If you are in the service business, you know time is money—and that making every minute profitable is the key to success. In this “Metric Minute,” Leslie Lyon, president of Spas2b Inc., shares a formula to help you determine which services are “Top Tier” performers and which will generate high revenue per hour/minute, provide high-gross profit margins and are in high demand.
It is important to know your Top Tier (TT) services because handling something good in a way that makes it even better is a solid business strategy. But to make sound business decisions, the information those decisions are based upon must also be sound. In the case of spa services, having a general idea of which ones are your best performers just isn’t good enough. Without ongoing detailed analysis, you are really only guessing. Those guesses then form the basis for your decisions in everything from marketing and promotion to staff compensation to purchasing plans. At year’s end, those guesses may have done you a disservice and may be now reflected in your less-than-stellar bottom line. As you embark on the tedious task of backtracking to find the culprits, you begin to see how your guesstimates did not support your operational and marketing decisions.
The purpose of this formula is to help you identify your TT spa (or wellness) services. I’ve provided you with this working spreadsheet, which is easy to complete and can guide your decision-making. (I hope you will also share your findings and help the industry obtain a global “snapshot” of its TT spa/wellness services.)
Here’s how it works:
- Click here for your copy of our TT Excel spreadsheet
- Choose the services you wish to analyze and replace the generic service titles (provided in rows 6 through 20) with your own spa service titles
- Input the applicable data for each of your services into columns B, C, F, G & H; Columns D, E, I, J & K will then automatically populate
- The services that rank highest in Columns D, J & K are your TT services
- And, if you choose, disclose your results in the comments section of this blog (anonymously or named). We will share the results in a future Weekender.
Here’s what the spreadsheet will accomplish:
1. Calculate your service revenues per minute and hour – basic formula:
Service price ÷ service time in minutes = service revenue per minute × 60 minutes = service revenue per hour
One example to demonstrate the importance of first positioning your services for profit:
$200 service price ÷ 90 minutes = $2.22 service revenue/minute × 60 minutes = $133.33 service revenue/hour
2. Calculate gross profit margin (GPM) $ and % – basic formula:
Service price – product costs – miscellaneous service costs – service staff wages = GPM $ ÷ service price × 100% = GPM %
One scenario to demonstrate the importance of cost containment:
$200 service price – $20 product costs – $5 misc. costs – $50 service staff wages = $125 GPM/63% GPM
*Service staff wages refer to base wage and any supplemental service incentive pay. Miscellaneous costs refer to anything from q-tips to disposable sheeting needed to perform the service.
After you have analyzed your results, use these tips to improve your bottom line.
1. Booking: If a TT service will benefit your client more than a bottom tier one, recommend it first
2. Scheduling: TT staff providing TT services to TT clients in peak hours is the goal
3. Training: Yes, high-level product and service training programs for these TT services are warranted
4. Compensation: Working to align compensation tiers with service and staff tiers is practical
5. Brochure: Placing TT services in prime real estate for maximum exposure is sensible
6. Floor plan: Designating more space to house these high-yield TT services is good thinking
7. Promotion: Deliberately developing a TT client base or these prominent performers is wise
8. Revenue management: The TT contribution does allow you to specially price them occasionally
9. Purchasing: TT services bring high-retail sales/turnover so gradual spending increases do make sense
In conclusion, begin by focusing on where you can turn low- and mid-tier services into TT services…and put your TT services in the spotlight, where they can generate the most revenue.
Question of the week:
After you used the Top Tier services worksheet, please tell us what surprised you most about your results in the comments below.
The GSWS Team
The first global gathering of hot springs proprietors is slated for October 7 at the Global Spa & Wellness Summit in New Delhi. Interest in wellness and natural, indigenous experiences is driving a surge in popularity of hot springs worldwide. Co-Organizer Charles Davidson notes the Forum will give the industry a unique opportunity to look at ways of harnessing this growth and sharing the potential at a global level. Read the full press release.
Read the European Spa article on the upcoming Global Spa & Wellness Summit.