Understanding the Realities for a Marketable and Profitable Spa

Spas Are Hot, Don’t Get Burned: Understanding the Realities and Steps for

a Marketable and Profitable Spa

Spas have gone from being a luxury to an amenity to a necessity for almost any four and five star resort and to many up-scale hotels.  Many resort/hotel spas have become ?signatures? for the property in terms of facilities and services.  Some properties have even become notable because of the spa, and the spa features prominently in advertisements and public relations announcements.

Spas have become, and will continue to evolve, as one of the fastest growing and hottest components of a lodging venture because they are on-trend in terms of helping people relax, release stress and have a sense of balance in their lives.  While spas need to be very market-driven and attractive to the consumer, it’s easy for the owner, operator or investor (you) to get burned if you do not understand the development, staffing, marketing, financial and operational realities of the spa business.

It?s essential that you do your homework before jumping on the spa band-wagon. You should visit a few spas.  Spend some time as a guest so that you can appreciate and understand the unique intricacies and personal nature of the spa.  Then go from your robe to your suit and talk to spa owners and operators to understand the economic realities from concept to completion to day-to-day operations.  Spas should be run as a business.

This is the first of two articles that address the factors that need to be considered if you want your spa to be a viable business. The focus is on the resort/hotel spa rather than the destination or day spa. While these articles may be more helpful to those of you who are contemplating a spa, there are some valuable ideas for those of you who already have a spa.

In this article we will focus on some of the conceptual and planning issues that need to be considered when developing a spa:

Definitions

The first challenge starts in defining ?what is a spa.?  There are no ?universally accepted? definitions or standards for what constitutes a spa.  If you are going to have a ?spa?, make sure you know what your guests expect in terms of facilities, treatments, products, activities, service standards, ambiance, etc.  In their minds, they know what the word ?spa? means so don?t think you can use the word without delivering the experience.

Chart 1 is a simple diagram showing the facility differences between a fitness center, health club and spa. As you can see, the spa is the all-inclusive facility.  A spa is more than having a health club with a few spa treatment rooms, e.g., massage.  If you say you have a spa, make sure it includes the basic components on this chart.

Chart 2 shows some of the types of spas.  The future of the spa industry will be in the creation of the hybrid spa which is the resort/hotel spa that caters to lodging guests who want something as simple as taking an ala carte treatment to those who want to spend a few days on a special, spa-specific multi-day get-away. In order to maximize the utilization of the spa, the local community should be invited to use it as their ?day spa.?  Some spas even have a membership component.  Care must be taken to balance the needs of all the markets.

Objectives 

If you plan to add a spa and want it to be a tangible, as well as an intangible asset, it must be properly conceived, themed, programmed, designed, marketed and managed.  With every decision you make regarding the spa, never forget that you are in the ?spa? business because the spa helps your ?core? business.

Be very clear about why you want to have a spa.  You must realize that although the spa can and should be a profitable department, it is not a ?cure-all? to boost your occupancy.  It should be one of the many highlights of your property that will enhance the total experience for your guests.  Many of HFD?s clients expect the spa to:

• Generate additional room nights especially in the off and shoulder seasons
• Expand the shoulder season/shorten the off season
• Generate additional revenue per occupied room during the peak season
• Be an additional profit center
• Meet the demands and expectations of guests
• Enhance the guest experience
• Help them be more competitive with other properties that have spas
• Provide a marketing edge against properties that do not have spas
• Provide guests with an added ?recreational/leisure service?
• Attract a new, yet compatible market?people who like resorts/hotels with spas
• Give group and business guests another reason to return as leisure guests
• Encourage group guests to arrive a day early or to depart a day later so they can get ready for and relax before or after meetings as ?leisure guests?
• Provide an opportunity to market the resort as an ?incentive? destination for corporate award programs
• Enhance spouse/companion programs for convention attendees
• Provide an indoor activity during inclement weather

Benefits

Although it is difficult to quantify the spa?s contribution to additional room nights, occupancy, etc., the HFD 1999 Economic Study of US Resort-Based Spas found that spas help resorts with regards to their Marketing Advantage, Revenue/Occupied Room, Occupancy and Perceived Value for Room Rate.

