SMME #445 Rising Costs, Shrinking Margins: Smart Strategies for Spa Owners Navigating Inflation

Summary

Spa Marketing Made Easy Podcast

Host: Daniela Woerner, Licensed Aesthetician
Episode: SMME #445 - Rising Costs, Shrinking Margins: Smart Strategies for Spa Owners Navigating Inflation
Release Date: August 4, 2025

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Introduction

In episode #445 of the Spa Marketing Made Easy Podcast, hosted by Daniela Woerner, the focus centers on navigating the challenges of rising costs and shrinking profit margins within the spa industry. Daniela addresses the pressing concerns of spa owners dealing with inflationary pressures and offers strategic insights to maintain and enhance business profitability without compromising client experience.

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1. Understanding the Impact of Inflation

Daniela begins by highlighting the widespread effects of inflation on the spa industry, noting that costs related to skincare products, shipping, payroll, and other operational expenses are all on the rise. She mentions a recent poll conducted in the Spa Marketing Made Easy Facebook group, where the majority of respondents expressed concern over managing increased costs without diminishing the quality of client experiences.

“Inflation is touching every single corner of our industry, and it's not just our industry.”
— Daniela Woerner [00:00]

She contrasts the usual annual price increases of 2-5% with the current situation where major brands are raising prices mid-year due to factors like tariffs and supply chain disruptions. This unprecedented rise has created anxiety among spa owners about the feasibility of maintaining client loyalty amidst price hikes.

“I was actually on a coaching call last week with one of the gals in our growth factor beta program, and she had already increased her prices three times this year.”
— Daniela Woerner [04:30]

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2. Knowing Your Numbers

Daniela emphasizes the critical importance of understanding business metrics to make informed pricing decisions. She outlines key financial elements that spa owners must track:

• Cost of Treatment: Break down every consumable used in services to identify true costs.
• Client Acquisition Cost (CAC): Determine how much it costs to attract a new client through various channels like social ads, SEO, referrals, and partnerships.
• Average Client Spend: Know the annual expenditure per client to assess profitability.

“Guessing is not a pricing strategy. Okay, so this means knowing your cost of treatment, and I mean on a granular level.”
— Daniela Woerner [05:00]

By monitoring these Key Performance Indicators (KPIs), spa owners can make data-driven decisions rather than reacting out of panic.

“These KPIs, key performance indicators are going to help you to make data based decisions. And data is the language of business.”
— Daniela Woerner [06:16]

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3. Adjusting Prices Intentionally

Once spa owners have a clear understanding of their numbers, Daniela advises on strategically adjusting prices. She introduces a Cost of Treatment and Profitability Tracker tool that helps businesses calculate the necessary price points to maintain desired profit margins.

“If you have not raised your prices in the past year, you are absorbing that cost of inflation. Your profit margin is going down.”
— Daniela Woerner [08:22]

Daniela acknowledges the fear of losing clients due to price increases but reassures that losing 10-20% of clients is often a manageable outcome when prices are adjusted thoughtfully. She encourages spa owners to filter out price shoppers who are more likely to be attracted to chains rather than local, high-touch businesses.

“You are a high touch owner operated local business, not a chain or franchise.”
— Daniela Woerner [08:41]

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4. Leveraging Memberships for Recurring Revenue

Transitioning to membership models, Daniela shares a shift in her perspective over the past year, advocating that all spas should aim for a minimum of $10,000 per month in recurring revenue through memberships. This stable income stream empowers spa owners to focus on strategic CEO roles rather than being bogged down by day-to-day operations.

“Memberships are really the starting point that allows that CEO that's at the 25 to 35,000 per month that you're just kind of stuck there.”
— Daniela Woerner [12:22]

She outlines the necessity of strategically structuring memberships, whether as front-end offerings or back-end maintenance packages, and highlights the importance of continuous marketing and engagement to minimize churn rates.

