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Resources & Development - Spa Viability


Is Your Dream Spa Viable?

By Marc Williams

 

Good plans shape good decisions.  That’s why good planning helps to make elusive dreams come true.”

– Lester R. Bittel, The Nine Master Keys of Management

Being successful in any industry is achieved by making good business decisions.  This could not be more true than in the spa industry, an industry where the competition and the failure statistics are growing every day.  However many Spas are in trouble before they open their doors. 

Achieving any goal will always require good planning.  The secret to success is not just from having ideas, but also being able to develop those ideas into a viable business model. 

Have you ever attempted to assemble something without looking at the directions first?  Sometimes it is easy and you save a little time.  Other times you end up with several pieces spread across the floor and nothing will go together.  Then when you finally go against every instinct that you have and pull the directions out from the box you realize that you have to take everything apart.  With the directions in front of you the problem becomes quite obvious, and had you looked at the first step before starting you would be done by now.  Hopefully you did not break anything and all you need to do is start over rather than going back to the store to buy a new one.

The same is true with opening a Spa except that the stakes are much higher.  So many times we see people that invest everything that they have without understanding the true potential of their concept.  Before the architect draws the plans, before the contractor breaks ground, before the bank approves the loan you need to understand the reality of making a return on your investment.

It is always important when going into business to understand not only if the business can make money, but also how large of a return you can realistically expect.  Understanding the true feasibility of your business can help you decide whether or not the investment is worth the time and risk that is required to make it successful.

Creating a feasibility analysis for a Day Spa, Resort Spa, Med Spa, or a Salon is far more complex than most businesses.  Because each Spa has widely different variables such as:

  • Menu Offering of Services                                      
  • Service Pricing
  • Types of Locations                                                  
  • Size
  • Cost of Construction                                    
  • Rent Expense
  • Types of Compensation Systems                          
  • Types of Labor
  • Labor Rates                                                              
  • Hours of Operation
  • Marketing Experience                                             
  • Marketing Budgets

Many Spa Owners never have a clear understanding of where their profit is coming from and what expenses are draining potential from their business.  Consequently, they take the risk of adding their Dream to the heap of Spa Failures Statistics.   

Quite often we see spas that are struggling to make profit, and quite often the problem is not a lack of customers or absence of revenue; it is due to high overhead and low contribution margins.  However if you could see your business before you make the investment and realize that you may have an extremely high break-even point you might have been able to solve the problem before putting your hard earned money into that lifetime investment.  Furthermore, if you had the ability to see where your profit was coming from and be able to see where your money was going before ever being in business you then have the option of  modifying your plans to turn it into a good business model that is designed to fulfill your dreams.

When contracted to do a feasibility analysis I use a method that is designed with Expense and Revenue Modules.  Picture a module as one room of your spa. Whether it is a Massage room or a storage closet you need to be able to understand what that module is costing you every month and what potential it has on bringing money in as well as how much it will cost to set up. 

This provides insight into each area of the facility. This method allows for quick modification of the number and the mix of services, along with the day-to-day operating costs, including supplies, utilities, and staff hours.  This gives you the flexibility to look at the relationship between increasing services, the increased revenue, and the increased expenses.  It will also help you to determine the optimum size of your facility.

Furthermore you need to get a fairly accurate picture of what your expenses will look like.  Then you need to separate them into fixed and variable expenses.  By separating the variable expenses (provider labor, supplies, cost of goods, etc.) from the fixed expenses (rent, management, utilities, etc.) you can then determine your contribution margin.

You now know how much it will cost you to perform each and every service.  You now know what your price point will need to be.  You now have the ability to figure out the amount of each dollar that you will keep in order to pay for your overhead.  And once you know that you can figure out how much business is needed in order to be profitable.

Now that you know and can understand your “Break Even” point you then need to decide if the business is feasible.  If you are confident in bringing that much business through the door then you can move forward with your project.  If you are not confident then you have the option of revising your plans until it does actually look feasible or deciding that the idea is not worth pursuing at all. 

If the business seems feasible but not as profitable as you might have thought, you may then analyze the plan and see if there is an additional source of profit you could create, or maybe an overwhelming expense that you could get rid of.

Either way that it turns out, you were able to see the viability before you made the investment.  And that is nothing more than just good planning and good business.

Marc L. Williams

 

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