LOOK BACK TO LOOK AHEAD
Performing a profitability analysis is one of the most basic
ways to evaluate the performance of the various items on a spa ’ s treatment menus , but it ’ s also one of the most important . Conducting this kind of analysis is also an essential part of developing a revenue management strategy because to optimize the amount of profit a spa makes on the services it provides , those leading the spa must know definitively how profitable each individual treatment or service is .
Spa services have two primary costs tied to their delivery . The first is the cost of labor and the second is the cost of the products required to perform the service itself . However , linens ( and their laundering ), the space required for the treatment , cleaning products and special equipment may also need to be factored in to gain the most accurate picture of a service ’ s true cost .
To determine profit margin for a given 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 .
Expressed as an equation , it looks like this :
PROFIT MARGIN
=
Revenue from service — Cost of providing the service
Revenue from service
The resulting figure can then be represented as a percentage , making it easy to compare the profitability of your spa ’ s entire array of treatments and services . For example , a massage for which your spa charges $ 150 and which costs $ 110 to administer ( between labor , product , linens , treatment room cleaning supplies and other costs ) has a net income of $ 40 . Divide that figure by the $ 150 earned on each massage , and that service ’ s profit margin is revealed as roughly 27 percent . 1 . Revenue earned from the service ($ 150 ), minus the cost of performing the massage ($ 110 ), divided by the revenue earned from the service ($ 150 ).
X 100
PROFIT
$ 150 - $ 110 MARGIN = $ 150 X 100
2 . Net income of the service ($ 40 ), divided by the revenue earned from the service ($ 150 ).
PROFIT
$ 40 MARGIN = $ 150 X 100
“ It ’ s also critical that spa leaders evaluate the spa ’ s current overall profit performance to establish the baseline against which future performance can then be judged .”
3 . The profit margin for this particular service is then calculated by multiplying the resulting figure ( 0.266 ) by 100 , revealing a margin of 26.6 percent .
Of course , every spa ’ s costs will differ , and the figures above are merely examples . It is important to 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 margin 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 determining service availability — more on that in the next section — much simpler .
SEPTEMBER 2021 ■ PULSE 17