Taking The Plunge With Revenue Management

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How often does your spa experience selling out on certain days of the week and having lots of free spots on others?

Do you wonder if those discount coupons are really adding to your profit, especially when you have to honor them during a very busy day? 

Do you wonder which customer will give you more business in the long-run (even though they are paying less now) and hence you should accept over another customer who is paying a huge premium for wanting to be pampered NOW, but may just visit your spa this one time, never to be heard or seen again?

Do you wish there is a more systematic, scientific way to manage and measure your business? 

If your answer to any of the above is a resounding "yes", then perhaps it is time to consider using the time-honored, results proven, scientifically developed revenue or yield management system airlines, car rental companies and hotels use to overcome the very same problem you are experiencing: managing resources that are perishable (don't sell the service spots, you lose them forever) and fixed capacity (you can't build another treatment room just to accommodate the additional request for that particular day).   

In a nutshell, revenue management is the science of using past history and current levels of booking activity to forecast demand as accurately as possible to maximize revenue.  Everyone attempts to even out the peaks and valleys of occupancy by increasing rates during times of high demand and discounting them when demand is low.... Too often, however, the trigger for action, especially discount action, is an emotional reaction to low levels of bookings for short-term arrivals, and not a reasoned decision based actual — but hard to see - trends.

Sounds like the problem you are encountering?  You betcha!

But you are just a small spa with very little money and a lot of enthusiasm to get started right away.  What can you do?

Here's how you can start today. 

Step 1. Look at the days where you have very little business.  Let's call these the "lazy days".   And look at the days where you have so much business that the line is going out of the door, around the block.  Let's call these the "busy days".   

Step 2: Instead of discounting immediately, or further, to attract more customers to the lazy days, raise the price a little higher (5%?) for all the days and all services. 

Yep, you heard me: raise the prices.  Do calm down.  I promise this works.  Please keep reading. 

Step 3. Now you can do a little discounting.  Tell all your customers that on the lazy days, you will give them a 15% discount across the board for all services.  (If 15% is too high for you, try a figure that works best for you, but it must be more than the percentage you raised your prices to so that the prices appear attractive to your customers.)

Those customers who are sensitive to getting "good bargains" and are not too concerned about the convenience of getting pampered on any particular day will come on the lazy days where the discounts are offered.  So in time, you will bring more business to the lazy days. 

Customers who do not care very much about prices and just want to be pampered whenever they feel like it (most likely on the busy days) will still come on the busy day. 

Essentially, what I have asked you to do is to balance out the demand for your services so that there are less dramatic differences in your business on different days.  No more peaks and valleys, just an even load of business everyday. 

Step 4.  If you use discount coupons, look at them and see if you have allowed your customers to use them whenever they want, or if you have restricted the use to certain days (lazy days) only. 

You want to re-design your discount coupons to restrict their patronage to lazy days only, for obvious reasons. 

And voila!  You are all set.  Go ahead and give this simple plan a try for a couple of months.  Shift the demand from the busy days to the lazy days.  Make the entire week equally busy.  See how you, your therapists and your customers like it.   Be sure to give it time to work. 

Once you have mastered this technique, you are ready to look at the busy months and the lazy months, and shift the demand based on the same principles you used with the lazy months.   A little more creativity is needed to do this, but with the practice you have had on the lazy days-busy days I am confident that you are ready to take a look at the bigger picture and manage your revenue streams better.  In time to come, your business would have grown to be even more successful, and you will be ready to take on the full works of revenue management and enjoy the financial benefits of this tool.