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« Thermage: Lunch with the VP of Sales. | Main | Basement lipo proves fatal. »
Thursday
Aug032006

Thermage is comission. Titan & Fraxel are hourly.

As business models: Thermage is commission, Titan & Fraxel are hourly.

(Thermage + Fraxel discussion threads)

pages2and15_machine.jpgI had lunch with Clint Carnell, Vice President of Domestic Sales for Thermage today. While we were talking about the current state of the medical spa market he referred to the Thermage business model as 'razors and blades' and it triggered the thought that there was an analogy with commission vs. hourly employees.

Physicians seeking to minimize risk will often try to hire staff on commission with the hopes that they'll achieve two things; a motivated employee, and lower cost per treatment since they'll only be paying a percentage of treatments that are being performed. Nice in theory.

Here's the flip side. Commission robs you of success. This is a business that has very high fixed costs, but once those costs are met, there is a large potential profit to be made. As a business, its usually preferable to absorb those fixed costs if possible and keep the profit rather than have it diluted by paying commissions.

(That's why Surface has decided to grow as an entirely company owned business rather than persuing franchising with it's associated problems. If you have the capital, wholy owned businesses offer the most success while franchises offer the ability to grow the business using other peoples money.) 

petit_fraxel_02.jpgThermage made a radical decision to offer the 'box' (razors) for near cost, and focus on selling the disposables (blades). Smart enough. But Thermage is not charging 100% markup. Thermage tips probably cost around $12-$16 dollars to produce (that's a wild guess) but Thermage sells them for $450 or more. That's a helluva markup and it's led to a built in profit potential for anyone who can figure out a way around it as well as being a source of friction with those who have to buy them. (I have yet to hear any physician anywhere think that Thermage tips are a 'great deal'.) Refurbished Thermage tips came on the scene soon after Thermage launched and have even been studied for safety and performance.

Thermage faces a challenge in keeping providers happy with paying a commission on every treatment they perform. If they can, Thermage promises to be the gold standard for the foreseeable future.

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