Pop Quiz: Do You Know Your Revenue per Hour?
If you’re like most people, you probably dreaded hearing the words, “Pop Quiz” from a teacher! You know that automatic sinking feeling in the pit of your stomach where you say to yourself, “Oh Sh*t” because you haven’t studied the material yet?
Well, the good news is the pop quiz I’m about to give you isn’t for a grade. Although NOT knowing the answers can affect the profitability of your aesthetics practice, the great news is we’ve got your back and are here to educate you.
What is your revenue per hour?
What is your revenue per hour per room?
What is your revenue per hour per provider?
If you are like most practices we work with, you can’t answer this off the top of your head or even by looking at your financials, and that is totally understandable as most of us did not go to business school or learn how to measure these types of key performance indicators. So consider this a learning opportunity as this information is vitally important.
Let me share with you some industry benchmarks for an aesthetics practice:
In a medical spa, a room should generate between $600 and over $1000 per hour. So, let's take the average and say $800 per room per hour. When we work with practices, we find some are only bringing in between $300-$400 per hour. The industry average is $425.00.
So the question becomes how do we increase this? Is the compensation plan aligned with what they are generating? Are we offering the right treatments? What percent of the time are we performing these treatments?
An aesthetician room should be generating between $250 to $350 per hour--even more in some states which is combined service and retail
A surgical practice should generate over $3000 an hour.
If your revenue per hour is not in alignment, it usually means a few things: 1) Your prices are too low; 2) Your provider is taking too long in the room per service; or 3). You may not be offering the right treatments. For example, if you are doing laser hair removal all day in a room, there is no way you are going to bring in $800 per hour. So, you might want to evaluate your service mix and adjust accordingly so you can offer the most profitable treatments and yield a better return on your investment. Not to mention cater to what the market demands.
As part of our comprehensive financial foundations course, we have developed 6 proprietary financial calculators that really simplify this for you and will spit out the most important information to help you make the best, most informed decisions. To learn more about our Financial Foundations course, click here.
What Numbers Do You Need?
In order to determine your revenue per hour, you need to look at your service category mix over a period of time – 3 months, 6 months, or 12-months. Then, you need to know:
What you are charging per service?
What is the cost of labor per treatment?
What is the cost of goods that is associated with that service?
How long does it take your provider to perform that service?
Again, our proprietary financial calculators are so smart and so intuitive that they will spit out those figures for you once you enter the information and determine:
What your average hourly rate is
What the weighted average hourly you are making is
What the weighted average of your cost of goods is
Then, what the profit that you are making is
Why Does Revenue per Hour Matter?
Knowing these numbers is critical to making informed decisions on the types of services you provide and your price per service. When you have these calculations, you can then decide which services you want to bump or reduce, and which ones you want to focus on and do more of instead. The information gives you the opportunity to course-correct and fix the things that are out of alignment.
Why does revenue per hour matter? It gives you a very clear picture of many things. It's going to give you insight into your pricing. It will answer whether or not you are aligned with your market or whether you are charging too little. Or perhaps your prices are too high. If your provider is not generating at least that $600 to$1000 an hour—let’s say it is more in the $400-$500 range--it gives you the opportunity to coach that employee and to find out why they are taking so long with each service. Then, you can encourage them to elevate their productivity per hour. If you look at your service mix in addition to revenue per hour, you can see how much time you are spending on doing procedures that are not yielding a high return on investment.
From a financial perspective, the only way you can arrive at your gross profit is by knowing your revenue less the cost of goods and labor (which is the contribution margin of your services to your practice for other expenses such as rent, etc.) If your gross profit is not 50% or greater, you may just be breaking even or worse.
At the end of the day, we all want to provide great results in a safe manner. That goes without saying. But we don’t want you to be spending most of the day performing services like IV vitamin therapy because you will not have a profitable business. So, you should be able to know what percentage of your annual revenue is being generated per each category of service. Again, our financial optimization calculators will be fundamental in helping provide you with a snapshot of your full financial picture so you can make changes immediately that will have an impact on your business. Below is an example of revenue growth (485% increase!) from our beloved client, Olam Med-Spa, located in Florida, in just one year!
Maintaining Up-to-Date Financial Records is Vital
Financial statements are living documents. You have to be disciplined, and you have to maintain them. Make updating them a part of your monthly standard operating procedures. All this work does you no good if you do not keep your records up to date and maintain them. Once you get in the habit, you will be more confident in where you are, what is working and what isn’t, and where you can make tweaks and changes to be more profitable.
And then, you’ll be able to ace any financial pop quiz that comes your way!
Remember, our team is here to help and support you. If you would like to learn more about how our 1 on 1 coaching has helped clients this year, and find out more information on both our Financial Foundations and Mastering the Art of Sales Course, please reach out to us at https://terrirossconsulting.com/schedule-appointment or email email@example.com and he can assist you.