In June 2002, HFD conducted a survey of thirty (30) resort-based spas to examine the spa?s contribution to the revenue per occupied room (RPOR).  The spa gross revenues did not include membership fees and dues nor any hotel-related room nights and food and beverage related to spa packages.  After disregarding the high and low responses, the average RPOR for the remaining twenty-eight properties was $35.28.

Market

The market should drive your decision as to whether or not to have a spa and what kind of spa you should have.  Everything you do needs to be market-driven; therefore, you need to understand and serve the people whom you expect to visit your spa.   The key marketing points to remember are to:

Know Your Market:  You need to know your market and develop a concept, facility, program and service standard that they will want and appreciate.  If you do not know your clientele, there is no way to give them what they expect and deserve.  Regardless of how niche-oriented you are, it is important to know that one of the main reasons for guests to use a spa is because they want to be taken care of, get rid of stress, relax and feel re-charged.

Depending on where your spa is located, the following are the potential markets:

• Local Market:  this could be day guests or members from the community
• Lodging Market:  this could be the leisure guests, conference guests, companions of conference guests, niche markets and affinity groups

Know Your Competition: Once you know your guest profile and what they want, make sure you can deliver an experience that at least meets if not exceeds their expectations.  The spa should offer something unlike that of any competitive property. You need to be different and better.  You cannot be a ?copy cat??your spa needs to have its own unique selling points and personality.  The spa should be an extension of and an enhancement to the lodging experience.

Concept

The concept is your vision and the foundation of everything you do in order to capture and please your market. The main focal points in developing your concept include the following:

• Create the Experience:  Touch the senses, evoke the feelings, create the memories and establish “signature touch points.”  Some spas will create a signature theme such as age management, medical aesthetics, mindfulness, fitness, wellness, luxury, etc.
• Be Unique:  You can not be a ?me too.?  There is a careful balance between being unique and being so unique that you limit your market.  Points of uniqueness could be the services, products, facilities, guest clothing, price point, etc.  Your uniqueness should create curiosity and demand so that you get people in the door.  What you do to get them to return is another key element to your success.
• Be Consistent:  Know your concept and be true to it.  Share it with your guests and staff. Everything you do should reflect the concept.
• Make It PR Worthy:  Magazines should want to feature and/or write about you.  Let the media tell your story.  This is a more credible and marketable strategy than placing ads.
• Be a Leader:  Stay one step ahead by offering new products and treatments.  Don?t get lost in the crowd by being good.  Excel in every way.

Facility

The key in planning a marketable and profitable spa is to make sure the spa is based on a well-conceived concept that is sensitive to your guests while also being efficient from an operational perspective.  No matter how small your spa, it should offer enough to create an experience for your guests.

• Consistent with the Concept:  The facility and design must reflect the concept.  If you have a tropical spa, the design elements, lighting, foliage, etc. should connote this feeling.
• Efficient Flow: The flow should help you control payroll as well as be stress free for guests.
• Balance between Profit Zones, Comfort Zones and Back-of-House: How you allocate your space can affect your success. The spa needs to make money with treatments and retail. There needs to be enough social and private comfort areas where people can stay and relax.  In order to run a business, you need to have the functional areas like offices, workstations, etc.
• Unique Feature:  Spas typically have something that is ?eye-catching? as a signature design element that ties into the concept.  It is the photo opportunity for the media,  the visual highlight in your brochure and ads, and something that gets the attention of your guests.
• Create An Experience:  One area that warrants special attention is the wet facility area (steam, sauna, whirlpool, cool dip, lounge, etc.). This is one of the most expensive areas to build.  You need to carefully consider what to put in this area and decide if it is excellent enough to charge a fee just to use these facilities. If done well, the facility fee revenues can be quite profitable but if not done well, the facility fees or daily membership fees can present a barrier to entry.  The facility fee is oftentimes waived in full or in part when guests take treatments.
• Design with Flexibility:  The facility should allow for growth and development. Think of your expansion plan during the initial planning stages so that you do not compromise the efficient flow as you grow.  Think in terms of multi-usage of space such as treatment rooms that can do more than one type of treatment, an exercise studio that can accommodate massage workshops when a fitness class is not being scheduled, etc.
• Impact on the Support Departments:  During the planning stage, it will be important to be aware of the spa?s impact on other departments of the resort such as laundry, housekeeping and maintenance.  This impact can be in terms of physical space as well as labor. It is also important to integrate the spa into the resort/hotel and vice versa so a system must be established to ensure quality assurance, customer service and a smooth integration between the spa and the other departments.

