Thought Leadership Kirsty MacCormick, The Spa Consultancy
How to take a more dynamic approach to profitability
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Kirsty MacCormick EXPERT CONTRIBUTOR
With over 30 years’ experience in the spa and wellness industry, Kirsty MacCormick is the founder of The Spa Consultancy. Her expertise includes development, pre-opening project management and operational set up of a range of spas from commercial hotel and day spas to luxury five-star wellness destinations. www.thespaconsultancy.com
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ollowing the challenges faced by spas over the past two years, we have all learnt to be more creative and dynamic in the way we drive revenue and operate our businesses. Profit margins have never been so dissected and crucial to our survival. In some cases, we have had to look at altering our business models, many of us selling online and generally becoming more commercial. For those of us whose interests have survived or even thrived, this has resulted in us operating more dynamic, profitable and successful businesses.
Menu engineering
In the Spring 2022 edition of European Spa we discussed using an annual yield technique called menu engineering to determine which treatments give us the highest profit margins. First, we need to segment our offer according to volume of sales, treatment duration and profitability. Then we can start planning what services to offer during peak hours – usually the ones with the highest profit margins unless you have a seasonal or promotional offering. We need to identify the products most beneficial to a spa by segmenting services according to volume of sales (popularity) and the cost of sale (profit margin). The four menu engineering categories are ‘Stars’, which demand strong and high margins; ‘Plow Horses’ requiring strong and low margins; ‘Puzzles’ with low demand and high margins; and ‘Dogs’ with low demand and low margins.
Dynamic availability
Profitability is optimised by offering treatments with the highest margin
during high-demand times. This way a spa can easily increase its overall profit margin without significant changes. This yield technique, known as dynamic availability, can be a very effective approach to increase profit for a spa by replacing low-margin sales with higher-margin sales during peak hours. Beside the dynamic availability of different categories, it’s important to also manage the utilisation of spa resources and facilities that can support various services. Although it is possible to implement a dynamic pricing strategy based on the level of demand, customers may not always understand why the price for a specific treatment fluctuates. They may consider a higher price, during peak demand periods, as an unfair price difference. Should we expect them to pay more for a treatment just because it’s at a peak time or maybe we should add value, perhaps by offering 90 minutes for the price of 60?
Discount strategy
Discounting is currently one of the most hotly debated topics in the spa industry, intensified by a challenging economic climate that makes it increasingly appealing to businesses. Often criticised for failing to create a loyal, long-term customer base, the application of discounts as part of a yield management strategy is also questioned. In most markets the spa offer often exceeds demand, with managers frequently discounting to fill empty treatment rooms. The published rate is set based on the highest demand level, with discounts applied during periods of lower demand. It seems this www.europeanspamagazine.com
