Spa Financials: Amenity, Add-on feature, Cash Cow, Profit Center?
By Melinda Minton Executive Director, SPAA | May 19, 2010
Math...yuck...who likes to do financial equations? However, you only have to plug a few numbers into some formulas to figure out what is going on with your business. Is it viable? What do you need to add, subtract or change to make your hotel spa flourish? Read these basic guidelines to get a better feel for your potential plan of attack. Formulas like the following will allow your spa management team to assess the health of your spa as well as make financial plans for your spa's future.
Break Even Point
Your Break-Even Point is the level of monthly sales required to achieve a profit of zero. Understanding your break-even point is critical to planning and operating a successful business. It is calculated as follows:
Break-Even Point = Operating Expenses / Gross Margin %
For example, if your Operating Expenses are $20,000 per month and your Gross Margin % is 45%, then your Break-Even Point would be $20,000 per month / 45% = $44,444 per month.
This graph illustrates the concept of break-even and the importance of increasing Gross Margin. Each line shows monthly profit for various levels of sales, and the break-even point is where the line crosses through a profit of $0. Each line shows a different scenario: