Supplies And Cost Optimization

Since we have picked up a subject of money in the previous post, I thought I’d pick up where I left off. Obviously, having enough supplies is important – while you can get away without a thing or two, in general supplies are what makes your business running. It’s the grease for the wheels. As with all logistical issues too many can be just as bad as too few.

At the beginning of operations we have agreed not to spend much time on supply hunting, preferring the convenience of fast delivery to price. With that in mind we signed up for Amazon Prime and that solved our problem of ordering when we “almost ran out” of something. Most of supply items are eligible for Prime and, therefore, delivered for free through two-day shipping. They would be overpriced items, at least at the beginning, but we have decided that given small space we were allowed to operate in and inability to stock up (and take advantage of wholesale price) might as well be offset by prompt delivery time. This was especially true during certain promotions, when we started running out of things differently than before.

Once the business had a full schedule and had run through the motions a few times, the time has come to the point where we could optimize the costs. Knowing what we needed and how often allowed us to order certain things in advance forgoing Prime shipping, but winning on the cost of the items. Additionally, certain items were being replaced with their less expensive equivalents: do you really need one of the most expensive paper towel s to wipe equipment clean after disinfection or can you do away with cheaper brand? Having certain predictability allowed us to forgo Amazon completely and order from other merchants, who don’t quite adhere to such strict shipping policies.

Yet another thing on our savings list was to verify if we, indeed, needed to use certain things at all. For example, we always offered single use razors for patients who forgot to shave the treatment area prior to their appointment. It sounded like a pretty neat idea at the beginning, taking care of your clients and all. What we’ve discovered was that it significantly increased the length of individual appointment (what could have taken 10 minutes dragged for full half hour), is totally unpredictable (we only learned of the situation at the moment a client walked in) and person who decided to shave on the spot still felt very uncomfortable. This led to major schedule shifts, people waiting excessive amounts of time or even leaving without receiving a treatment. From almost any point of view this benefit was creating more trouble than it was worth. We decided to ditch razors altogether. We changed the language on any promotional items requiring the shave and stating that person who didn’t shave will not receive the treatment and lose their appointment or session (in case of a voucher from a deal site). While it may sound a bit tough on customers we actually received a positive feedback on this move as schedule became just a little more predictable. And we dropped purchasing one item off our supply list.

The always fluid nature of offers on the market creates a never ending quest to seek the most efficient way to supply your own business. This takes time and goes along with “deal hunting” (that I was frowning upon in two previous articles). The upside is that you are getting merchandise, not services, and therefore can always objectively assess whether you are getting a good deal or not.

Truth About Deal Sites. Part 2 – While You’re At It

Dealing with clients who are coming from coupon sites is a whole different can of worms compared to regular clients (and a form of entertainment – if you are into that sort of thing). The mentality of a person, buying under-priced deals and expecting same or better level of everything: service, attention and respect is beyond me. If you are buying something tangible (say – a tablet or another gadget) with 80% discount, you can realize that you are buying a four-year old model that someone overstocked on awhile ago. You get what you pay for. When it comes to services this understanding goes away. People expect getting $600 worth of service for $99. Let me break a hard truth to you – if a company is providing a six-hundred-dollar service exactly the same way for a hundred dollars they are either selling an overpriced service or they are losing money.

Let’s look at it from money perspective.

Most of laser hair removal treatments come in packages of six. Let’s say you purchase six sessions on a small area for $99 on a deal site (the most common purchase so far). Looks reasonable, right? Only $16.50 per session – close to lunch money, if you’re in Manhattan. With coupon sites splitting the check around 50/50 (they get half and merchant is getting half – or close to that), the business only sees half of the money you paid. Which means they are making $8.25 per treatment.

An average laser technician is making in the vicinity of 10 – 15 dollars per hour. Some places pay a percentage off of each treatment on top of that. Some let the technician keep all their tips (instead of, say, sharing all tips across all technicians who worked that day) and allow them to sell and make a percentage off the sold treatment. But for the sake of simplicity let’s settle on $15 per hour as a close approximation to hourly rate and percentages. Surely, a small area doesn’t take an hour to do, but even the busiest places can hardly squeeze a small area into less than 10 minutes – with client getting in, prepping or applying gel, treating, signing consent form, removing gel, etc, etc. Facial treatments are even longer, because you have to be more careful with the treatment itself. So we can expect an average technician to perform about five small area treatments per hour if she worked like a factory worker at a conveyor belt. Let’s not discuss the fact that you don’t want to be treated like a piece of machinery, but rather like a human being. So an hour of one technician’s work can generate close to $40 of revenue. Out of which $15 dollars is her salary alone. Which leaves business with $25 per hour to cover the rest. There are lost appointments (when customer cancels or reschedules at the last minute and there’s no one else to put in his/her appointment slot), laser machines payments (a single good laser machine can cost up to $200,000 plus its own maintenance and insurance plans), supplies, utilities, rent, business insurance, maintenance, salary of the receptionist (if there is one) to consider as well. If you add all costs together, a business can consider itself lucky if they break even on a coupon sale. It gets worse if a deal site starts competing with another deal site and tries to bring your coupon price from $99 to $79 (for the lazy – a business is then makes $6.58 – just over a price of cup of coffee at Starbucks). It gets worse on larger areas, that’s why most of businesses stopped selling large areas on coupon sites. In other words – it’s next to impossible to make money on coupons, your best bet is not to loose money on it and hope to convert.

Given that, business owners are doing two things. First and foremost – they are trying to upsell coupon customers – obviously. A converted customer is the only way to make money on a coupon sale. Recently we noticed some coupon customers complaining on Yelp that businesses are trying to sell them other packages. How dare they! The fact that Yelp decides to publish these reviews also tells you about the overall quality of their review system. But that’s whole another story.

