Spa Menu Engineering

By Kristi Dickinson Director of Spa & Wellness, Rancho Valencia Resort & Spa | October 27, 2019

In a labor-intensive department such as spa, profitability is essential to the future success (and survival) of the department. For many hotels, the struggle for profitability and fear of running "in the red", is so great that they opt to outsource the entire facility to specialty operators. This short-term strategy is unfortunate, because well-run spas with unique identities can be major profit contributors.

According to the 2018 Spa Industry Study by the International Spa Association (ISPA), nearly one third of resort and hotel spas operated with a profit margin of 25% or higher. Menu engineering is one strategy you can use to transform your spa from an amenity into a profit center.

The goal of menu engineering is to increase the profit per guest. This is done via detailed analysis of the contribution margin and popularity of individual treatments, as well as the strategic positioning of the treatments on the menu designed to encourage guests to select those with the optimal profitability.

According to an International Spa Association Snapshot Survey on Spa Menu Engineering, the average number of spa treatments on the menu for all spas is 45. Interestingly, responses for the number of treatments on the spa menu ranged from 5 to 200. ISPA research indicated that 60 percent of spas planned to add or create new treatment offerings, 45 percent indicated they would introduce new product lines, and 28 percent planned to create a new spa menu. How many of those spas are making these decisions based on regular profit and sales analysis? Sadly, it is safe to assume very few understand menu engineering and how impactful it can be to their business.

Important Questions to Ask

When I teach menu engineering there are some key questions to begin with.

1. Do you know what your cost per treatment really is?

Many spa directors have no idea or use the figure the vendor provided in their protocols. The cost per treatment listed in the protocol is very conservative, as the vendor wants you to believe you will have a low treatment cost which translates to high retail sales. These cost per treatment estimates are often 30% less than what is used in actual practice. Their figures also will not include the cost of linen laundering, labor, portion cups, disposables, etc.

2. Are you setting your prices based on the margin you need to achieve, or just following your competition?

Treatments are the core of the spa's business, so profit must be built into the price to offset the high cost of the one-on-one labor required to deliver a service.

3. What are your most profitable services and where should you focus your sales energy?

Most people will tell you their top sellers are the most profitable services but that is often not the case.

Where to Start

Now that we have a feel for this spa's current understanding of their business, we can start to build a foundation as follows:

  1. Make a list of all the treatments on offer
  2. Organize by category
  3. Set a planned time interval for review (i.e. monthly or quarterly)
  4. Determine total cost per treatment
  5. Determine the average menu sales price (if using variable pricing or discounts are common)
  6. Calculate the contribution margin per treatment
  7. Determine number of sales per treatment during that interval
  8. Assess the contribution margin index
  9. Calculate the menu mix

An Example

1. Make a list of all the treatments on offer:

  • Swedish Massage
  • Deep Tissue Massage
  • Reflexology
  • Sugar Body Polish
  • Signature Body Sculpting
  • Moisturizing Wrap
  • Herbal Sea Wrap
  • Salt Glow
  • Vibrant Vichy
  • Lavender Sleep Ritual
  • Vitamin C Facial
  • Organic Rejuvenation Facial
  • Lifting Facial
  • Mindful Manicure
  • Presence Pedicure
  • Full Color
  • Men's Haircut
  • Lash Extensions

2. Organize by category:

  • Massage – Swedish Massage, Deep Tissue Massage, Reflexology
  • Body Treatments - Sugar Body Polish, Signature Body Sculpting, Moisturizing Wrap, Herbal Sea Wrap, Salt Glow, Vibrant Vichy, Lavender Sleep Ritual
  • Facials - Vitamin C Facial, Organic Rejuvenation Facial, Lifting Facial
  • Nails - Mindful Manicure, Presence Pedicure
  • Hair - Full Color, Men's Haircut, Lash Extensions

3. Set a planned time interval for review – we have selected monthly for our example.

4. Determine total cost per treatment – be sure to include:

  • Product - Cost of both professional product and waste. Vendors will be very conservative in the cost per treatment in their protocols, so verify your actual usage.
  • Supplies and Disposables - Esthetic wipes, product portion cups, spatulas, pedicure slippers, cotton rounds, spa toss, etc.
  • Laundry – It is ideal if your service can bill you by piece so you can calculate the true linen cost by table set-up. If laundry is done in-house, work with Housekeeping to make an estimate.
  • Labor – This should include room turn time, unutilized time, payroll tax, and benefits costs. This likely will be a percentage by position, as different types of providers have different utilization rates. For example, the payroll cost for a Nail Technician may be 50%, as they are less booked in most spas and the price point is lower, whereas a Massage Therapist may have a 43% payroll cost because they are booked more often and the price point is higher.

5. The average menu sales price (if using variable pricing) – if your weekday price is $175 and your Friday to Sunday price is $185, then your average is:

(4 x $175 + 3 x $185)/7 = $179.29

6. Calculate the contribution margin per treatment

7. Determine number of sales per treatment during that interval

8. Assess the Contribution Margin Index

A contribution margin indicates how many dollars each service adds to revenue. The contribution margin category will be high or low depending on if it exceeds or falls below the average contribution per treatment. This can be calculated by taking the total contribution divided by the total number of services:

CM Achievement rate = Menu CM/Total MM = Y

CM rate = High >= Y Low < Y

In our example the Contribution Margin Achievement Rate is $106.94. If a service has a CM above this it is a High contributor, below this is a Low contributor.