“Memberships are not a set it and forget it type of thing. You've got to be constantly talking about them, nurturing them.”
— Daniela Woerner [14:01]

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5. Cutting Costs Without Compromising Client Experience

Daniela advises spa owners to audit their expenses meticulously, identifying areas where costs can be reduced without degrading the quality of services. Strategies include:

• Eliminating unused subscriptions
• Negotiating with vendors
• Purchasing consumables in bulk
• Simplifying service menus to focus on the most profitable offerings

“We want to simplify, run reports and look at, you know, what are the 20% of services that are generating 80% of the revenue.”
— Daniela Woerner [15:39]

She shares a case study from her own company, where they streamlined their software tools and saved approximately $10,000 annually by adopting more efficient and cost-effective solutions.

“We ended up saving about $10,000 a year by going through and doing that.”
— Daniela Woerner [21:15]

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6. Incorporating AI into Operations

A significant portion of the episode is dedicated to the integration of Artificial Intelligence (AI) to enhance operational efficiency and reduce costs. Daniela references a McKinsey report predicting that by 2026, 40-45% of small businesses will have adopted AI, leading to a 20-30% reduction in administrative and HR time and a 25% decrease in payroll costs.

“AI can write your social posts for you, they can write your email nurture sequences, they can write your landing page copy.”
— Daniela Woerner [23:00]

She encourages spa owners to leverage AI tools for tasks such as content creation, marketing automation, and customer engagement, which can significantly lower reliance on expensive marketing agencies.

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7. Empowering Your Team with AI

Daniela discusses the importance of training and empowering team members to utilize AI effectively. By doing so, she aims for her team to achieve 5x productivity through AI support, enabling roles like the front desk to handle marketing tasks via custom chatbots and other AI-driven tools.

“Our goal across the board, I'm expecting 5x productivity from everybody on my team, including myself, because we have the support of AI.”
— Daniela Woerner [23:50]

She underscores the necessity of aligning AI usage across the team, ensuring that everyone is proficient in leveraging these technologies to enhance their respective roles.

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8. Reframing Inflation as an Opportunity

Concluding the episode, Daniela encourages a mindset shift by reframing inflation as an opportunity rather than a setback. She advocates for using this period to clarify business strategies, strengthen client relationships, and enhance leadership skills. This proactive approach positions spas to emerge more efficient and profitable post-inflation.

“Reframe inflation as an opportunity. And this is a mindset shift.”
— Daniela Woerner [24:04]

Daniela emphasizes that despite economic uncertainties, there are still clients who are spending intentionally and carefully, and spas that position themselves as relationship-builders will continue to thrive.

“Clients are just spending more intentionally, more carefully. All right? So just make sure that you're positioning yourself as someone who wants to build a relationship with them.”
— Daniela Woerner [26:33]

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Conclusion and Recap

In summary, Daniela Woerner provides a comprehensive roadmap for spa owners to navigate inflationary challenges through:

1. Knowing Your Numbers: Deeply understanding costs, client acquisition, and revenue metrics.
2. Adjusting Prices Intentionally: Strategically increasing prices based on detailed financial insights.
3. Leveraging Memberships: Establishing recurring revenue streams to stabilize income.
4. Cutting Costs Wisely: Reducing unnecessary expenses without compromising the client experience.
5. Incorporating AI: Utilizing artificial intelligence to enhance efficiency and reduce operational costs.
6. Empowering the Team: Training staff to effectively use AI tools for increased productivity.
7. Reframing Mindset: Viewing inflation as a catalyst for business improvement and strategic growth.

Daniela wraps up by urging listeners to implement these strategies to build more resilient and profitable spa businesses amidst economic fluctuations.

“There are still clients spending money. I know several spas that are having the best year that they have had.”
— Daniela Woerner [26:33]

Listeners are encouraged to share the episode with fellow professionals to foster a supportive community during these challenging times.

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Tune in to the next episode of Spa Marketing Made Easy Podcast for more actionable strategies and insights tailored for spa industry success.

