In the mid-1980s, it started to become popular to add spas to resorts. Most spas were located in upscale, independent resorts and were considered to be great marketing vehicles to attract new business.
During the 1990s, the growth of resort-based spas began to proliferate. Now the mantra is a resort is not a resort unless it has a spa. As spas increase in numbers, so do the challenges.
Spas can be expensive to build and to operate. It’s common for a turnkey, four-star spa to start at $350 per square foot, excluding land. Most luxury spas are as much as $500 per square foot.
Most resort-based spas are not independent business units. They receive some subsidy from the hotel and very few, if any, pay rent. Our firm has determined the following benchmarks (as a percentage of gross revenues):
- Payroll and Benefits: 55 percent to 65 percent;
- - Other Operating Costs: 13 percent to 20 percent;
- - Net Operating Profit when all expenses, excluding rent, are charged to the spa: 15 percent to 25 percent; and
- - Net Operating Profit when the spa is charged only for its payroll and products: 30 percent to 40 percent.
There is no uniform system of accounting used by spas, so be careful when looking at numbers from spas. We prefer using a “zero-based” budget when developing a pro forma for our clients.
Although the spa business is booming and spa operators are generally satisfied with their success, our company believes most spas are “lazy assets” and are leaving significant profits on the table. We believe, in some cases, the owner’s expectations of a spa’s profitability are so low that they consider anything over break-even as doing well.
If you are thinking about adding a spa to your property, our company recommends following a five-step approach so the spa can be a tangible, as well as intangible, asset to your property. Your spa should be:
- Properly conceived;
- - Themed for a sense of place;
- - Programmed with the proper mix of revenue and non-revenue space plus support areas;
- - Designed to provide an exceptional guest experience while being operationally efficient; and
- - Marketed proactively.
It can be difficult to find qualified spa staff. When planning the spa, think about the number of staff you will need and where and how you are going to find, train and keep them.
Creating the right compensation, incentives and benefits package will make a significant difference in attracting and retaining staff while making sure the spa is an economically viable business. Finding and retaining a good, affordable and loyal spa director can be a challenge. For some of our clients, we recommend they hire from within and then we develop a training program.
Spas need to be proactive and focus on spa yield management if they want higher occupancy. Most spa treatment rooms are utilized 30 percent to 60 percent of the time.
Spa treatment menus are becoming more exotic and extensive. A spa doesn’t have to offer the international encyclopedia of spa treatments. It can be confusing to guests and add considerable time and cost to training.
Facility fees for hotel guests sometimes present a barrier to entry so sometimes the fee is waived in full or in part. However, this revenue is important because it covers much fixed operational overhead.
A spa should be run as a business. It’s part of the hotel operation and should be accountable. Before venturing into the spa business, it’s important to understand the risks, opportunities and economic realities.