9. Calculate the Menu Mix

Next we look at the volume (popularity) of each treatment sold. The Menu Mix Category will be high or low based on whether it exceeds or falls below the hurdle rate. The formula for calculating the hurdle rate is:

MM% Achievement rate = (1/N) * (70%) = X

MM% rate = High >= X Low < X

In our example, we offer 7 different types of wet treatments (1/7) x (.7) = 10%. If a service sales volume is greater than 10% of the Menu Mix, it is a High classification, if below 10% it is a Low classification.

The Result

A good menu engineering template will quickly evaluate each treatment's performance on the menu considering both profitability and volume.

From these classifications, the leadership team can determine which treatments to keep (Stars) and phase out (Dogs).

Puzzles have high contribution margins, but they do not sell well. The manager needs to dig a bit deeper to determine why. Is the service too long? Does the treatment name do the experience justice? Is the description confusing? For example, we featured a scrub called the C+C Scrub which is the brand name of the scrub as advertised by the vendor but was rarely booked. When we changed the treatment name to the Citrus Body Polish it became widely popular.

Plowhorses sell well but have a low profit margin. It is tempting to increase the price but that could hurt sales. First look at how you can reduce the cost. For example, are three masks necessary in your signature facial? Are guests really purchasing all three masks in retail or even noticing an enhanced result? Could two achieve the same impact without compromising the guest's experience? You might also try renegotiating pricing with vendors. Skincare, in particular, is becoming incredibly competitive and the vendors have much more flexibility than in previous times.  

Special Considerations

After running your analysis, you may still decide to keep some services with low sales volume for other reasons, such as the marketing value. For example, a "Mermaid Bath" may be Instagram-worthy and draw attention to your spa, but you find that most of these leads decide to book a regular massage.

Ask yourself "Does the popularity of a treatment have anything to do with the price, product or description?" In a nurturing business such as spa, it might have everything to do with the person providing the service. Conversely, did lack of booking have anything to do with lack of staff? Make good notations of this for historical purposes. For example, was a nail tech out on a medical leave for several months and you were unable to secure a qualified replacement?

Facility availability is also an important consideration as you need both a provider and a facility to deliver a spa treatment which makes them more complex than a restaurant menu item. Did you see a surge in nail service popularity over a peak period simply because all your massage and facial rooms were booked, leaving only nail rooms to sell?

Although it is recommended to analyze this data on a monthly or quarterly basis, do not be tempted to make changes to the services offered on the menu too often. There is a training cost of frequent menu changes as well as a product cost. Frequently changing of product lines will result in wasted product and high inventories.

It is also appealing to just keep adding treatments to your menu, but simplicity can be the best strategy. This is especially true in a hotel setting to avoid overwhelming the guest and causing the inability to make any decision at all. It is also easier for the spa reservations team to learn benefits and become subject matter experts when you have a consistent menu. You also want to ensure that every therapist is fully bookable (to maximize the booking opportunity). Frequent menu changes cause challenges with all therapists being fully bookable while you wait for them to be trained on the new protocols.

Importance of Regular Menu Engineering Analysis

Guest tastes change over time. Vendor prices change very frequently, especially skincare lines. Therefore, it is important to review your costs and pricing at least quarterly. I highly recommend a spa brochure that is separate from your pricelist, so you have this agility and are not beholden to the thousands of printed spa menus sitting in your storeroom.

Careful analysis on a consistent basis, as well as understanding how to engineer and position your spa menu options will allow you a solid foundation to maximize your profitability and ensure your spa thrives!

 

Sources:

Financial Management for Spas textbook

https://experienceispa.com/images/pdfs/may-2013-sssresults.pdf

Ms. Dickinson Kristi Dickinson brings more than two decades of luxury hospitality experience, including her current role as the Director of Spa & Wellness at the Five-Star, Five Diamond Rancho Valencia Resort and Spa (North County San Diego, CA). Rancho Valencia was hand selected by Forbes Travel Guide as one of the finest Five-Star hotels and spas in the world (2018) and was awarded the prestigious AAA Five Diamond award (2018), both for five consecutive years. The resort has also been ranked as the #1 resort in the country by U.S. News & World Report (2015) and was listed on Conde Nast Traveler's 2016 Reader's Choice Awards List.Prior to joining Rancho Valencia, she held key executive positions at The Mayflower Inn & Spa (Washington, CT), Spa Montage at the Montage Deer Valley Resort (Park City, UT), and the Golden Door Spa at The Peaks Resort (Telluride, CO). Kristi Dickinson can be contacted at 858-759-6486 or kdickinson@ranchovalencia.com Please visit http://www.ranchovalencia.com for more information. Extended Biography

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Hotel Business Review Subscriptions

If you choose to purchase a subscription, member subscription payments can be made in U.S. Dollars, as well as a variety of international currencies. Membership terms are Annual Recurring, and Monthly Recurring. The Annual Recurring subscription is an annual commitment and subscribers will be charged each consecutive billing cycle. Annual Recurring subscriptions can be cancelled after the first billing cycle and within 30-days of the billing date for a full refund. Monthly Recurring subscriptions are ongoing and subscribers will be charged each consecutive monthly billing cycle. Monthly Recurring subscriptions can be cancelled after the first month and within 7 days of the monthly billing cycle for a full refund.

