Is it Time to Open Up a Second Location?
By Lisa Starr
When you are presiding over a thriving and successful beauty business, you may have, on occasion, fantasized about opening a second location to replicate your success. Is it worth it? Does a second location double your profits? Double your workload? As with any business decision, there are pros and cons to this concept that should be carefully considered before proceeding.
Assessing the current state of your first location.
First, let’s look at the overall situation; the age and growth curve of your business, the region and location, and general economic factors. If your current business is less than three years old, it can be difficult to be sure that the results you’ve been seeing are sustainable over the long term, and depending on where you would situate a second location, it can potentially cannibalize sales from the first. The general rule of thumb is that today’s consumers patronize businesses that are within a 10 mile range from their home or work; so you would want to draw a 10-mile radius circle on a map around your current location, and look outside of that for a second. But obviously, that is not the only location consideration; there must also be a sizeable population of your target demographic to provide a strong foundation in the new space.
The leasehold situation on the current business should also be considered; are you half-way through a five-year lease that may not be renewed? If there is any chance you would have to move the current business, you’d have to time the opening of a new location very carefully, to preserve both cash flow and your own energy and resources.
Things you need to consider for a second location.
Putting the practical considerations aside, what are your other options? While the concept of a new location can get your creative juices flowing, don’t let that aspect of the excitement sway your decision. Sure, it’s fun to plan, build and decorate a new spa, but then you have to run it, and pay for it! Are you really getting all that you can from your current location? When you look into the numbers, you may find that there are small adjustments that can be made in different areas, which can have a powerful impact at the end of the year.
Here are a few options to consider:
- Can you expand operating hours at the current location?
- Have you changed your prices in the last few years? Adjusting prices on even just a few of your top-selling services can give a nice boost to revenue.
- Could you hire more service providers, and through careful scheduling, expand your sellable slots?
- Is retail contributing a significant chunk of revenue, profit, or both? Perhaps through better merchandising and product selection you can make inroads here.
- Is your front desk staff employing smart scheduling practices, to ensure that you are eliminating unwanted gaps and dead spots in the book?
- Is your service provider compensation plan driving positive behaviors, sales and profits for the business and the staff members? Too often, compensation plans are heavily weighed in the favor of the staff member. Changing your compensation plan is by no means simple or easy, but if you can add a few percentage points of profit through recalibration, that is a lot less expensive than building a new location.
There are many more, but let’s look at the impact these sorts of changes can have in a 2500 square foot spa with six treatment rooms, two manicure and two pedicure stations that is open six days per week for 52 hours, has a utilization rate of 45% and a retail to service ratio of 15%:
- Adding six hours of operations per week can add $7,685/month, or $92,220/year
- Bumping your top three services up $3 each can add $3,824/month, or $45,883/year
- Increasing utilization to 52%, through scheduling efficiencies or marketing, can increase revenue by $10k/month, or $120k/year
- Building the retail to service ratio to 20% increases monthly sales by $3522, or $42,260/year
It can be worth looking into making one, or even several, of these adjustments to your current operation. Some of these revenue increases have added costs attached, but nonetheless, they are all less expensive in the long run than building a new facility.
When a second location is the right step for you.
Now, let’s consider the alternative; you’ve already thought of and/or enacted all of these options, you’re still bursting at the seams, and you are attracting a constant stream of both customers and job applicants. In this case, a second location may be a viable option for you. Beyond the geographic considerations already mentioned, here are a few things to think about in planning your additional location.
First, it’s crucial to realize that opening a second spa is going to drain resources, and I don’t just mean money. The energy and motivation of your management team are going to be focused on the new location, for the months leading up to, and subsequent to, it’s opening. So it is essential that the existing location is ready to be quite self-sufficient through this process. Your standards, protocols and processes need to be clearly documented (and followed!) for all aspects of business operations. Your compensation plan has to be proven to reward and retain staff without unnecessarily raising your expenses. The existing spa’s marketing plan should be a smoothly oiled machine, so there are no hiccups. If your business is successful, you are likely already 85% of the way there, but you want to enter this process being 110% of the way there.
Ideally, you would seed the staffing of the new location by shifting some employees from the existing facility; they know “how it works” in your business, and can lead the way in indoctrinating new staff, as well as clients. It can cause some trepidation to upset the personnel in a smoothly running operation, but you will find that having knowledgeable staff at the new location will help it to reach higher performance numbers more quickly than if you started with an all new staff.
The perks of having a second location.
One of the advantages of having multiple locations in one geographic marketplace is that you should, ostensibly, be able to use your spa management software to help spread some of the management, marketing and other back of house expenses over two locations. This works in theory, but potentially less so in practice. Unfortunately. However, having another location does give you the option to even create another brand; rather than a second business mirroring the first, you can use what you have learned to create something with a different price point, target client or vibe. While a different brand may not allow you to capitalize on marketing expenses to the degree that an identical copy of the first location would, you still have better buying power, and that holds true for relationships with many of your vendors.
As you can see, this decision of whether or not to open a second location has many complexities, and should not be taken lightly. Each situation has its own particular factors that will weigh into the decision. But one thing is certain; if your current location is not consistently profitable, despite all of the upward indicators, work on making that a reality before expanding. You want to replicate systems that produce profitability, not uncertainty.
This is the second installment of an entire blog series by Lisa Starr. Read her first article.