Profitability v/s Revenue

Louisa Webb shares insights on the difference between profitability and revenue, and how to focus on the right things for the right patients.

W hen it comes to setting up a business or weather you have an established business, profitability versus revenue is something you should know at the back of your hand.

Before going live with any treatment or introducing any new treatments into your skin clinic, it is important that you understand the costs involved in running the device and any consumables that go alongside that.

In conjunction with this, you also need to understand, your hourly rate, your cost of running your clinic including salaries, overheads and any rates that you need to pay in order for you to come up with the running cost of the overall hour per treatment that you’re running that device at.

Let’s take offering botulinum toxin as an example of a treatment. In order for you to purchase the botulinum toxin, you have a cost. Then you have the cost of your needles, your cotton wool, gloves and any other swabs or materials that you may need. You may also need numbing cream for some clients. You will need to offer after care advice that you may wish to be printed at additional costs and all of this comes as an extra cost for the business that some do not take into consideration.

Therefore, if you look at the RRP of this botulinum toxin treatment, it could be in the region of £200 - £300, but the cost for you to carry out that treatment, including your own salary, overheads and all the consumables might be in the region of £150.00. Therefore the actual profit for that treatment is only £50.00, depending on what you pay yourselves. I have seen some cases where the profit is zero yet, hour after hour, injectable is all that they offer.

In terms of the duration of the actual appointment of this botulinum toxin treatment, that £50 may take you 45-minutes to an hour by the time you have done a thorough consultation. However, if you look at something like Cyro laser treatments or radiofrequency treatments, the cost per hour, in terms of the RRP, is going to be much higher than a botulinum toxin, at maybe £400 and the cost to perform this may be much lower but a lot of medics and injectors seem to think that the best way forward is to offer injectable treatments because they feel that that’s the solution for their client.

Another thing that they need to think about is how often that client might come back through the door in terms of injectable treatments. It might be that they only come back once or twice a year which, if you are charging £200 for a botulinum toxin treatment, will mean that you will only receive £400 in any one year from that client.

One thing you need to think about is a lifetime value client, which means getting them back through the door for additional treatments and services that will make them come back every month, if not sooner, i.e., every two weeks. This could be by up-selling additional treatments to them such as skin peels, laser resurfacing, laser hair removal and laser Lypo for fat reduction, medical needling or skin analysis to name but a few.

We also need to take into consideration profit versus profitability and actually these two words do not mean the same thing. Both are accounting metrics in analysing the financial successes of the company but there are distinct differences between the two and to adequately determine whether a company is financially sound or not, it is important to understand the differences.

The definition of profit, profit is an absolute number determined by the amount of income or revenue above and beyond costs and expenses, as outlined above, and any other things that the company incurs and it is calculated as total revenue minus total expenses as it appears on the company’s income sheet. No matter the size or scope or the industry, the company’s objectives are always to make a profit.

Profitability is closely related to profit but with one key difference. Where profit is an absolute amount, profitability is a relative one, and so it’s metric used to determine the scope of a company’s profit in relation to the size of the business. Profitability is a measurement of efficiency in ultimately its success or failure. A further definition of profitability is a businesses’ ability to produce a return on investment based on its resources in comparison with an alternative investment. Hence, it’s so important when deciding on what machinery, or new product to invest in, you need to think about the overall profitability of that particular device and although a company can realise a profit, this doesn’t necessarily mean the company is profitable.

One thing to ask yourself is why does profit matter? Philosophically speaking, corporate profit is what motivates the industry, entrepreneurship and innovation.

Corporate profit is one of the most analysed numbers that a company can produce and it plays a part in many other financial measures. It is really important to understand that profit is not a measure of how much cash a company has. The income segment and net income typically includes non-cash expenses such as depreciation of any equipment or any goods that have been purchased. It is also important to understand that changes in accounting methods can greatly influence profit and these changes may have little to do with a company’s actual operations.

In conclusion, it is really important to understand the difference between profitability and turnover to ensure that not only are you investing in the right devices, pieces of equipment and new products and services to offer in your clinic, it is also important to understand what treatments will offer you the highest profitability when analysing your clients skin and giving them the right patient journey outcome. i cannot stress on this enough, but if you do not offer not only the right services and treatments and the right profitability that matches your clinic, this could obviously send you down a wrong path or a rabbit hole that you would not want to enter. You need to ensure that when you open your business, you feel relaxed about your profitability and your turnover. Also you should make sure that you marry that with your clients’ needs and your customers’ goals.

Louisa Webb

Managing Director, Louisa Webb Business Solutions brings over a decade of invaluable executivelevel experience in the skincare and beauty fields. Her mission is to enable clinics and service providers in this industry to overcome business challenges and deliver outstanding, measurable and sustainable results, both commercially and in the delivery of services.