if P&Ls, taxes, pricing models and
ratio analyses make your eyes cross,
you’re not alone: many in the
industry are continually challenged
by the financial aspects of managing
a spa. fortunately, iSPa has a wealth
of resources available on financial
management, written by proven spa
industry financial experts, that you
can use to sharpen your skills,
expand your knowledge and,
ultimately, improve your spa’s
bottom line.
To help make heads and tails of it
all, Pulse tapped the knowledge of
industry experts to answer our
members’ most frequently asked
financial questions.
“hoW mUch ShoUld I InveSt
In PAYroll?”
in today’s hypercompetitive labor
market, one of the questions iSPa
members ask most frequently is how
to pay their employees enough to
ensure retention without affecting
profitability.
Generally speaking, few spas can
remain profitable if payroll exceeds
60 percent of revenue, and few can
retain employees if payroll is less
than 45 percent of revenue. The
‘sweet spot’ is 50 to 60 percent of
revenue. if your spa is struggling to
retain employees at that point, it’s a
good idea to first look at increasing
revenue before increasing salaries,
otherwise your payroll may cross that
60 percent threshold.
you can also look at other ways to
compensate employees. This includes
offering traditional benefits—health
insurance, paid time off—as well as
non-traditional benefits such as
flexible working hours. While these
benefits have very real costs on your
(CONTINUED ON PAGE 36)
chArt
YoUr
PAth
net revenue is fairly straightforward:
the gross revenue, less any allowances
like discounts or credits, for the
accounting period. This includes all
revenue, too, from services and retail to
memberships, food and beverage.
total direct expenses include the cost
of any goods sold, the cost of products
used in services, and the payroll
expenses for employees to provide
services. Therefore, a direct expense is
anything that is directly related to a
source of income.
This is an important performance
indicator for spa directors, because it’s
essentially the profit or loss when
considering only those factors over which
spa directors have the most control:
revenue, cost of goods, cost of services
and the indirect expenses (like linen,
marketing and administration) that
support the operation of a spa.
fixed charges are charges that a spa
director will likely have little or no
influence over, but which are relevant to
spa owners. Examples include rent,
insurance and property tax.
32
PULSE
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MAY 2019