MY FIRST FEW YEARS were primarily focused on
building a solid foundation for growth, which we did. We
grew and grew. We grew from 20 team members to more
than 40. Top-line revenue grew more than 400 percent and
our earnings before interest, taxes, depreciation and amortization
(EBITDA) was on that upward trajectory that shareholders
and CEOs love.
In 2015, I was given the green light to secure a new
software system, so I talked to Frank Pitsikalis, CEO and
owner of ResortSuite. What I learned during those first conversations
would be crucial to our continued year-over-year
growth as well as the foundation of our safety-first and
EBITDA-strong spa reopening plans this past May.
What did he say? Here it is in a nutshell: yield management.
In its most traditional sense, yield management is a
variable pricing strategy based on understanding,
anticipating and influencing consumer behavior in order to
maximize revenue or profits from a fixed, time-limited
resource (such as airline seats or hotel room reservations—or
spa services). As a specific, inventory-focused branch of
revenue management, yield management involves strategic
control of inventory to sell the right product to the right
customer at the right time for the right price. This has
worked for airlines and the hotel and hospitality industries
for years.
While we have yet to take the full leap into this traditional
model of yielding after reopening, I felt strongly that a
modified yielding strategy was going to be critical to our success
upon reopening our spa with the rest of our resort on
May 5, 2020. An almost two-month shutdown left us with
more than a US$300,000 revenue shortfall, which also meant
that our year-over-year EBITDA growth was stopped in its
tracks.
We began by creating a yield modification plan that represented
a half-step towards full-on yielding. The first step
was to identify those services with the highest profit margins.
This is a simple formula that we use on every service
we offer:
PRICE OF THE SERVICE
– service hourly wage
– commission
– product cost per service (all products used in the service)
– amenities and linen cost (calculated as a flat fee per
guest based on 12 month trends)
= profit margin per service
There are some other fixed costs that obviously impact
EBITDA, such as salaries, PPE and amenities (plus rent, utilities,
etc. if you operate a day spa), but this formula is a
quick and easy way to determine your break-even point and
your profit margin on each service.
Once we identified eight high-profit margin services, the
second step was to modify our spa and salon service menu
to include only those services. (We also added extra time
where needed for sanitization and “mask breaks.”) I think it
is important to note that we did remove all express services
from the menu, as not only did they not yield margins as
strong as longer services, but removing them also reduced
expenses by requiring fewer room/chair turnovers, which
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