EFTective Cash Flow Balance:

EFTective Cash Flow Balance:

How Electronic Fund Transfers Can Change your Salon

by Scott Hoover

Many salon operators are preparing for the upcoming tanning season; however, they need to be cautioned not to look at the season with blinders. Instead, salon owners must view their business as a year-round endeavor and prepare for ways to keep their profits flowing through the downtime.

During the busy season business is brisk. Customers not only are tanning, but lotions, moisturizers, apparel and swimwear are flying off the shelves making the cash register ring. However, the "season" is almost always unceremoniously followed by the "off-season." Like any good sibling, the indoor tanning industry can learn from its big brother, the health club, which has dealt with this problem for years.

One of the best ways health clubs have found to balance out their cash flow throughout the year is to use electronic fund transfers. And, health clubs are not the only service-based industry to offer EFTs. Today, EFT payment options are offered by numerous companies from local utilities to mortgage and insurance companies. Additionally, EFTs continue to gain in popularity because it is a service that benefits both the business owner and their customers.

According to Aaron Roehl, director of sales for the Northbrook, Ill.,-based ATA Information Services, because the indoor tanning industry has grown so large, so fast, EFTs have just begun to gain in popularity over the last three to five years.

"EFTs have been around since the mid-'80s, but did not become popular until 1992," he says. "The single, biggest advantage that an EFT gives to a salon owner is that a customer doesn't have to physically write out a check every month. This helps a salon in two ways. First, it allows the salon owner to budget for a specific cash flow every month. They know that on say the 5th and 25th of every month a certain amount of money will be transferred to their account. Additionally, because the money is withdrawn directly from the clients account, he or she never faces the decision of 'should I save my money and stop tanning?' That decision is made only once, when the original transaction is made."

There are additional benefits to an EFT program. Salon customers who join an EFT no longer will need to be resold tanning packages by sales personnel. Thus, it frees up more sales time to sign up new customers or develop an even stronger relationship with current ones. In addition, salon owners no longer have to worry about losing customers to the special offer being made by the competition down the street.

However, the most important benefit is the elimination of the anticipation and worry that is felt when the slow season arrives. EFT can help salons increase their income, establish a steady monthly cash flow and provide a service to their customers.

"The explosion in EFT growth can be seen in the latest numbers released by the Automated Clearing House," notes Roehl. "The 1996 numbers show more than $11 trillion was serviced by ACH and that doesn't include credit-card transactions. Due to the technological advancements that are being made, we are moving more and more toward a cashless society. I think these figures reflect how large the EFT market has become."

Back To The Basics

The way EFT membership programs work is actually very simple. A client fills out a short enrollment form which includes choosing a payment option (checking or savings account or credit card). Each month, EFT payments automatically are transferred from the customer's account to the salon's account. Clients who wish to stop making payments via EFT usually are asked to give written notice within 30 days of the final transaction.

Any salon can begin an EFT program; however, it may be more beneficial to salons with more than seven pieces of equipment and those that are computerized.

The way an EFT should be priced depends on a number of factors including salon location, competition and the pricing of other packages. To have success with EFT, the program must be priced attractively. That may mean lowering the price to tan for members on the EFT program, raising other package prices or offering benefits for joining the EFT program.

"Probably the most important aspect of selling an EFT is knowing the market that you're dealing with," says Jeff Grissler, owner of Quest Resources in Neptune, N.J. "If the salon is dealing with a lower middle-class income populace, an EFT program probably will not work. These are the people who might be able to tan three times a week, every week in January, and not at all in February. EFT programs don't make a lot of sense with this type of market. However, if the salon is selling to a upper middle-class clientele, then the EFT program is going to be a much easier sell."

Salon owners offering the EFT option, as well as EFT companies, agree that convincing a customer to pay for a service using the program is not difficult as long as it is explained correctly.

"The hardest part about setting up a successful EFT program is establishing a good sales presentation and following up after the sales is complete," says Sid Nelson, head of business development of the Kansas City, Mo.,-based Affiliated Acceptance Corp. "The health clubs have been doing it for years, but salons have not been as successful putting together a good sales program."

One of the most important aspects of a good sales presentation is making sure salon employees understand the EFT process.

"Having employees who understand the technology makes it much more likely that they will attempt to sell the idea to the customers," Nelson says. "Employees also need to know the terminology. Using words like debit and transfer can scare people away from EFT because it makes them feel they are giving salons permission to take money from their bank account. An individual's bank account is very personal and it should be treated accordingly."

According to Grissler, local banking representatives usually are available for short training seminars to educate employees on how the EFT works. He also believes that not only do employees have to know the product, but they also have to have an incentive to sell it.

"I believe that in order to sell an EFT program, salon owners have to have a qualified sales person selling the product," he states. "This is not an area where you want your minimum wage attendants. Additionally, employees should benefit from their sales. Salons owners will be amazed what a good incentive-based EFT program can do for their salon."

Another benefit that salons derive by using an EFT program is they don't have to be the "bad" guy when it comes to tracking a customer who wrote a bad check or hasn't paid their membership fee on time.

"With most EFT programs, if the payment is not there, the EFT company contacts the client, writes the letter and deals with the hassle of collecting the money," says Nelson. "Salon owners still receive payment even if the money is not in the account to cover it. In addition, it allows the salon owners to establish a good relationship with their customers and takes some of the pressure off."

Marketing An EFT

As the use of EFT grows, salon owners have had to invent new, innovative ways to market the service to their customers. When EFTs started to gain popularity a few years ago, the trend was to charge an enrollment fee to an annual contract. According to Tim McQuay, owner of California Tanning Supply in San Jose, Calif., successful salons have gone away from contracts and up-front enrollment fees. In fact, McQuay derives more than 50 percent of his gross income from EFTs.