Transcript

[A]

Foreign. My dears, welcome to the Spa Marketing Made Easy podcast. I am Daniella, and today we are diving into a topic that I know is on your mind right now, and that is rising cost. So we actually put a poll inside of the Spa Marketing Made Easy Facebook group. If you're not in there, go join in there. And we said, hey, what do you want us to do some content about? We're looking at our editorial calendar and this came up with the highest percent of votes. So how are we going to cut costs without cutting the experience? And we're seeing right now, from skincare to shipping fees to payroll, everything in between, everything that it takes to operate your business. Inflation is touching every single corner of our industry, and it's not just our industry. So normally we will see brands increase prices sometimes sometime between October and January, and that's normal, right? You're. You are expected to get a letter from your skincare vendor that says, hey, you know, here is the, you know, updated menu of or product listings and updated prices. It's usually between 2 to 5%. It is a small increase, and in fact, it's actually a smart business move that you should be doing as well. All businesses should be increasing their prices by 2 to 5% every single year in order to keep up with inflation. But what's different about this year? This year in just the past couple of months, and as I'm recording this, it's mid July, and in the past couple of months, we have seen some pretty big brands increase their prices mid year. So this is because of inflation, this is because of tariffs. Right. This is because of the supply chain issues. There's a lot of things going on in our world where that's causing these prices to go up. I'm curious if the prices are going to go up additionally in the normal time frame. So we'll have to wait and see for that. I know it can feel overwhelming, right? It feels like, oh, my gosh, I feel like I'm just constantly chasing expenses, but I'm afraid to raise prices because I don't want to lose my clients. And it's so much harder to get clients on the books these days. Right. So I was actually on a coaching call last week with one of the gals in our growth factor beta program, and she had already increased her prices three times this year. And when we were looking at her numbers, she. She actually did need to increase her prices again. It was going to be really challenging for her to support her business without getting her prices to the place that they needed to be. To cover her expenses. That's hard, right? I'm not going to be here and pretend like it's easy. There's a lot of challenging things going on in this kind of constricting market. But my goal for you by the end of this episode is to have clarity and confidence on how you navigate this market and the changes that we are going through by making a few strategic shifts. Now, before we get into that, if I could ask you just a little favor. This is a. It is a challenging time, and I would be so incredibly grateful if you would share this episode with a friend in the aesthetic space. Maybe that means sharing it in a group or forwarding an email to your SD bestie. This moment in time is huge. And the more that we can help and support one another, the better. This is different than a recession or an economic downturn. Again, we've got inflation, we've got economic and geopolitical uncertainty. We've got major shifts in consumer spending. We've got AI. AI advancements at such a rapid pace, it feels like once we learn something, it's already something new coming out. There's a lot going on. But. And this is a big but. This is a huge opportunity. I want you to see that. This is an opportunity for the spa CEOs who choose to streamline their operations, to lower their operating cost, to build deeper relationships with their clients and to incorporate AI into their businesses. Businesses will close. There's no sugar coating that businesses will close. Many already have. But the ones that make it through are going to be more efficient, more profitable. They're really going to thrive. And I want that for you. Okay, so let's go ahead and dive in. All right, so the first thing that I want to talk about is, is knowing your numbers. That is just when we're looking at pricing. There's no way that you can choose the appropriate price without knowing your numbers. Guessing is not a pricing strategy. Okay, so this means knowing your cost of treatment, and I mean on a granular level. So we've gotta understand the profitability of the service so that we can truly know is this service. Does it make sense for me to offer this? In my business, we've got to understand client acquisition cost. So how much did it cost me to bring that new client in? You know, it can be one price from social ads, you know, that type of getting a new client from there, it can be another price from SEO. It can be another price from client referrals. It can be another price from strategic partnerships. So we really Want to understand which lead flow source is giving me the most cost effective way to get new clients in the door. That alone can be absolutely huge on where you focus your marketing.

[B]

Okay?

[A]

They're going to help you. These KPIs, key performance indicators are going to help you to make data based decisions. And data is the language of business. Okay? We've got to be able to speak that language to be able to understand what our business is trying to tell us.

[B]

All right?

[A]

That's going to help you make decisions from a place of power and not from this place of panic. All right? Segment section number two is going to be adjusting our prices intentionally. So once you know your numbers and we've gone through on a granular level, we have this document called the Cost of treatment and profitability Tracker that we share with our students. And it essentially goes through and it'll be like two pairs of gloves, cost this, four cotton rounds, eight four by fours, two pumps of cleanser. Like it's breaking down everything that you're using so that you understand the true consumable cost of that service. Once we know that, we have a strategy that a formula of this is what, this is where we need your pricing to be. If this is what it costs you, this is the margin we're looking for.