Summary

Planning a spa involves creativity, sensitivity and a sense of reality.  The spa is unlike anything else you will ever have at your property because of the way the staff emotionally and physically interact with the guests.  It is important for you to learn as much as you can so that you create a spa that is market-driven, trend-sensitive and both a tangible and intangible asset for your property.

Spas have gone from being a luxury to an amenity to a necessity for almost any four and five star resort and to many up-scale hotels. Many resort/hotel spas have become “signatures” for the property in terms of facilities and services.
Some properties have even become notable because of the spa, and the spa features prominently in advertisements and public relations announcements.
Spas have become, and will continue to evolve, as one of the fastest growing and hottest components of a lodging venture because they are on-trend in terms of helping people relax, release stress and have a sense of balance in their lives.
While spas need to be very market-driven and attractive to the consumer, it’s easy for the owner, operator or investor (you) to get burned if you do not understand the development, staffing, marketing, financial and operational realities of the spa business.
It’s essential that you do your homework before jumping on the spa band-wagon. You should visit a few
spas. Spend some time as a guest so that you can appreciate and understand the unique intricacies and
personal nature of the spa. Then go from your robe to your suit and talk to spa owners and operators to
understand the economic realities from concept to completion to day-to-day operations. Spas should be run as a business.

Treatments

People typically go to a spa because they want to take a treatment, but a spa should make the treatment into an experience. Although the treatment is the medium to help them relax, get rid of stress, feel pampered, etc., there are some key factors to consider:

• Consistent with Concept: Treatments and products must be in line with the concept.
• More is Not Necessarily Better: Be careful not to create what amounts to the encyclopedia of spa This can be confusing and stressful to the guests, difficult for the staff and expensive in terms of training and inventory.
• Competitive Pricing: Look at what everyone else is charging, the length of the treatments, the overall experience, etc. then determine what you can charge in relationship to the experience you . Be careful not to under-estimate or over-price yourself. As treatments become more and more expensive, the guests need to see and feel the value and results for the time and money spent
• Charge More but Offer More: If you can create convenience, people will pay for it, e.g., charge $5 -$10 more for your deluxe manicure but use a fresh bottle of polish for the treatment and give it to them after the treatment, offer to clean their rings, given them a beverage of their choice, offer aheated “neck buddy”, provide a heated foot massager or a foot whirlpool, etc.
• Don’t Discount…Do Value-Added: Offer value by doing add-ons or with give-aways, e.g., after a body polish, give people the loofa mitt; after a pedicure, give them the emery boards and buffers, Don’t discount or de-value what you offer…strive to enhance the value.
• Gift Certificates: Un-used gift certificates mean that you may have lost a marketing opportunity.
  You need people to come in if you want them to come back. Encourage people to use these.
• Up-Sell and Link-Sell to Create an Experience: People should have an experience and not just a For instance, up-sell by suggesting the four handed massage rather than the two-handed massage and link-sell by suggesting a hair style after a facial. Think what you can do to create a memory and a “wow.” Create excitement and you will have ambassadors who will do your word-of-mouth marketing.
• Personalize: Each service should be customized and modified to meet the guest’s needs and People want it “their way” not your way or they will take the highway to the next spa in order to get their own Special Personalized Adventure (SPA).

