UpClose & Personal - Nancy Griffin

The Day Spa industry presents many challenges to profitability. During a recent Spa Finder Partner retreat, day spa owners and managers pointed out the most pressing industry challenges:

Challenges to Day Spa Profitability

* Ease of entry into the spa industry
Increasing competition from the medical, hospitality, beauty, and
fitness industries

* Inherited beauty industry traditions
Extensive use of independent contractors (booth rental tradition)

* Out of control compensation costs that create ever-increasing losses

* Low margins
Similar to restaurants, spas have traditionally low margins (2% to
7% return on investment is common, vary rarely higher than 15%)

* Poor retailing skills and high commissions on retail
10% commissions in the spa industry versus 2% to 3% commissions at a department store cosmetic counter

* Escalating treatment costs

* Missed opportunities of client retention
Lack of re-booking clients before they leave the spa

Strategies to Improve Profitability

Get Comfortable with Business
Generally, day spa owners and managers must overcome business phobias. Unlike resort spa directors who must be comfortable with “crunching numbers,” day spa owners are often poor financial managers. Spa owners often abdicate their finances to accountants who review financial statements, most times performing a “post mortem” on last month’s records.

Make Re-booking a Priority
“Rescheduling drives everything; retained customers will account for 80% of your business’s worth, but most often represent only 20% of your clientele,” says Peggy Wynne Borgman.

To increase client retention spas should reward frequent customers by providing meaningful incentives. Developing progressive, results-oriented programs that will help build repeat business in addition to retail sales is an essential for profitability. Preston Wynne has had great success with six to eight-week programs called “Personal Path Programs”. Programs such as body transformation, stress reduction, purification, and bridal programs focus on goals and benefits versus treatment modalities.

Focus on Human Capital
People are a day spa’s greatest asset, making qualified employees and excellent customer service essential to its success. Spas must provide performance-based incentives and benefits to attract and retain qualified employees. Standardizing service is impossible; therefore spas must teach hospitality skills in addition to technical skills in order to create a consistent and enjoyable client experience.

Control Costs of Goods Sold (COGS)
Cost of Goods Sold (COGS) is the amount that you subtract from your revenue to determine profitability, and represents the “big chunks” of cost such as labor and product costs. Controlling the costs associated with your business is the biggest leverage for improving the bottom line and working toward profitability. Labor is undoubtedly the largest COGS, so designing an appropriate employee compensation strategy is critical to generating a profit.