Top 10 Tips to Increase Your Spa’s Profitability

[1] Simplify your Menu Structure
A well-designed and structured spa services menu can provide the essential flexibility to book services, schedule resources, and run promotions that maximizes your Spa’s bottom line.  For each treatment, understanding the associated range of your labor costs and true profit margin is critical in this planning exercise.  Strategizing to maximize the booking of high-end, high-margin specialty services creates more opportunities for therapists to further improve revenue capture via upgrades and retail sales.

[2] Apply Revenue/Yield Management Techniques
The ability to leverage a well structured spa services menu (low, med and high margin services) is best exemplified by revenue management techniques.  In simplest terms, using dynamic availability, reducing the list of services available (highest margin) during peak times has a tremendous impact on profitability.  Even with the same number of services booked (by the same treatment providers) the resulting boost in bottom-line performance can exceed 25%.  It also tends to push more bookings into non-peak times that would otherwise go unsold.

[3] Compensate Employees to Deliver on your Values
In most spa locations the labor cost of delivering a service can exceed 50%. Developing a compensation strategy that rewards the behaviors that produce the best results is essential. It must be a “win-win” relationship to be sustainable, retain your best employees and provide levers for your spa to push and pull during periods of variable demand. Creating a plan that includes fixed and variable compensation elements as well as team-based bonuses creates a teamwork dynamic that ensures everyone is aligned in purpose and execution.

[4] Maximize the Use of Space
When a spa is first designed or expanded it can be difficult to determine the exact service mix that will prevail. Some decisions are made about service areas (i.e. dedicated specialty, hydro, or vichy rooms) that go significantly underutilized (<10% per day) while others are always fully booked. Monitoring utilization and modeling the revenue potential of repurposing the space can produce a quick ROI for any retrofit. Be prepared to bite the bullet and invest quickly to maximize your spa’s revenue potential. Poor design decisions can go unresolved for years at a massive detriment to the performance of your business.

[5] Make Upgrades Easy
Almost universally, the most popular service is massage. Create upgrades to your most popular services and make it easy for the guest to upgrade “in-treatment”. An example is having hot stones in every massage treatment room. Provide staff with much higher compensation incentives on service upgrades as the incremental revenue is almost all margin. The therapists also become more engaged in the guest’s total experience and are more apt to recommend a product regimen to compliment the service.

[6] Maintain a Consistent Retail to Service Ratio
Maximizing this important ratio can dramatically improve your bottom-line. In most spas, retail makes up 10-15% of a spa’s total revenue but can represent 20-25% of the profit. Therefore, an increase in retail sales has a greater impact on your profit than an equivalent increase in service revenue. There is also a direct correlation from selling higher-end services to incremental retail revenue resulting in a higher retail per service revenue ratio—incent your reservations agents to book these!

[7] Develop Strategic Promotions
Maintain a close relationship with your local and loyal spa customers. Create a “last-minute” club using Email, Text-Messaging, Facebook and/or Twitter to inform your “fans” of sudden opportunities arising from cancellations and unforeseen availability at a “special” discount. It could help fill spots that would otherwise go unsold and create other revenue opportunities in retail and/or additional services. It also creates additional loyalty and retention within your local spa community.

[8] Monitor your Spa’s Key Performance Indicators via a Dashboard
Closely monitoring your spa’s key performance indicators (KPIs) and making timely business decisions can impact your business performance proactively versus retrospectively at the end of the week or month. For example, knowing that your spa has dropped below your daily threshold for staff utilization can allow you to make good decisions intra-day (i.e. shortening shifts) that result in immediate bottom-line improvements. As in the previous tip, monitoring Retail KPIs (Retail/Service, Retail/Guest, Retail/Ticket, and Retail per Treatment Hour) and continuously adjusting your strategy can produce exceptional retail results.

[9] Manage Inventory Closely to Reduce Costs
Managing your inventory closely is imperative in reducing costs and improving revenue. Even if you manage your top 50 and bottom 50 products very closely, the improvement can be substantial. Too many spas run out of their most popular products too often resulting in lost sales opportunities and reduced guest satisfaction. Some carry too much product, resulting in increased spoilage, theft, and money tied up in unsold inventory. Managing inventory on professional products is also key; some systems can forecast shortages based on what services are booked in the future and can automatically deduct from inventory as services as completed.

[10] Add Value Before Dropping Prices
Create reasons for your customers to remain loyal and book frequently without giving away revenue. In other words, delight them with added knowledge or specials that enhance their experience above and beyond their treatments. Choose low or no cost (to you) items to maintain margin. Examples would be 20 minutes of nap time on the table after a treatment (during low demand times only), complimentary product give away (liquidating overstock or working with your product vendor’s promotions), do-it-yourself services to upgrade treatment and class value without added labor. When structured properly, value-added experiences may also further incent retail sales resulting in more loyal customers, more revenue, and more profit. Plus, when business does improve you won’t have to put your customers through the dreaded price increase just to get back to normal.

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