12. PAYMENT AUTHORIZATION

Payment for the services provided to you in, at, through or in association with HotelExecutive may be made by automatic credit card, debit card, direct debit, bankwire or Paypal and other approved payment means offered in, at, through or in association with HotelExecutive, and you hereby authorize HotelExecutive and its agents to transact such payments on your behalf.

You hereby authorize HotelExecutive's Internet Payment Service Provider to charge your credit card to pay for your membership to HotelExecutive. You further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card for any and all purchases of products, services in association with HotelExecutive. You agree to be personally liable for all charges incurred by you in association with your access or other use of any content provided by HotelExecutive or any third party in association with HotelExecutive. You acknowledge and agree that your liability for all such charges shall continue after termination of your access or any type of membership arrangement with HotelExecutive.

In the event that you have chosen to have your membership automatically rebilled, unless and until you notify HotelExecutive that you wish to cancel or terminate your membership to HotelExecutive, you hereby agree and authorize HotelExecutive's Internet Payment Service Provider to automatically renew your membership to HotelExecutive on a continuing basis and to charge your credit card (or other payment means you have selected) to pay for the ongoing cost of your membership. You hereby further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card (or other approved payment means you have selected) for any and all purchases of products, services and entertainment provided to in, at, through or in association with HotelExecutive.

13. PRIVACY POLICY

The following is the Privacy Policy for HotelExecutive

We can be reached via telephone, email, or online at our contact page. When you visit our site we do not log any information regarding your domain or email address. Information Sharing: We do not share user information with any third parties other than via press release distribution as described below.

Hotel Newswire is a newswire service that distributes press releases on behalf of our users. If you decide to submit a press release for distribution through our system we will transmit your entire press release including any personal information therein contained to our media contacts and online distribution points including search engines. This is the only redistribution of your information that we engage in. Your submission of press releases through our system indicates consent with this policy. The information we collect during your registration process is used to notify users about updates to our service and inform users of any special events hosted by Hotel Newswire. This information is not shared with other organizations for commercial or non-commercial purposes.

Cookies: Our system requires the use of cookies to enable the user to log back into our website to access information from the newswire, without having to log in each time using the required username and password.

If you do not want to receive email from us in the future, please let us know by following instructions included in our communication with you. Users who supply us with telephone numbers online may receive telephone contact from us regarding their account, or informing them of new products and services available on the HotelExecutive website. If you do not wish to receive such telephone calls, please edit your account and remove your phone number from your account profile. This can be done from your user account menu.

Ad Servers: We do not partner with or have any relationship with any ad server companies. From time to time, we may use customer information for new uses not previously disclosed in our privacy notice. If our information practices change at any time, we will post the policy changes to our website to notify you of these changes and provide you with the ability to opt out of these new uses. If you are concerned about how your information is used, you should check back at our website periodically.

Upon request we provide site visitors with access to all information (including proprietary information) that we maintain about them. Users can access this information by logging in to their account.

Security: We always use industry-standard encryption technologies while transferring and receiving user data exchanged with our site. We have appropriate security measures in place in our physical facilities to protect against the loss, misuse, or alteration of information that we have collected from you on our site. We do not store credit card information in our systems.

If you feel that this site is not following its stated information policy, you may contact us.

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Coming up in December 2019...

Hotel Law: A Labor Crisis and Cyber Security

According to a recent study, the hospitality industry accounted for 2.9 trillion dollars in sales and in the U.S. alone, was responsible for 1 in 9 jobs. In an industry of that scope and dimension, legal issues touch every aspect of a hotel's operation, and legal services are required in order to conform to all prevailing laws and regulations. Though not all hotels face the same issues, there are some industry-wide subjects that are of concern more broadly. One of those matters is the issue of immigration and how it affects the ability of hotels to recruit qualified employees. The hotel industry is currently facing a labor crisis; the U.S. Labor Department estimates that there are 600,000 unfilled jobs in the industry. Part of the problem contributing to this labor shortage is the lack of H2B visas for low-skilled workers, combined with the difficulty in obtaining J-1 visas for temporary workers. Because comprehensive immigration reform is not being addressed politically, hotel managers expect things are going to get worse before they get better. Corporate cyber security is another major legal issue the industry must address. Hotels are under enormous pressure in this area given the large volume of customer financial transactions they handle daily. Recently, a federal court ruled that the Federal Trade Commission had the power to regulate corporate cyber security, so it is incumbent on hotels to establish data security programs in order to prevent data breaches. The lack of such programs could cause hotels to face legal threats from government agencies, class action lawsuits, and damage to their brand image if a data breach should occur. These are just two of the critical issues that the December issue of Hotel Business Review will examine in the area of hotel law.