/Year (times) $40 Avg Svc Fee = $60,000 Gross Sales of Services
In the example above, the ABC Salon stands to lose $12,000 in sales of services if 300 clients book 1 less appointment per year. Remember, we are working with averages. Some clients actually cutback to 4 appointments a year while others maintained their appointment frequency at 6 times or more a year.
How can the ABC Salon compensate for the projected loss of income? It’s true the business can raise its prices. In fact we can calculate just how much. During the decline the business is performing 1,500 grooming services a year. If we divide 1,500 into $12,000 we discover the owner must raise the average service fee by $8.00 simply to compensate for the loss of appointments. That’s a steep increase all the more difficult when many pet owners are feeling the effects of a recession.
We endured a major 7 year recession in the 1980 affecting our region in California. We learned that we didn’t have to raise prices to compensate for contractions in appointment frequency. In fact, we only raised prices as a last resort. Price increases were scheduled every 2 years.
People are suffering economically, and unfortunately 2009 offers little hope without drastic change in the U.S. financial system.
For the sake of your valued clientel, always look first for solutions other than raising prices. We found a simple solution to appointment frequency contraction. We grew our business instead of raising prices. While others raised prices, we actually repositioned business away from “competitors” to our business. When pet owners can get the same or better quality for less they may research alternatives. The odds of them making the move increase the longer the recession. Even in the worst of times we found inexpensive ways to market new business.
What if the owner of the ABC Salon grows the business to compensate for the projected loss of $12,000 in sales? We actually have enough information in the formulas above to determine the growth goal and avoid raising prices.
Step 3: Calculate Your Growth Goal
The goal is to attract new clients sufficient to produce $12,000 a year in sales of services. Thereby the contraction in the average appointment frequency from 6 appointments a year to 5 will be compensated, and gross sales maintained.
The first formula is:
$12,000 (divided by) $40 Avg. Service Fee = 300 appointments
The second formula is:
300 appointments (divided by) 5 Appts/Year = 60 New Clients
Isn’t that simple? Work with a few times. It becomes easier with practice.
The ABC Salon owner should worry less about the contraction in appointment frequency affecting sales and instead set a goal to market 60 new clients. If these 60 clients setup appointment schedules and average 5 appointments per year the business will maintain its sales performance. The financial effect of the contraction in the average appointment frequency due to the recession is now flatlined.
We suggest you add 50% to the new client goal. In this case, the ABC salon owner should adjust the goal from 60 to 90 clients. The increase helps to pay for marketing costs and provides a buffer against possible increases in appointment contraction.