Editor’s Note: If you’re looking to potentially sell into private equity but haven’t quite hit the growth you want, this article is for you. Michael Antosy leads Practice Growth Consulting at MyAdvice, a full-service MedSpa marketing and healthcare marketing solution for practice owners. After Lauren connected with him at the MedSpa show this year, we knew we needed time for a deeper conversation.
Since then, Lauren and Michael co-hosted a webinar about the intersection of MedSpa valuations and MedSpa marketing, an intersection that oftentimes goes unnoticed.
Read an excerpt from their conversation below for answers to our most frequently asked questions or watch the full conversation here.
MedSpa Metrics
Michael: What are some of the financial metrics that practice owners should be thinking about, should they be trying to bring on a private equity partner?
Lauren: Really, there’s one key metric, and that’s EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization. It’s a proxy for cash flow. But beyond that, several other KPIs feed into a practice’s ultimate profitability.
- Sales. Buyers will be looking for a certain threshold of sales.
- Cost of goods sold. You want to make sure that you’re in line with the industry standards.
- Healthy margins.
We have brought several great MedSpas to market across the country over the past 24 months and learned a lot. First, margin profiles vary. They vary from a heavy injectable practice to one that has more laser and esthetic treatment services. So while every practice may have different KPIs or key performance indicators, a business owner must be tracking them and understand them. For example, if their gross profit margins are declining, they should dig in to understand why.
Michael: When we start to drive an online presence as well as a web strategy, we look at performance metrics, too.
One of the least expensive ways of developing a MedSpa marketing strategy that has some of the highest returns on investment is Google reviews. It’s not just about having a high rating. And it’s not just about having a good volume. It’s about the consistency by which the reviews are populated. The ratio that we advise practices to shoot for is a five to 10% return rate of new Google reviews compared to how many patients they’re seeing in a given week. It’s that newness, that freshness that helps with Google visibility.
In addition, fresh reviews make choosing you a no-brainer decision, and that has an impact on your bottom line. Further, it lowers your cost of acquisition, which is why we say it’s one of the cheapest forms of marketing.
What are you seeing in terms of practice value and its intersection with a practice’s review strategy?
Lauren: The internet has enabled us as a culture to become an educated consumer. And you have to believe that if you’re deciding to do something to your face or your body, you’re going to be educated about that. And the first place we go is Google.
So how does that translate into a practice’s valuation?
When we’re bringing a practice to market, we use what we call a confidential information memorandum or CIM. It’s essentially a marketing brief with a lot of information about the practice including
- financial data,
- operational data,
- procedures, and
- providers.
We dedicate a whole page, and sometimes even a section of that marketing material which is disseminated directly to potential buyers, to Google reviews. And it’s paramount to promote the practice.
I can give you an example. I’ve got a practice on the market right now, and we have had a wildly successful response. We’ve gotten multiple offers. We’re going to negotiate a top-of-market deal for this practice owner, and I can tell you, she has over 700 4.9-star Google reviews. She’s creating an exceptional customer experience. She’s “doing the work”. She’s got a recurring patient base. Her clients love her and will go nowhere else. And she’s done that by making sure that her clients are leaving her Google reviews. And she’s turned that into a metric. Private equity loves metrics, they love data, and it’s a lot more powerful to go to a potential buyer and say, this gal has seven, over 700 4.9 stars Google, as opposed to just saying she creates a great customer experience.
Michael: Even great experience has to be quantified in some way.
Lauren: Absolutely. Plus, you mentioned that it’s a kind of cheap form of lead development. That is so important. When we’re underwriting practices, we look at the marketing spend, and we ask our clients,
- What has been effective in the past?
- Why has it been effective?
- What’s your cost per lead?
Some MedSpa owners can’t answer those questions. For every dollar that you spend, you’ve got to get a return on that money. If you’re looking at a sale or partnership, you have to be able to quantify that and make sure that you’re making the right decisions with your marketing dollars.
MedSpa Marketing Mindset
Michael: In addition to metrics, another other thing I educate my clients on is that building a successful MedSpa marketing strategy is a mindset. For example, do they see marketing as an investment, something that will pay them back and give them an ROI, or do they see it as just another bill to be paid? What are your thoughts? Does mindset increase valuation? For the client you mentioned, does she see her practice as more of a business?
Lauren: My client has done things to support her MedSpa as a business. She’s done a good job of training providers to replace her, so she is not the key revenue producer in the practice. A provider/owner needs to be willing to diversify the revenue stream away from themselves, which happens over time, not overnight. She’s handed off many of her clients and is probably generating about 18% of the revenue. But what that means is she’s available to pay attention to the business and pay attention to the business metrics. She’s available to make sure that the customer experience is happening, every every day in the same way. And to your point, that’s translated into, all of those very high Google reviews. Now, she’s going to cherry-pick from all the buyers interested in acquiring her. And that means she’s going to pick the best one that fits her.
Right Timing for a Partnership
Michael: We’ve talked about metrics and mindset. Let’s talk about timing. Some practice owners have this idea, “I’m going to invest in some marketing, and, by tomorrow, I’m going to have this very robust infrastructure. Three months from now, I’m going to be at the top of Google searches, generating a ton of leads.” And realistically, nothing in life happens that way.
Instead, MedSpa marketing is like a stock portfolio, something that you’re diversifying, investing in multiple different strategies. Because what you’re trying to build is more of an infrastructure. And it takes time to produce good-quality leads, results, and revenue.
What can practice owners do, from your point of view, to prepare for a successful sale into a private equity firm?
Lauren: You’re right – it’s all about timing. So a practice owner needs to consider a transition when they still have a good three to five years to commit to the practice. Because a private equity sale is not like a typical “Hand over the keys, and I’m on the beach” situation. Private equity groups are coming in, and they don’t necessarily know how to operate a MedSpa. They don’t have the licensure or the background to perform esthetic services, and so they need the people to stay with the practice to continue treating patients.
If I’m an owner, this means leaving myself enough room to keep practicing before I want to retire. However, on the flip side, there’s a lot of excitement around MedSpa in the private equity industry now. And some people are creating, with the use of a partnership, a second career. Maybe they’ve built a very successful practice, and part of the partnership goal is to shed the administrative duties that are not the practice owner’s highest and best use like
- running payroll,
- accounting,
- finding the, you know, cheapest insurance (haha).
Then, that practice owner can continue to grow their practice and possibly grow additional locations in the market. In this case, even if somebody still has 10 to 15 years left in them, it could still be a great time to partner.
The second thing that you have to ask yourself as a practice owner is, “Am I big enough?” These groups do require a certain amount of cash flow to make sense to make an acquisition. You have to have about $2.5MM in revenue, preferably $3MM. So how do we get there? Well, at least in part, have an organized and well-thought-out marketing strategy. You’ve got to figure out how to get people in the door, and you have to make sure that you’re being effective with the dollars that you spend.
Michael: Yes. You want to start to build that infrastructure, that marketing diversity, business building diversity from the get-go.
For more from Michael and Lauren on MedSpa marketing and its intersection with MedSpa sales, watch the full conversation here.
