Objective: Do more of what’s working and less of what isn’t. Once you have done this mini audit, strive to sell top tier products and services by your top tier spa professionals, during your peak hours of business.
1. Examine Staff Compensation
If you're seeing red, the first place you need to go is your Cost of Goods (COG) to review your service staff compensation. Consider this: For day spas, to see some profit, total service staff payroll, including wages, incentives, benefits, insurance and taxes may ideally need to be 35-40% of gross revenue, in order to profit. This will vary dramatically for Resort and Destination Spas. As you strive to meet that %, consider that total average payout per service, whether you are paying hourly, fee for service, commission, or a combination, should ideally not exceed 25-30% of the service price, minus costs - this may allow you to come in at the 35-40% of gross revenue mentioned above. Also consider that total Staff Payroll Burden (including Management & Administrative) might ideally hover around 50 - 55% of GR, but we often see it go over 60%. This is where profitability becomes difficult.
2. Streamline your Service Menu
Your service menu can leak a lot of profits and an oversized menu will cause numerous complications. First, know which services are your highest % contributors to total service revenue. Next, analyze your gross margins on each service and rank them; then analyze your hourly service prices on each service and rank them (service price divided by length of service multiplied by 60 minutes). Ideally your highest % contributors to total service revenue will also be your tops in both gross margin and hourly service price...but often this is not the case! Those services that don't make the list must be kept only if they are a strong client draw; have a prominent place in your spa packages; or act as an effective gateway service.
3. Rank and cull your Retail
Know your top 20-30 sellers and what their individual unit dollar value and % contribution to total retail revenue is. So, analyze which products you sell the most of; rank them to determine where they sit with unit dollar value; and finally, know what their % contribution is to total retail revenue. Once again, the three should line up in as many instances as possible. Know that excess retail ties up your cash flow and depletes already slim margins, because you'll probably have to discount them to clear them. FYI, retail is NOT more profitable than services (unless it is private label), but you can sell a lot of retail in a short period of time. Which would you prefer: $100 service sale in 50 minutes, or $200 service & retail sale in 60 minutes?
4. Handle Staff according to Statistical Reports
Know your staff retail and service sales combined for a total sales figure; know the number of hours they worked in the year and divide that by their total sales to arrive at their sales per hour figure; calculate their % productivity to determine if you are over or under staffed (75-85% is ideal, still allowing for short lead time services to be booked); know what their % contribution to the bottom line is (in their department and the spa as a whole); calculate both their request and retention rates; know their retail sales to service sales (25% or greater)? Study these figures to ascertain who your top performers are and that you are rewarding them with compensation based on their ranking.
5. Analyze Marketing & Customer Service Initiatives
Study your online and offline initiatives to determine which ones are paying off and which ones you should dump. Do a cost analysis on every promotion that you run to determine worthiness; and rank your clients with Recency; Frequency; and Monetary value (RFM) to determine your VIPs. Just like your services; products; and staff, once you know where your clients rank, you can determine their handling. Examine seasonality as well as daily and weekly peaks and valleys to uncover your prime and sub-prime hours of business. Have numerous methods to track the guest experience...and then ACT on your findings! Once you know who and what are contributing the most to your bottom line, you begin to do more of what’s working, and less of what isn’t.