Spa Economics & Metrics: Do you really know how your spa is doing? Part I

 Is the Spa Industry Fiscally Healthy?

We all know that any new four or five-star resort and many luxury urban hotels need to have a spa in order to stay competitive. While the supply of spas has been on a steady rise for many years, the growth has slowed and this is probably good because there are some challenges that need to be addressed . . .The supply has out-paced the demand, the labor pool from management to service providers is quite limited, and there isn’t enough reliable economic information.

These may be “symptoms” that need further examination in order to address any “health” issues that could impinge on the well-being of our industry. It used to be that if the Spa had a unique concept, was planned to be operationally efficient for the staff and comfortable for the guests, had a well-conceived and executed marketing plan and was well-managed, it would be a financially profitable venture. The challenge has been to define “what is financially profitable.” It may be time to really have a “fiscal check-up” to see just how healthy we are.

Lots of Information But Do We Have What We Need?

As a relatively young industry, there has been quite of bit of research conducted as it relates to the Spa Industry. Some findings have been useful and some are purely interesting, but at this point in our industry’s development, are we getting what we really need to have a financially profitable business venture?

The following types of studies have provided some good information:

Consumer Studies

• - Depth of the spa-goer market
• - Demographic profiles
• - Consumer behavior
• - Key emotional and psychometric drivers
• - Number of visits to a spa

 Marketing Studies

• - Size of the spa
• - Number of treatment rooms
• - Unique concepts and marketing strategies
• - Number and variety of spa services
• - Signature treatments and products
• - Marketing strategies

Trends and Growth Studies

• - Number, types and profiles of spas
• - Products, equipment and technology
• - Ownership and management
• - Number of people employed in the spa industry
• - Most popular treatments
• - Issues, opportunities and challenges

While all of the above studies present important information, the area of most concern is the increasing focus on “spa economics.” The spa industry wants reliable information which can be used to develop accurate budgets and determine the key economic metrics:

Economic Studies

• - Wages, operating expenses and net profit
• - Service provider productivity
• - Capture rate and treatment room utilization
• - Number of treatments per guest visit
• - Revenue per guest visit
• - Revenue per occupied hotel/resort room
• - Revenue per available treatment room
• - Revenue per square foot

Spas have lots of data at their disposal. The challenge is that most financial analysts, developers, operators, spa directors, etc. want and need help to determine what data are important, and they need tools to help gather and analyze the data. The future of the spa industry will be in business management, measurement and accountability and not just spa operations. If spas want to be economically viable business ventures, they need to go beyond the service-business.

The New ‘Spa Mantra’ is ‘Spa Metrics’

We are at a turning point in the spa industry. Just about everybody in any way connected to the spa industry (developer, investor, lender, asset manager, feasibility analyst, appraiser, hotel owner and/or operator, spa owner and/or director, vendor, etc.) wants reliable financial information to help make critical and costly decisions.

As spas under-go more and more scrutiny in terms of development costs and economic performance, the focus will be:

• - Grow the “spa numbers” rather than grow the “number of spas”
• - Master the “spa business” rather the “business of spas”

As a spa consultant for 25 years, the one question I am ALWAYS asked (and with increasing frequency) is “where can I find reliable benchmarks or metrics that will help me analyze the economic viability of developing or expanding a spa or will allow me to see how my spa is really doing?” It is not enough for a spa to compare its performance against budget or against last year’s actual numbers. Spas want to see how they are doing compared to other spas within their chain, a competitive set or the spa universe.

In this article, I will explore some of the most requested and important metrics. Regardless of what type of spa you have and how you have positioned it (IBU, semi-IBU, department), there are several key metrics that need to be gathered, measured and monitored if you expect to manage your spa as an economically viable business venture