Second thing any reasonable business owner would do is to try and minimize his costs on coupon customers – especially those who don’t convert. Given that each customer gets six treatments, a business has about four to five chances to sell to one particular customer (it’s almost impossible to sell on first visit or two, so I am discounting for that). Some customers complain that their treatment at our place took longer than at other places. That’s because at their previous place they weren’t converting and that business owner decided not to waste technician’s time on these clients. They still got their treatment, but without the regular zeal and a lot faster – as their own words confirm.

Speaking of mentality of coupon buyers even coupon agents themselves note that customer loyalty on coupon sites doesn’t exist. The whole coupon industry have groomed a special kind of customers who shop based on price alone. In my many negotiations with deal sites one of the reasons cited to me was literally “if we make our coupon one dollar more than competition – no one will buy, they will go with the lowest price”. It’s not necessarily the absolute truth, as we found out in our running, but it is the general case.

Another edge of this, apparently, multiple-edged knife, is the next level of deal-searcher. They like a place, but really don’t want to spend money. They load up on coupons purchased through multiple credit cards so that coupon site cannot track and enforce their “one voucher per customer” rule and show up at the door with stack of vouchers (the most we have seen so far was six vouchers for one client – all purchased through multiple accounts with slightly different name) and demand the service because they “have a voucher you must honor”. If for some reason a business owner isn’t around to intervene – they have a chance to succeed in getting their treatment, because a technician or receptionist don’t have any say in these matters. The proper course of action, of course, is to call the coupon site’s customer service and let them deal with a cheater. From my experience most of deal sites do their best to protect merchants in such cases, but it requires some effort.

To add injury to insult – the coupon clientele is the most vocal when it comes to complaints. If you cannot accommodate their appointment this week they will call the voucher company and tell them they can’t get in touch for weeks (this is mostly entertaining when they have purchased their voucher a day ago) with you or you’re booked for three months or some such nonsense. Surprisingly, people who are purchasing direct (even if with a discount) are usually very respectful and a lot easier to work with. Guess they understand the concept “you get what you paid for” much better.

Truth About Deal Sites. Part 1 – In The Beginning

Jump start We’ve figured that a healthy way to jump start our clientele would be to work with some major deal sites. We’ll get a lot of traffic in, some of it will stick around and that would be a start. With that in mind we started contacting all major deal sites we could think of. Our initial assumption was that we’ll get on some traction with major names and a bit of side income from minors. We were almost correct.

Groupon – our biggest disappointment. They were first to offer us a contract and we ran quite a few different promotions with them. The number of purchases from ALL promotions barely exceeded the number of all the promotions. Initially we blamed such poor performance on ourselves for a few mistakes we’ve made when launching the deal. For example we let Groupon run our first deal on site only, starting on Saturday which effectively made a lot of people look at it without buying and their ranging algorithm quickly sunk our deal to the bottom of their extensive NYC deals portfolio. In about two weeks we’ve got the message: our Groupon promotion was dead in the water. We had no sales and we were locked out of other Groupon deals for three months (the term of the promotion). We closed the book and moved on.

Lifebooker – knowing the mistakes we’ve made with Groupon we put our foot down on launching on a proper day with an e-mail blast attached to it. Start was slow, but then activity quickly picked up and we’ve made a lot of sales on Lifebooker pretty quick. We weren’t particularly picky at that point, so we ran a few promotions with them almost back to back. Sales dipped noticeably, but we were still making decent numbers with them. Overall, I’d say Lifebooker was one of our most successful deal sites until our last contract with them. Given that it’s a very similar “coupon site” as Groupon and our pricing there was either same or even higher than Groupon it was curios to see people buying on Lifebooker and ignoring Groupon completely. Another cute fact about Lifebooker was that a lot of their staff were using our services (incognito, of course).

KGB Deals – I was reluctant to work with these guys since I haven’t heard much about them and their name sounded too Soviet Russian, but in the end we’ve got some minor sales out of their web site. It wasn’t much of a disappointment since we didn’t expect huge numbers, even though our sales manager promised sales that would beat Lifebooker. We weren’t particularly interested in doing any more deals with them past first two and after our account manager quit KGB and moved on to another company we lost interest altogether and decided not to renew the relationship.

Amazon Local – it was the first company to actually ask for credentials, certificates and other paraphernalia. It was something new, yet reassuring. We ran a few good deals with them until our account manager was changed and a new one quickly demoted our deals to the least favorable position. This resulted in them “missing” their sales goal for the deal and effectively locked us out. Coincidentally, our Yelp score (read about Yelp later) had dropped, so we had lost Amazon Local. Too bad, their audience was the one that actually stuck better and bought stuff for money. It was surprising, though, to see a company as large as Amazon relying on a third party (with well known shady practices) for reviews, especially knowing that Amazon itself has one of the best review communities on the market.

LivingSocial hasn’t responded to us, even after multiple calls and emails. We caught up with LivingSocial a few months later, but initially they asked us to have at least a hundred likes on business’ Facebook page (as if you can’t buy them for $5) in order to even be considered. They made it look as if they want established businesses instead of newcomers, so we had put it on a shelf for the time being.

Overall I can’t deny that deal sites – from a business owner’s perspective – are a good cheap way to bring in fresh blood. Of course you get what you pay for. The conflict is in the way the coupons are used. Most consumers don’t see anything wrong with picking the cheapest coupon and running with it. This, in turn, completely destroys customer loyalty, since such customers will flock to lowest price point almost never considering the quality of the service. As a result the service quality drops – why bother if a customer will go someplace else as soon as that some place else will offer a deal one dollar cheaper. There are, of course, smart consumers who understand the problem and who aren’t affected by coupon culture as much, but they are a minority.

Running your own small business is a challenge.