Products

Products are important because they are directly related to the concept, treatment experience, retail opportunities, branding and profitability. Here are some points of consideration:

• Branded Product Lines: Branded products can be a wonderful option because of the packaging,name recognition, liability insurance, etc. Be careful, however, with how many lines you have.
  Carrying too many lines can dilute your bargaining power for pricing, training, collateral material, merchandising assistance, complimentary samples, incentive program and promotional give-aways, If there are minimums, you could also face a spoilage problem.
• Private Label: There are a wide gamut of options from having a generic product and package with your name on it to creating a product formula, fragrance, color, packaging, etc. Having your name ona bottle is a great way to establish and enhance your brand identity if you create a good product line,but there are lots of risks if you don’t. The mark-up value can be enticing, but the price of entry canbe substantial. If there is not a strong “home spa” sales program, this may not be a cost-effective.
• Retail In-House: Retail is the only “annuity” a spa has because it is consumable. If people like thespa experience, they will want to take it home with them in terms of spa products, accessories andthemed gift baskets. If you expect to sell products, you need the right line, space, incentive program,“sales” people, etc. Retail is an untapped potential. It should be an on-going extender of your brandidentity and equity. It has the highest profit potential and is not labor intensive.
• Mail Order: Database retailing is important in terms of establishing a relationship with your guests. Your product company should be your partner in the “after spa” sales efforts. This can be through direct mail or web-based marketing, fulfillment house services, etc.
• Re-Order: Know the lead time for ordering products so you don’t tie up money by heavily stocking your shelves. At the same time, you don’t want to be too “tight” on what’s on hand because if you run out of a product, you have lost a sale that may never be re-captured.

Payroll

Payroll is the spa’s most costly expense; therefore, it is critical to have the right compensation program so that you can control payroll without adversely affecting the guest experience. Planning less labor-intensive facilities and creating a realistic (for both the employee and employer) salary package for the spa staff is something the spa industry needs to address.
There are many ways to pay your service providers to show that they are valued and that they are part of your success. As you put together a compensation program, consider the following:

• Hybrid Compensation: There are lots of options but some type of hybrid program can give people security as well as incentive. For instance, offer an hourly wage plus a productivity incentive when they give a treatment. Another option is to give people a weekly guaranteed salary with an incentive program based on treatment revenue, retail sales, requests and repeat guests, etc.
• Commissioned Staff or Contract Employees: You may want to have people on a fee-for-service They would be paid a flat rate per treatment. Do not pay people a percentage of the treatment because every time you raise the price of the treatment, it means the staff automatically receive a raise.
• Team Incentives: When everyone works together to achieve departmental and team goals, there can be greater earnings for the individuals as well as for the spa supervisors and managers.
• Benefits: Think about a benefits menu so that your staff can select what is important to them, e.g., health and dental insurance; discounts on treatments and retail; meals; uniforms; training; conferences; day care services; etc.

People

The spa business is a people business, e.g., everything you do revolves around your staff and your guests.

• Invest in Your Team: Hire well, provide on-going training, help the staff to grow personally and professionally and reward them in terms of recognition and incentives. Make your success their success and celebrate the success of the individual and the team. Create an environment that reduces turn-over and builds loyalty.
• Invest in Your Guests: Personalize each guest’s experience, use people’s names, remember birthdays and special occasions, etc. Never forget to say thank you, invite them back and when they come back welcome them. Create loyalty programs and make sure you have a guest comment program. As with the staff, it is important to establish a relationship and to make their feel that they belong and that you cherish their loyalty.
• Invest in Your Community: You and your staff should participate in community events that are consistent with your concept, e.g., environmental programs if you have a “green” spa. Do volunteer work, make charitable donations, reach out to and invite individuals or organizations who could benefit from the spa,g., people recovering from an illness, battered women who need a little TLC, accident victims who may need to know about camouflage make-up, etc. Be a good neighbor.

Operating Expenses

It is important to control operating expenses without incurring a negative impact on the guest experience. The types of operating line items and the financial assumptions depend on if the spa is an IBU (independent business unit), semi IBU or a department within the resort. The following are some of the more expensive operating expenses:

• Laundry: When a guest spends a full day in the spa, it is not uncommon to use 25 items per personper day. Guests expect that a spa will have an abundance of quality towels, robes and slippers. Thelaundry expenses will vary based on whether it is done in-house or out-sourced. You should do a laundry analysis, e.g., sometimes if out-sourced, the laundry company will buy all your robes,slippers, terry, etc. but will charge a bit more to launder each item.
• Marketing: Most spas will be part of piggy-back marketing plan with the resort. However, there maybe direct marketing costs the spa will incur for local marketing, special occasion marketing, giftcertificates sales, membership sales, etc.
• Professional Products & Supplies: The cost of doing a treatment is primarily governed by the products used as well as by the payroll as mentioned above. Products need to be used appropriately in order not to have waste and to see treatment results. Think about pre-measuring products, setting up a requisition program, keeping track of pars and re-order times, etc.
• Utilities: It makes sense for a spa to have an environmental consciousness program with water, electricity, disposables, recycling, etc. because this is consistent with the “health” message plus there are economic benefits.