[B]

Okay?

[A]

And so we have an actual formula that we also couple with the experience that you are providing. Right? There's, there's more than just the consumable cost that goes into it. And I know that raising your prices can feel really scary. You're thinking, what if I lose clients? You probably will.

[B]

Okay?

[A]

You can expect to lose 10 to 20% of clients when you raise prices, depending on how significant the changes. It's one thing to raise prices. 5 bucks. It's one thing to raise prices. 50 bucks. It's one thing to raise prices. A hundred bucks. Okay, but here's something that the spa CEO sees when she lets go of the people who are not willing to pay a higher price. She is creating space for a higher level client.

[B]

Okay?

[A]

So there are absolutely price shoppers out there. That's fine. There's chains that do a great job of accommodating them. They are not your competitors. You are a high touch owner operated local business, not a chain or franchise.

[B]

Okay.

[A]

You've created an experience that delivers results that help clients feel seen, heard and cared for and that has value. Now, I'm not, you know, knocking on the franchises. I think there's absolutely a place for them. I don't, I just, I don't see them as your competition. It's a different business model, okay? So don't set your prices based on what their prices are. Don't do the same offers as them. Do the thing that makes sense for you.

[B]

Okay?

[A]

So whether you're updating your menu or introducing a membership, be intentional. Use strategic price points. So there's a real psychology between behind ending in a 9 or in a 7. Just google why prices are always 99 or 97 and clearly communicate the value that they are getting. All right? And remember, if you have not raised your prices in the past year, you are absorbing that cost of inflation. Your profit margin is going down. So it is time for a change, my friend. All right, next up, let's talk about memberships.

[B]

Okay?

[A]

And this is something that I've actually kind of changed my tune to in the past year. So I used to suggest memberships. I've always suggested memberships. But I also felt that there were certain spas that could be fine without them. Right? But after the past year, I really changed my approach, and I genuinely believe that all spas, all spas should have a minimum 10k per month in recurring revenue coming in through memberships. I. I just think you lead in a different way as the CEO. If at the start of the month, you already know that you have $10,000 coming in, it helps you also to step into the role of CEO, which kind of breaks that cycle that a lot of the spot owners that we work with, I see them in. So there. There's this point, and I've talked about this point so many times before when I talk about spot managers. But if you are stuck somewhere between 25,000 and 35,000 per month and you've just kind of been there for a while, I'm talking to you, okay? This is the point where you really need a spa manager. But you may still need to be developing your leadership skills. You may still need to have a deeper understanding of what it is that. That the CEO is actually doing. I can't tell you how many times I've heard incredible women, incredible successful women, but they are just so burnt out. And they're saying, I don't feel like I'm working if I'm not in the room. And that is a vicious and dangerous cycle to be in, okay? Because you cannot lead your business from an overworked and overwhelmed place. And a CEO is someone who is the visionary of the business, who's looking five years out, who's making the strategic decisions about where you want this business to go.

[B]

Okay.

[A]

We're not in the business all day, every day. The CEO is working on the business. Really big distinction.

[B]

Okay?

[A]

So memberships are really the starting point that allows that CEO that's at the 25 to 35,000 per month that you're just kind of stuck there. When you know that you have at least 10,000amonth coming in in recurring revenue, you can, you can kind of let your shoulders drop a little bit, you can breathe a little bit more. And maybe you start by taking a half day even that you're fully dedicated to CEO work.

[B]

Okay.

[A]

And then eventually we'll get you to one day and to two days and to three days and really get you to start to understand what, what that role takes and what it entails and what activities you are going to be doing so that you can work on the business rather than in it.

[B]

Okay.

[A]

Okay, here's the deal though. Memberships are only going to work if they are structured strategically. And so we've got to make sure that it makes sense in all of our messaging and where we're positioning it, where we're placing it with it is a front end membership or a back end membership. Um, so what I mean by that, if it's a front end membership, it's something that you're leading with. You want everyone, when they come into your spa, that's the first thing that you're going to be offering them or letting them know about if it's a backend membership. When someone comes into your spa, I see this a lot with like face reality accounts where they're doing acne or acne boot camps and they're focusing specifically on like a customized package to help this individual get clear skin. And then they're selling them a membership on the back end for maintenance.