"Salons have started to find, like health clubs did a few years ago, that customers are not willing to pay an extravagant enrollment fee just to receive a laminated card with their picture on it," he notes. "In an effort to satisfy this problem, some salons have raised the amount a customer pays for their initial payment and use the extra money as a membership fee. For example, a salon might charge $59 for the first month a customer is in an EFT, and then charge $39 per month thereafter. Salon owners have to remember that a tanning membership is not seen as being as beneficial as a gym membership. Instead, it is more of a luxury."

According to McQuay, there are two other items that a salon owner should include when considering adding an EFT program--a value-added approach where customers can gain additional products by being enrolled and not binding customers to a contract.

"All of these ideas are important to consider," he states. "The value-added approach allows the customer to feel like they are getting something for nothing. However, salon owners always are coming across lotion close-out sales or other items they can offer customers that are very inexpensive. Additionally, salon owners need to stay away from contracts. Owners always are concerned that customers will 'bolt to a better deal' if they are not locked into a long-term contract. I don't agree with this concept. The best contract is good customer service. If your customers receive good service, they will keep coming back. Salon owners have to keep it as simple as possible for the customer to get in and out of the EFT."

Shannon Miller, owner of Sun Company Tanning in San Rafael and Santa Rosa, Calif., says EFT programs have been tremendously successful at her salons.

"We offer our clients a discounted price to join the EFT program, a 10-percent discount off everything in the store as well as discounted upgrades," she says. "Clients have a two-month minimum when they sign up and must give at least 30-days notice when they want to discontinue the service. You have to make it as easy as possible. We have a one-page form that is simple and easy for the customer to fill out and takes about five minutes."

When McQuay signs customers up for the EFT program, he has them sign a membership agreement that allows them to end the program at any time. He also offers discounts on retail items and the best available rates on upgrades to medium- and high-pressure beds.

"All the membership agreement contains is a clause where the customer agrees to give at least 30-days notice before discontinuing the EFT program and that they will come into the salon to fill out a cancellation form," he says. "We also allow all of our EFT members the option to freeze their accounts at any time. I know many salon owners don't like to freeze accounts, but I believe it is just another customer service item that keeps our clients coming back."

According to McQuay, one fallacy that some salon owners have started to believe in when initiating an EFT program is that customers will stay with the program longer if the salon doesn't charge a membership fee.

"It is a proven fact, the more money a salon can get from its customers upfront, the longer the client will stay with the program," he notes. "If a salon owner doesn't charge a membership fee, clients don't feel as if they are losing anything by discontinuing the program. Studies have shown customers will stay with a program longer if they feel they are losing money by discontinuing it. So, even if the charge is just a small fee added on to the first month, I would always charge some type of membership fee."

Although an EFT program can be initiated at any time throughout the year, McQuay says the best time to start one is in January.

"You don't want to start in the off-season," he says. "If a salon starts in January, by February the staff should have the sales presentation down and the program should be well underway."

Industry experts also agree the EFT program should be the main focus of any membership drive and listed at the top of the price list along with its features and benefits.

Miller cautions salon owners to research EFT companies before initiating a program.

"I had a lot of problems when I first started the program because the company I was dealing with kept making mistakes," she notes. "You have to realize that your customers are trusting you with personal information by allowing money to be taken directly out of their accounts. You have to make sure that no mistakes are made or the program could end up causing a lot of problems."

Software Options

There are a number of software companies that offer indoor tanning salon software management systems that include an EFT module.

Joe Smith, department manager of software business services for the San Francisco-based QDM Co., says the company offers a unique option with its Breeze NT software.

"We have the forms built right into the software," he says. "So once the client is entered into the system, much of the EFT form is already filled out."

The advantages of this type of system, Smith says, is salon owners will not waste time filling out data they already have been given. QDM also offers automatic modem downloading to the system provider as well as a full set of reports and an automatic rollover option into an accounts receivable report if the funds are not available.

Additionally, the rollover option will be user-definable so that the account may either be suspended immediately or after a certain amount of time.

Smith adds that Breeze NT is integrated right into the system as a standard procedure and is not a special procedure.

According to Keith E. Ray, director of sales and marketing for Interactive Designs, Inc./SunTouch, the company's SunTouch software accommodates EFTs in a simple and unique format.

"SunTouch makes it easier to manage and access all the information a salon owner needs to keep track of their EFT accounts," he notes. "The software will work with both Gulf Management or ATA, it connects directly to the EFT provider from within SunTouch and uploads the information so that there is no need for a third party program."

Additionally, the program automatically tracks deactivation dates so the salon does not have unwanted drafts being processed, generates an EFT Draft report which shows all clients that have been charged, the type of charge (either credit card, savings account or checking account) and sets up account freeze and unfreeze dates to allow clients to hold their account while on vacation as well as allowing the salon owner to charge a lower rate when the account is frozen.

"With all these unique features SunTouch easily handles EFTs so that a salon owner can increase their profits with as little effort as possible," says Ray. "It is a unique and efficient way for salon owners to increase profits and maintain them throughout the year."

Closing The Deal

Consumers have come to demand and expect high-quality products and services that are convenient and reasonably priced. Memberships paid through EFT are a way a salon owner can respond to this demand, as well as continue to operate a growing and profitable business. Successful salons have received from $2,000 to $20,000 a month in EFT proceeds. Remember, this is guaranteed money that will allow salon owners to budget more efficiently and run a more profitable business.