Marketing

Remember the saying “if you build it, they will come.” Well, don’t expect this to happen. You need to constantly have a front-of-mind presence with your market so when they “think spa,” they think of your spa. Once they are in the door, the focus needs to be on establishing the relationship and creating the bond if you want to have loyalty and retention.
Internal Marketing: A guest should never be at your resort and not know that you have a spa. There are numerous ways to promote awareness starting with hotel reservations booking your hotel room as well as your massage. Awareness strategies can include, but not be limited, to direct mail, e-mail blitz, newsletters, referral programs, frequent user and loyalty programs, in-room collateral, a spa button on your phone, etc.
External Marketing: If people like your program, make them your “ambassadors.” Offer them some type of incentive program to let their friends and customers know about the spa. Ambassadors could include wedding planners, gift stores, liquor stores, real estate agents, travel agents, etc.

Spin-off Ventures

If you have been able to establish a strong brand and a solid business plan that can be implemented impeccably and consistently, maybe it’s time to see how you can create additional revenue streams:

• “House Call” Services: Be the provider of spa services to other hotels, private residences, condominiums, etc. Set up an “out-reach” program which can help you be a good neighbor while bringing in additional revenues for you and your staff.
• Spa Parties: When people want to celebrate special occasions, create the spa party either at thespa or at a person’s home. This can include spa services, gift baskets, spa food and beverage,
• License Your Name or Set Up a Franchise: This is a major step, but if you have something that isre-produceable, you might want to consider this option. This can include both programs and
• Lifestyle Real Estate: Many people want to incorporate the “spa life” into their everyday life. Your spa may be attractive to a residential community developer or a condominium developer who recognizes the increase price point and marketing value that your spa name can bring to real estate sales, monthly maintenance fees, enhanced membership dues, etc.

Conclusion

The spa business is not an easy business to operate. It is a high risk business because it is so personal and labor-intensive. There is minimal room for error in terms of concept, program, products, design and As a stand-alone business, the spa is not as profitable as people may think, but it certainly is an important tangible as well as intangible asset for the resort/hotel. Your success formula should include the following:

• Understand Your Market: Know your guests and give them what they want. Know your competition and make sure you’re better than them. Spas have become a way of life for many Spas are an expected and necessary feature of a resort/hotel.
• Well Thought Out Plan: Create a market-driven concept, develop a solid and realistic business plan; plan a facility that has a good flow, feel and is operationally efficient; hire and reward well motivated and service-oriented staff; continue to do on-going marketing; stay focused.
• Economic Realities: Make realistic financial budget in terms of pre-opening expenses, revenues, payroll and operating costs; monitor and measure everything you do; look at benchmarks and metrics; operate the spa as a business and not just a department.
• Impeccable Execution: Pay attention to detail; provide small and consistent surprises; be proactive; make sure the facility adheres to the most stringent cleanliness standards; etc. Do on-goingstaff training for staff development, treatments, hospitality and business management.
• Look at Trends: Stay on-trend by being aware of what is happening in spas, hospitals, recreation, health clubs, family vacations, leisure time pursuits, etc. Understand the past and present, but thinkin the future. Adjust to trends, but don’t run the risk of being “trendy.”
• Confront the Challenges: Make sure the spa experience is affordable, guest-friendly and service oriented without being labor-intensive.
  Spas are not a passing trend. They are an expected and necessary component of a resort, and they are becoming increasing in-demand for many urban hotels. Spas must be planned and operated as a viable Stay focused and deliver the promise. The key to profitability is to drive the top line by getting people in the door, giving them a great experience and getting them to return.