As I wrote in these pages in July of 20201, the aesthetic business would flourish during the pandemic. Unfortunately, whatever goes up, must come down. We’re experiencing the highest inflation in the last 40 years due a combination of pandemic-era Federal financial stimuli, increased demand for goods and services and supply chain issues.
To combat inflation, the Federal Reserve has increased interest rates six times in 2022 as of this writing. And as Investopedia explains, “Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall.”2 When people start to spend less, they’ll spend less on luxury goods. Just ask your friendly neighborhood jeweler. Aesthetic practices will also begin to see the effects of inflation and subsequent recession play out in offices across the country. For now, travel may be immune due to the phenomenon of “revenge travel” – traveling at any cost to make up for lack of travel over the last two and half years.
This isn’t just a problem in the US. In addition to inflation, European countries are also experiencing increased energy prices due to the war in Ukraine. This is partially responsible for Germany’s slowdown in medical tourism.3
Misery loves company
Let’s start by reminding ourselves that if this slowdown occurs, we’re not alone. A recession doesn’t only affect the smaller or upstart practices or medspas. Everyone will feel some pain. And the problem isn’t only that we potentially have less money coming in. The pandemic put all of us in a position of higher expenses.
For example, the high growth during the pandemic led to hiring more employees to handle the surge of patients. Because many capable employees left the employment pool altogether, those remaining were in greater demand and could therefore command higher hourly wages and salaries.
With the end of the pandemic and higher inflation, however, the economic forces have changed. Practices could go from higher revenues and higher costs to lower revenues and… the same higher costs! Income may no longer exceed pandemic spending.
Small practices may experience a $50,000 drop in revenue year over year. A larger practice may experience a $200,000 drop. Those seem like big differences but if they both equate to a 25% drop in the practices’ operating budget, it will be hard to cover the inversely proportional expenses and personal lifestyle changes that we thought we could always afford.
These same market dynamics are also affecting large corporations like Lyft, Amazon, Salesforce, Meta, and Google. Ad revenue is down and they’re implementing hiring freezes. Even hospitals have had nine straight months of negative operating margins as of November 2022.4 If these large corporate entities are feeling the pain, independent practices and an aesthetic industry that relies on the consumer’s disposable income will also feel it.
Preparing for the slowdown/recession
Finding new or existing ways to generate revenue, like running specials or other promotions is certainly a good fallback measure. But don’t sacrifice your brand and image for cash flow if possible.5 Huge markdowns in the price of surgical procedures, for example, may not move the needle. Consider the possibility that patients simply aren’t buying, period.
Memberships and subscriptions and other loyalty programs help with foot traffic and recurring revenue. If that’s enough for your practice to survive the recession, then great. However, these lean times may require more drastic measures.
Lowering marketing costs
Consider cutting all of your digital, print, TV and radio advertising. Conventional wisdom may suggest a slowdown is precisely the time to start spending more on advertising. Based on previous slowdowns, when patients are holding onto their money, price reductions and advertising may not change their attitude. Better to save marketing dollars for other operating expenses and return to fight another day. At the very least, capture the consumers that are arriving on your website with an effective call-to-action button.
A contact submission form or a “sign up for our newsletter” call to action may not be tantalizing enough to capture a visitor’s contact information. If someone is going to leave their contact info, I’ve found that when compared to other techniques, a “Get A Quote Now” button6 is best at capturing a potential patient’s name, email address, phone number, ZIP and procedure of interest. With the chatbot7 and price estimator8 on my website, the consumer can get an instant estimated quote sent to their inbox and we capture their information – a lead for follow up! And just because we’re showing pricing doesn’t mean it’s automatically a race to the bottom.
In lieu of expensive marketing, get back to basics with low cost outreach events with the local service organizations or neighborhood merchants.
Lowering personnel costs
Have you considered laying off employees? Letting go of any underutilized staff may make sense. However, if running the office, medspa or in-office operating room would be difficult with fewer staff, then consider keeping everyone but institute an across-the-board pay cut (including yourself), that would equal the hourly rate of the full time employee you don’t want to let go.
No one likes a pay cut, but the job market isn’t as hot as it once was with more layoffs and hiring freezes. Employees may prefer staying employed, albeit at a lower rate, than unemployed. Hopefully it won’t come to this but it should be in your quiver of options.
Lowering equipment costs
As I mentioned in the May/June 2021 issue of Modern Aesthetics, I’m not a fan of aesthetic devices9 but if you’re still paying a mortgage on one, consider asking for a forbearance on payments. This doesn’t equal forgiveness but not paying the note for a few months could help with cash flow. Unfortunately, it will result in a balloon payment down the road.
Shifting to lower cost revenue sources
If you’re not already offering injectibles, weight management or IV therapy, this might be a great time to diversify. These are effective services, that actually work, with low capital investments.
With the new American IV Association10, you can ensure compliance with IV therapy. This is a particularly easy transition if you already have an in-office operating room and a good relationship with several distributors for IV tubing and bags. Maintaining accounts with multiple distributors and compounding pharmacies will help in the event of any backorders, which are very commonplace now.
When it comes to weight management programs, these patients could eventually become body contouring patients. In addition to coaching patients on diet and exercise, there are new alternatives to short-term phentermine use.
Wegovy and Ozempic are the brand name versions of semiglutide, a Glucagon Like Peptide-1 agonist (GLP-1). The drugs, originally developed to treat type 2 diabetes, were found to have a secondary benefit of weight loss. Studies show a 12.4% reduction in weight and can be used for as long as the patient is showing a benefit.11 These brand name drugs can be $1300-$1400 per month and insurance may not cover it. But you can get the same semiglutide formulation from compounding pharmacies for much less, allowing your practice to purchase, sell and administer this injection to appropriately screened patients.
Lower costs where you can, make tough but survivable decisions and capture the contact info of the web traffic you’re attracting. And remember, if it gets slow, it won’t always be slow. Use the extra time on your hands to be with family (if you like them), friends and keep your eyes open for other opportunities. Batten down the hatches!
Dr. Jonathan Kaplan is a board-certified plastic surgeon based in San Francisco, CA and founder/CEO of BuildMyHealth,12 a price transparency-lead generation platform. He’s also a contributor to multiple publications including Newsweek,13 Modern Aesthetics,14 MedCity News15 and Medical Economics.16 You can watch him operate and educate @realdrbae on Instagram,17 Snapchat18 and TikTok.19