Spa Revenue Management: How to think different?

The Spa Industry today has become one of the largest leisure industries in the Middle East as the spa visitor market has increased (Jordan, Egypt, Qatar, UAE and Oman). Today spas have become significant revenue streams and multiple independent spas are also gaining market share. In fact, I am talking of proper spa structure with experience therapists, and not the spa business setup in an upscale neighborhood villa of Jumeirah Beach / Al Wasl (Dubai) area with 03 treatment rooms, and no advertising signage.

As the industry is developing, spas are becoming independent profit centers, responsible for providing detailed cost accounting to the hotel property, and justifying their gross operating profits and metrics benchmarking.

Back in 2007, when I was piloting the first Revenue Management Spa Project for Shangri-La Hotel Dubai along with great colleagues, such as Michael Monsod, we challenged our think out of the box ideas by reviewing demand and pricing with operational excellence, following demand calendar….etc.

We got them back up by Ernst and Young Middle East as an consulting organization to provide to the market with benchmarking metrics such as RevPAT (Revenue per available treatment room) or alternative metrics to estimate the impact of Spa retail products vs. Spa Revenues. For whatever reasons, after nearly 18 months of operations, of what supposed to be the first spa benchmarking for Gulf Countries, it got discontinued.

Nowadays, with the new re-definition of Total Hotel Revenue Management, being roll-out in the market, along with the opening of many hotel+spa facilities, Spa operators or Spa manager are faced with many challenges.

One of the challenges is the efficiency utilizing the spa facilities, the spa therapists and the booking system in order to yield profits. 

My dear revenue managers, does not this context seems familiar to the work you are doing in rooms, groups…etc??

Both profit centers have something in common with the spa industry: the product that is offered is perishable and the capacity in which the product is offered is fixed.

In a spa, the high fixed costs are the treatment rooms and low variable costs are the treatment, the staff performance and the body products that are used during the service.

In Spa, demand may vary depending on the day of the week and the hour of the day. Similar to the hotels, spa bookings are booked in advance.

So now, let’s take a look and define your key performance indicators.

1    1) Spa Utilization Occupancy Rate (SUOR)

If someone asked you what’s the spa utilization rate of your spa, what would you answer? How about last week, last month? What is your variance to same time last year?

Are you measuring the spa occupancy of each of the treatment rooms by hours, by period (Morning, Afternoon, Evening)?

To calculate effectively your Spa Utilization occupancy rate of your spa, you need to define time and space units to be measured.

Let’s say, your spa has 10 treatment rooms and it’s open from 10.00am to 10.00pm. And during the week you have sold 180 hours of treatment. The occupancy will be 21.4%. That sounds low but it’s the reality. So what are we doing when the treatment rooms are empty?

The Spa utilization occupancy rate is calculated as:

Hours of treatment Room Sold divided by Hours of Treatment Room Available

180 Hours of treatment sold / (12 hours x 10 treatment rooms x 7 days) = 21.4%

2) Average Treatment Room Rate (ATRR)

The ATRR is the revenue generated by the spa revenues (retail must be excluded) divided by the number of treatment sold. The average treatment room rate is varying by days of the week (stronger on weekends), by time of the day (stronger after 5.00pm). This is an excellent comparison to review your pricing structure and strategy.

3) Revenue Per Available Treatment Room (REVPAT)

It is almost the same calculation than Revpar but data are changing.  It is calculated by the total revenue generated by treatments divided by the number of treatment room hours (treatment rooms x number of hours opened).

Do the calculation at your hotel and call your revenue management peers. Kindly note that some Spa Managers in Dubai 5-star hotel have initiative that types of data exchange, so works your PR with your Spa Managers.

It is also interesting to look at proportion of retail spa sales versus the spa total revenues, because spa products are costly in stocks (see p&l).

Now it’s up to you to setup a process to analyze that along with your KPI, and identify trends. In few weeks, you can develop a Spa Revenue Management Strategy. 

Once you are in control of those metrics, you could perhaps check your booking pace, market segments, price points and turn-aways. 

But one great advice you can revolutionize the pricing prior to perform a full analysis of your guest segmentation and behaviors, spa menu (low moving / high moving items), spa treatment cost....

If you experience difficulties, you may contact us at info@rsvp-hospitality.com, for a project evaluation.

Maxime @ RSVP-Hospitality
Visit us @ http://www.rsvp-hospitality.com