Pulse October 2023 | Page 39

profit compared to cost . To determine profit margin for a spa service : 1 Calculate the total revenue earned from the service . 2 Calculate the total cost of delivering the service . 3 Subtract the service ’ s cost from its revenue . 4 Divide the resulting figure by the service ’ s revenue . 5 Multiply the resulting figure by 100 to reveal the service ’ s profit margin as a percentage . For example , let ’ s consider a massage for which your spa charges $ 150 ( step one ). After reviewing all administrative expenses — labor , product , linens , treatment room cleaning supplies and other costs — you calculate $ 110 in total costs ( step two ). The net income from the massage is $ 40 ( step three ). Dividing that figure by the $ 150 price of each massage ( step four ) reveals that service ’ s profit margin is roughly 27 percent ( step five ).
After calculating the profit margin for your spa ’ s entire array of treatments and services , you will be able to compare the resulting figures .
Of course , every spa ’ s costs will differ , and the figures above are merely examples . Remember that many spas capture additional revenue from retail sales of products used with treatments . Though earnings from these sales will vary from service to service , calculating the average or median revenue from retail sales per treatment type can give spa leaders another layer of costs and revenues to consider when calculating the net return on a given service .
Once the profit margins of each of your spa ’ s services have been calculated , those services should be sorted into high- , medium- and low-margin categories . Categorizing services in this way will make the process of optimizing service availability much simpler . n

More to Know : Spa Revenue Terminology

AS WITH ANY BUSINESS TOPIC , revenue management has its own jargon . In alphabetical order , here are several additional concepts you will encounter when learning more about revenue management :
CROSS-SELLING : Training all spa employees to cross-sell products and services is foundational to spa revenue management . Treatment providers as well as retail associates should be familiar with associated products and services to be able to make complementary cross-sale recommendations .
DATA-DRIVEN INSIGHTS : Informed decisions in spa revenue management are powered by data analytics . Decisions about your spa ’ s variable and dynamic pricing and dynamic availability will be informed by customer booking patterns and market trends .
DYNAMIC INVENTORY MANAGEMENT : Revenue management systems optimize spa inventory to make maximum use of capacity while providing a consistent service level .
FLASH SALES : Last-minute deals can generate revenue by selling available inventory — typically , unbooked appointment slots . Spa marketing teams may create a flash sales distribution list — often a subset of a loyalty program membership list — to announce first-come , first-served opportunities for clients who are likely to take advantage of bargain pricing .
LOYALTY PROGRAM : Many spas offer loyalty programs to provide members with exclusive discounts , unlisted treatment options and other perks that are intended to encourage repeat business . When combined with yield management practices and flash sales , loyalty programs help to create a consistent revenue stream .
PACKAGE DEALS : Bundling multiple services , or products and services , at a discounted price creates packages that encourage customers to try new treatments . From a revenue management perspective , package deals offer opportunities for spas to increase yield and to reduce overages of less popular inventory by including them with trendier services and products .
SPA INVENTORY : Treatment appointments are a spa ’ s “ inventory ,” relying on both available time slots and resources ( treatment providers , treatment rooms and necessary spa equipment ).
FOR MORE INFORMATION , see Josh Corman ‘ s three-part “ Revenue Management ” series in the August through October 2021 issues of Pulse .