[B]

Okay.

[A]

So you've got to understand is this front end or back end? You've got to understand that your marketing needs to be front and center. Memberships are not a set it and forget it type of thing. You've got to be constantly talking about them, nurturing them. There's a lot that goes into it. Right? When it comes to the KPIs, we've got to understand churn rate. We've got to track your member behavior. We've got to make sure that we're re engaging your members before they cancel, which we understand through kind of our, our churn rate. When we're tracking that we create client journeys for our memberships. There's all these little touches that really go a long way. Okay, so let's move on to the next section here, and that is talking about cutting costs without cutting the experience. So of course we want to increase revenue. Right? But we've also got to be really smart about reducing waste. So I want you to audit your expenses. So are there any subscriptions that you are not using? Can you negotiate with your vendors? Are there opportunities where it would make sense for you to buy in bulk in the treatment room? I want you to simplify, run reports and look at, you know, what are the 20% of services that are generating 80% of the revenue. You don't need to have 30 different services on your revenue or on your menu. I want you to focus on what is profitable and easy to train your team on.

[B]

Okay?

[A]

We want to look at ways to streamline without compromising the client's experience because ultimately how they feel is incredibly important to their overall experience. They of course want results.

[B]

Right.

[A]

But we want to make sure that there's this component of self care and connection and relaxation, all while getting a really beautiful clinical result.

[B]

Okay?

[A]

So I want to share a story with you about something that we did in our company over the past year. And I think that this can really help you to understand, you know, how to cut costs in a different way than just like how we would in a recession, which is what I just kind of shared. Like, when we're going through a recession, which historically happens every 10 to 12 years, if you're in business long enough, you will go through one. And when we go through those moments, we're refining our systems, we're really analyzing what we're going to spend our time on, what's a nice to have versus a need to have, auditing, all of the expenses, etc. What we're going through right now, or what we just did in the past year, because it was about a year ago that I really just dove kind of headfirst into the AI world and restructured. A lot of our business went through. Our company's really gone through a lot of shifts and changes in the past year. One of the things that we really focused on were the softwares that we were using. And not just can I negotiate prices, but is this the right software for me? And we use a software. We had been using a software called ontraport, and it's a really great funnel software. I don't have anything bad to say about it, but we started using it about eight years ago. And at the time that was the best thing on the market. That was the best thing available to us. And we were kind of following the philosophy of if, if it's not broke, don't fix it. Right. Um, and so we wanted to just leave it there because, as you know, if you've ever, ever switched softwares, you understand the pain factor that goes into that. Right? Like, there's a lot. It's a, it's a big project to kind of add in. So we were just focusing on creating our content and working with our clients and, you know, all of that type of stuff. And we hadn't really done a deep dive into the softwares we were using and why we were using them. So over the course of the past year, I have researched other companies, I've looked at the companies that we are working with. I made sure that we were on the appropriate plans for all of the softwares that we actually were using. We call this like our tech stack. And went through and I, I changed softwares. We got rid of ontraport and found something better that was a tenth of the cost that actually has probably ten times the. The bells and whistles of what we're capable to do and how to do it in a really easy manner. We adapted our Monday Boards. We're big fans of Monday.com is our project management software. But we were able to use them in a more efficient way. We got rid of a podcast software that we use called podscribe. We got rid of our social schedulers, and we're scheduling directly in the platform. There's a lot of different things that we did that, all in all, ended up saving about $10,000 a year by going through and doing that. $10,000 a year. That is huge. And I've been actually talking to our growth factor students about this McKenzie report a lot. If you, if you, if you're in Growth factor, I'm sorry, I'm going to talk about it again, but I, I read this report by McKenzie and McKinsey is one of the big three consulting firms, if you're not familiar with who they are, but they put out this report and it was about AI integration into the world in general, into small businesses. And so it was saying that by. So in 2023, about 25% of companies had adopted AI into their operations. And by 2026, 40 to 45% of small businesses will have adopted AI and into their businesses. And those 40 to 45% of people will reduce their administrative and HR time by 20 to 30%. So because we are automating tasks or having AI agents do those tasks for us, we're able to get 20 to 30% of our time back. Now, the other piece here is that we're actually able additionally to reduce Payroll cost by 25%. Those who are incorporating AI. How do you do that? Well, look at your, look at your marketing teams. Look at, you know, unfortunately, the marketing industry. There's a lot of people that will be out of work unless they adapt. Right. Because you have to understand how to use AI. But AI can write your social posts for you, they can write your email nurture sequences, they can write your landing page copy. They can do all of these things for you. So if you're a SPA that's paying 1500, 20, 500, 3500amonth for a marketing company, you can get rid of that expense if you know how to use AI appropriately. And that can be huge when we're looking at month over month over month. Okay, so when we're looking at cutting cost. Yes, absolutely. You can look at your back bar. You can look at, you know, I know a lot of people that are doing some of the specialty facials like HydraFacial practices will actually incorporate the boosters and those boosters. It's not like a one size fits all. You can't just put one booster. You. There has to be like a clear understanding. There has to be a clear price point for those because some of those boosters are very expensive. And it's fine to use them if there's an additional upcharge, but if you're incorporating that into the consumable cost of treatment, man, that's gonna, that's gonna bite you in the butt. Okay, so empowering your team, one of the things that we also did in the past. Well, I would like to say in the past year, but this was actually a growth opportunity for me. So I realized that I had been div. AI in a huge way and I'd been telling my team, yeah, use AI. Use AI for this. But I wasn't teaching them how to use it in the same way that I was using it. And that became clear actually earlier in this year. And I realized that and I said, okay, no, I'm going to teach my team how I'm using it so that they can feel empowered. And by doing this, like our goal across the board, I'm expecting 5x productivity from everybody on my team, including myself, because we have the support of AI. So if you're going to. And, and this is something also that's very, very powerful. Your front desk can now be your marketing person. Right. They. If they know how to Use AI. If you put the time in to create custom chatbots, it's as simple as copy and paste, right? I mean, it's. That can be a whole other episode. But there's just some really, really incredible things that you can do with AI and with these agents that we're seeing.

[B]

Okay.

[A]

I want you to reframe inflation as an opportunity.

[B]

Okay?

[A]

And this is a mindset shift. This really is. Inflation is an invitation to be clearer, to be bolder, to show up for your clients in a more intentional way. It's an. It's an invit. It's a gift to help you really become a foundationally stronger, a fundamentally stronger business, a better leader, a better communicator. There's, you know, that quote, the only constant is change. And in entrepreneurship, we're always having to change and adapt to what the market is telling us, right? Client behavior is changing, so we have to adapt to that. Really focus on streamlining, on refining, on shifting or pivoting if that's what you need to do to make sure that you are focusing on the relationship, the needs of your clients. Okay? That is going to be hugely, hugely important. All right, so that is it for today's episode. I hope you enjoyed it. I hope you got some, like, aha moments, some ideas of things that you can start to implement in your business. Let me just do a quick recap here. I'm just going to check my notes real quick. So we started off with knowing your numbers and specifically spoke about cost of treatment, the client acquisition cost, and the average spend that your client does per year. Those are going to be really important. KPI's. We want you to adjust your pricing intentionally based off of those numbers that you caught for yourself. We want you to really leverage memberships and understand how to incorporate memberships into your spa. We want you to incorporate AI into not only your administrative hr, even with your numbers, really incorporating AI into those operational aspects of your business, and also empower your team to incorporate AI. But make sure that you're teaching them how to use it in the same way that you are. And then mindset is reframe inflation as an opportunity.

[B]

Okay?

[A]

Mindset is such a huge, huge, huge thing. There are still clients spending money. I know several spas that are having the best year that they have had.

[B]

Okay?

[A]

Clients are just spending more intentionally, more carefully. All right? So just make sure that you're positioning yourself as someone who wants to build a relationship with them, who wants to serve them in a beautiful way. All right? So that is it. For today. Please share this episode with a friend. And I appreciate you so, so much. I'll catch you on the next episode.