The Impact of Rising Costs on the Aesthetics Industry

In recent years, we have seen an increase of costs throughout the aesthetic industry, which begs the question: What can you do about it? Our consultants often reference several foundational options, such as preparing and reviewing budgets, being more vigilant with the regularity of financial statement reviews, evaluating provider performance, and more. These examples demonstrate a disciplined approach to assessing your practice and may allow you to make more timely adjustments, if needed. In addition to overall financial management, our current environment is seeing an uptick in utilization of rewards or membership programs that may help drive more patients into your practice.

The industry performance trends we’ve seen in medical aesthetics post-COVID have been dramatic. From 2020 to 2021, practices experienced significant revenue growth, more than 20% across all specialties we track, and operating margins grew at comparable rates. While revenue growth could be attributed to a response from consumers staring at themselves in a camera all day on virtual calls, practices learning to leverage more effective marketing efforts, or even providers becoming more efficient, the overall year-over-year uptick was greater than any of the previous before it (in the 20+ year history of our database).

Data Discussion

Even though practices appeared to retain many of those patients from 2021 to 2022, practices saw flat or slowing growth, or only an average of about 0.5% across the industry. Some specialties fared better than others, such as MediSpa and Plastic Surgery, but none were immune to operating expenses increasing disproportionately to revenue (expenses rose an average of 3.5%). This had a negative impact on margins, as all specialty operating margins were down an average of over 8%.

We capture revenue by provider and for many service lines. In each provider type tracked (physicians, PAs, NPs, nurses, and aestheticians), all showed a decline in revenue production across specialties from 2021 to 2022, with a few exceptions. Medical dermatologists and plastic surgeons generated more revenue in 2022, up 9.1% and 5.6%, respectively, and nurses in cosmetic dermatology practices grew 11.9%. With most providers’ productivity experiencing flat or slow growth, practices should consider developing creative compensation plans to ensure providers are motivated to contribute to practice goals (even in a flat or declining market). One service line that did see a positive trend was retail sales—up 11% on average in 2022. This was true across all specialties. Total practice retail revenue is up to $233,000 at the median, compared to $215,000 in 2021.

The key operating expenses impacting practices from 2021 to 2022 appear to be increases in support staff wages, rising interest rates, and general inflation growth on most goods and services. The resulting reduction in operating margin appears to have impacted practice cash flow, as many practice balance sheets demonstrate lower current ratios (cash available to cover debt service), increasing utilization of debt, and the additional use of debt instruments. Personal lines of credit appear more frequently than in years past and suggest quick cash flow is needed to cover current obligations. Practices should place increased importance on more regular reviews of financial performance reported on their profit and loss statement and the long-term sustainability of their practice via the balance sheet. While the instinct may be to cut costs, revenue generation and growth may be a more efficient way to generate additional margin

A great way to grow revenue may be through retaining patients and a medium that appears to incentivize patients to return more frequently and elect additional treatments are membership or reward programs. These may supplement the patient’s cost for treatment while not impacting what the practice receives. Essentially, they can charge the patient the same price, but the patient pays less, as the rewards program pays the difference. It’s best to evaluate each program entirely to determine which is most appropriate, but it may be best to compare patient frequency and treatment volume of those participating in a membership vs. those who do not. Regular review of the impact of these programs is helpful to ensure it aligns with your practice’s goals.

In addition to supporting patient acquisition, conversion, and retention, these programs may help the practice be more intentional with marketing efforts. Maintaining or growing production levels may require the utilization of various marketing channels. It’s helpful to evaluate the return those channels provide on practice investment and ensure the patients they attract align with practice goals.

The table below highlights results across specialties. Please note, some segments reported include limited data sets and as such, the validity and/or the comparability across years and specialties should be considered.

Fig. 1-1: Financial Benchmarking Database Median Results
*Aesthetic Health Care Provider (AHCP) includes physician-owned practices not traditionally offering aesthetic treatments (e.g., internist, family practitioner, OB-GYN, dentist, etc.).

Contributing Practice Demographics

It is important to understand the demographics of participating practices to ensure the results are evaluated properly. Survey respondents included practices specializing in medispa (46.2%), plastic surgery (25.2%), cosmetic dermatology (5.9%), AHCP (7.9%), aesthetic other (7.7%), and medical dermatology (7.1%). All of this data is represented in Fig. 2-1 below. Contributing practices were identified by the Allergan Practice Consulting team and may not reflect the “average” cosmetic practice. Participation in the program is voluntary. Participating practices submitted the following source data for report creation:

• Practice financial statements or income tax returns
• Productivity reports
• Employee census data

Fig. 2-1: Contributing Practice Demographics and Specialties

Contributing Practice Regions

As illustrated in Fig. 3-1 below, the benchmarking results are also segmented by region, which is consistent with the regional alignment set forth in the Medical Group Management Association Annual Cost Survey.

Fig. 3-1 Contributing Practice Regions

Limiting Factors

There are several factors that may impact the validity of the results, including the number of respondents to the survey. In addition, practices may report financial results on the cash basis of accounting, which may serve to distort true measure of performance. Also, practices use different methods of classifying expenses, which can make it difficult to draw meaningful conclusions concerning inter-practice variances. As such, it’s strongly encouraged that this report results and benchmark comparisons be viewed as directional in nature.