What You Should Know About Service Categories & Cost of Goods

When it comes to launching, growing or scaling your medical aesthetics practice, you must have a firm financial foundation. Before you can go to the bank, get a loan, buy equipment, or compensate a team, you have to understand the basic components of what you are building upon. Your service categories and your costs of goods directly related to them become the cornerstone of your practice’s financial foundation. You must know what they are and how to set them up properly so that you can glance at your Profit & Loss (P&L) statement and understand what is working and what isn’t. As we always say, “You’ve gotta KNOW if you want to GROW.” 

3 Things You Sell

In the medical aesthetics world, we sell three basic things: 

• Services (that are tied to treatments/procedures)
• Providers (physicians, nurse practitioners, physician assistants, aestheticians, medical assistants) that perform the procedures 
• Time (the time it takes to perform these procedures or treatments)

I know this sounds super elementary, but you want to make sure that when you are creating your financial foundations, you are addressing all aspects of the services you sell. 

Segmenting Services

Why do we segment services out? The overarching reasons are it allows you to:

• Set financial goals 
• Get a clear picture of where your revenue is coming from so you can make informed decisions
• Determine the ROI of marketing campaigns
• Align cost of sales to actual sales for benchmarking (knowing where you were, where you are, and where you need to go are the keys to growing your practice)
• Align your point of sale system (practice management software system you are using) to financial statements (P&L)

12 Service Categories

These are 12 of the most important categories of services based on our years of experience in the industry:

• Aesthetician Services
• Laser Skin Resurfacing
• Skin Tightening
• Body Contouring
• Injectables
• Laser Hair Removal
• Female Rejuvenation
• Hair Restoration
• Sexual Wellness
• Anti-Aging & Wellness
• Medical Weight Loss
• Surgery

The reason it is so important to break these service categories out is that sometimes when our team reviews P&L statements, all of the revenue is clumped together in one category line item. And when asked where the bulk of that revenue comes from, many times people don’t know—and that makes it impossible to determine which are the most profitable treatments you offer.

How to Determine Costs of Sales

So now that you understand why categories of services are important, you also need to know the cost of sales that is related to each service category. Your cost of sales is the combination of your cost of goods (the consumables/products needed to perform service) and your cost of labor (compensation for providers) attached to each category. Here is a simple formula to remember:

Cost of Goods + Cost of Labor = COST OF SALES

For example, if in the body contouring category, your practice offers CoolSculpting? as a service, then you are going to have the cost of your consumables (products) that you have to use for each cycle of CoolSculpting?, and the compensation costs for your provider who performs that service. Adding those together determines your cost of sale for CoolSculpting?.

This is just a broad overview. You can find comprehensive worksheets, proprietary, financial optimization calculators, and templates you can download to plug in all your own numbers and services for each category in our brand-new Financial Foundations Course. To learn more or purchase the course, click here.  And as always, if you have any questions, please feel free to reach out to book a call with my team here.