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:

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Guest Service: A Culture of YES

In a recent global consumers report, 97% of the participants said that customer service is a major factor in their loyalty to a brand, and 76% said they view customer service as the true test of how much a company values them. And since there is no industry more reliant on customer satisfaction than the hotel industry, managers must be unrelenting in their determination to hire, train and empower the very best people, and to create a culture of exceptional customer service within their organization. Of course, this begins with hiring the right people. There are people who are naturally service-oriented; people who are warm, empathetic, enthusiastic, pleasant, thoughtful and optimistic; people who take pride in their ability to solve problems for the hotel guests they are serving. Then, those same employees must be empowered to solve problems using their own judgment, without having to track down a manager to do it. This is how seamless problem solving and conflict resolution are achieved in guest service. This willingness to empower employees is part of creating a Culture of Yes within an organization.  The goal is to create an environment in which everyone is striving to say “Yes”, rather than figuring out ways to say, “No”. It is essential that this attitude be instilled in all frontline, customer-facing, employees. Finally, in order to ensure that the hotel can generate a consistent level of performance across a wide variety of situations, management must also put in place well-defined systems and standards, and then educate their employees about them. Every employee must be aware of and responsible for every standard that applies in their department. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.