Spa Retail: Gift Card Strategies

Experts share advice for new spa owners on gift card strategies for Mother’s Day and beyond.

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According to the 2013 National Retail Federation survey, last year’s holiday shoppers were projected to spend $29.9 billion on gift cards—the highest amount in the survey’s 11-year history. And though the lion’s share went to department stores (40.3%) and restaurants (32.0%), salons and spas accounted for nearly 6% of these gift card sales. No longer seen as “the lazy person’s way out”, gift cards have taken their place among other respectable and coveted items for gift givers and recipients.

But there’s more to gift sales than meets the eye. To the inexperienced spa owner, robust sales of gift cards and certificates can start to look like too much of a good thing, especially if he or she isn’t prepared for gift-card bonanzas like Valentine’s Day and Mother’s Day. These potential windfalls can end up creating financial snafus and scheduling mayhem.

We asked two leading spa consultants and one successful day spa owner to answer some bottom-line questions about how to handle the logistics and finances of gift card sales and redemptions. As they explain, it only takes a little preparation to ensure that your gift card sales this year produce the maximum in value for you and your clients.

Should owners use cash-based or service-based cards?

The definition of a cash-based gift card is clear-cut: the dollar amount stated on the card is the exact value of that card, and it doesn’t change. Leslie Lyon, president of Spas2b, a full-service spa development and consulting company in Ontario, Canada, believes that specific dollar amounts are the way to go. “These cards are more effective for both the client and the spa, because when the client calls or comes in with a budget as opposed to a preconceived service request, this opens up the situation to opportunities and benefits for both parties,” Lyon says. “Clients are more likely to upgrade their purchases as well as their budgets when they are starting out with a supplemental base dollar amount.”

“Dollar amounts are easier to deal with and less risky,” concurs Nina Ummel, owner of Ummelina International Day Spa in Seattle. “With services, such as a facial, if the price goes up in the future, then we have to eat the difference. And, remember that even if a person never redeems a card you still have to pay taxes on it.”

To some gift recipients, however, a cash-based card may seem like an impersonal gift, whereas a service-based card for a facial or a massage sends a personal message, such as, “I know you’ve been stressed out and I want you to enjoy a relaxing massage at Spa ABC.” In this case, the card should indicate very clearly for which massage it is redeemable (e.g., a 50-minute Swedish and not an 80-minute shiatsu).

“It depends on your business and clientele,” concludes Felicia Brown, LMBT, business and marketing coach, and founder/owner of Spalutions! in Greensboro, North Carolina. “Personally, I like selling cards for particular services because it seems like some thought actually went into it on the part of the buyer. I also like to sell multi-session packages of a single service to encourage regular visits and loyalty.”

“Promote your gift cards or certificates in the spa and through face-to-face sales, but also through email and social media, and on your website. Online gift cards are a MUST.”

What’s the best way to promote gift card sales?

“Promote your gift cards or certificates in the spa and through face-to-face sales, but also through email and social media, and on your website,” advises Brown. “Online gift cards are a MUST.”

“Almost every page on our website has a link that lets you buy a gift card,” Ummel reports. “Make gift cards easily available for your customers and give them lots of options: let them email them, or print them out and send them.”

Consider gift cards part of your overall marketing program, advises Lyon. “A purchased gift card can be classified as a client referral, a loyalty item and a frequent buyer item, so it’s a great idea to promote gift cards within all of your client retention programs,” she says. “And reward your clients generously to encourage their repeat behavior.”

Is there any ‘fine print’ owners should be aware of?

It’s essential that spa owners understand the gift card laws in their state. For instance, a number of states have a no-expiration date law, including Ummel’s state of Washington. “You never know when those folks are going to come in—they might come in five years after you’ve sold the cards and your service prices have changed,” she says. “How long are you going to carry those gift card sales on your books? This ends up being a business decision.”

Once you fully understand your state’s laws, you can be clear with clients about your spa’s policies regarding sales and redemption. Brown recommends that spas post their gift certificate policies in the spa and online to avoid unpleasant surprises.

Should the income from gift card sales be handled differently from other income?

The answer is a resounding yes. “Because a spa’s profit margins are so low, when you have gift cards coming in, it can become a problem if you’re putting that money into the same account with other income, and using it to pay for other things,” says Ummel. “Ideally, have a separate checking account for gift cards. You do have to micromanage—it’s a lot like putting money away for taxes.”

The difference should also be reflected in your books. “Gift card sales are classified as deferred income and should be entered under short-term liabilities on the balance sheet,” explains Lyon. “They would not be entered as an ‘inflow’ on the monthly cash flow statement, nor would they be considered revenue on the monthly profit and loss statement. A generally accepted practice would be to move this item from a liability to an asset on the balance sheet and onto the financial statements as inflows and revenue, after one year, at the spa’s year-end. Monthly draws are OK if you are not incorporated, and still operating as a small business (sole proprietorship).”

Is it possible to over-sell gift cards and have scheduling problems?

“There’s no such thing as selling too many gift cards,” insists Ummel. “Gift cards are a ‘thank you’ from your clients—they’re buying the gift of your business and giving it to someone else. What better way to honor your company than to give that gift?” However, she also acknowledges that spa owners need to manage their gift card sales carefully because they can run into problems if they sell more services than they are then able to accommodate.

“Gift cards are a ‘thank you’ from your clients—they’re buying the gift of your business and giving it to someone else. What better way to honor your company than to give that gift?”

This is exactly what happened to Brown in her first spa, right after Christmas. “We sold so many packages that we could not fit them in on the days clients could be there, which were often Saturdays,” she recalls. “The end result was that we started opening on Sundays, which did ease the problem but was not popular with my staff.”

Lyon suggests a formula for helping owners determine how gift cards’ sales affect their overall business. “Say your spa employs five estheticians working 40 hours per week,” she says. “Each of those estheticians could, hypothetically, conduct seven one-hour treatments per day, or 35 treatments each per week. Thirty-five one-hour treatments per week times those five estheticians equals 175 one-hour treatments as the weekly maximum.

“Now,” continues Lyon, “if a spa owner knew that the average weekly utilization for her esthetics department was, say, 60%, that would mean that currently about 105 one-hour treatments were being conducted in a week. That leaves 40% availability for the week, or 70 one-hour open time slots.”

Lyon adds that a spa owner could drill down as far as she wants to reveal an accurate picture of current utilization versus maximum capacity and, therefore, availability. “Gift card redemption involves a mix of both product and service sales that is undetermined until redemption,” she explains. “Nonetheless, if gift card service sales are robust and there is a risk of over-selling available time slots, working through this kind of formula could be a valuable exercise.”

How can owners follow up on gift card sales to their advantage?

Gift cards afford the spa owner an array of business opportunities, says Lyon. She recommends gathering data about the recipient from the purchaser at the time the gift card is purchased. “With this data, the spa can proactively manage this opportunity and influence the outcome,” she says. “How and when gift cards are redeemed is crucial to every department in the spa, particularly finances (cash flow), staffing (scheduling and booking) and customer service (VIPs and newbies).”