Yielding: A Reopening Win-Win
By: Yvonne Smith
Spas have long been known for health and healing. But as a spa director, it is not enough to know how to curate an extraordinary menu or create unforgettable experiences. You need to know how to make money. More speciﬁcally, EBITDA: Earnings Before Interest, Tax, Depre-ciation and Amortization, also known as proﬁt. Ensuring proﬁtability while creating an exceptional team member and guest experience was the reason I was hired nearly 10 years ago as the director of spa at Northern Quest Resort & Casino.
My first few years were primarily focused on building a solid foundation for growth, which we did. We grew and grew. We grew from 20 team members to more than 40. Top-line revenue grew more than 400 percent and our earnings before interest, taxes, depreciation and amortization (EBITDA) was on that upward trajectory that shareholders and CEOs love.
In 2015, I was given the green light to secure a new software system, so I talked to Frank Pitsikalis, CEO and owner of ResortSuite. What I learned during those ﬁrst con-versations would be crucial to our continued year-over-year growth as well as the foundation of our safety-ﬁrst and EBITDA-strong spa reopening plans this past May.
What did he say? Here it is in a nutshell: yield management. In its most traditional sense, yield management is a variable pricing strategy based on understanding, anticipating and inﬂuencing consumer behavior in order to maximize revenue or proﬁts from a ﬁxed, time-limited resource (such as airline seats or hotel room reservations—or spa services). As a speciﬁc, inventory-focused branch of revenue management, yield management involves strategic control of inventory to sell the right product to the right customer at the right time for the right price. This has worked for airlines and the hotel and hospitality industries for years.
While we have yet to take the full leap into this traditional model of yielding after reopening, I felt strongly that a modiﬁed yielding strategy was going to be critical to our success upon reopening our spa with the rest of our resort on May 5, 2020. An almost two-month shutdown left us with more than a US$300,000 revenue shortfall, which also meant that our year-over-year EBITDA growth was stopped in its tracks.
We began by creating a yield modiﬁcation plan that represented a half-step towards full-on yielding. The ﬁrst step was to identify those services with the highest proﬁt margins. This is a simple formula that we use on every service we offer:
PRICE OF THE SERVICE
– service hourly wage
– product cost per service (all products used in the service)
– amenities and linen cost (calculated as a ﬂat fee per guest based on 12 month trends)
= proﬁt margin per service
There are some other ﬁxed costs that obviously impact EBITDA, such as salaries, PPE and amenities (plus rent, util-ities, etc. if you operate a day spa), but this formula is a quick and easy way to determine your break-even point and your proﬁt margin on each service.
Once we identiﬁed eight high-proﬁt margin services, the second step was to modify our spa and salon service menu to include only those services. (We also added extra time where needed for sanitization and “mask breaks.”) I think it is important to note that we did remove all express services from the menu, as not only did they not yield margins as strong as longer services, but removing them also reduced expenses by requiring fewer room/chair turnovers, which also meant fewer linens, robes and towels were used, even further reducing laundry expense and labor.
Step three involved ensuring that our back bar inventory was sufficient. Any back bar items that were near expiration (due to the two-month closure) were strategically included as either an enhancement or as an addition to an extended service, such as a 90-minute facial rather than a 60-minute facial. This pushes guests towards the highest-margin services. We were especially grateful during this phase of our planning to have the amazing support of our vendor partners at FarmHouse Fresh, Phytomer and Salon Services, who helped ensure our success with reopening pricing, quick shipping and full support of our modiﬁed yielding plan. Reach out to your own spa’s vendors, if you haven’t already, to see how they could help support a yielding plan.
The last step in our plan was to bring back approximately half of our team. We reopened earlier than most spas in the United States, and demand was an unknown; until we knew how our guests would respond to our open doors, I did not want to bring people off of their unemployment beneﬁts. Using ISPA’s Spa Reopening Toolkit, we shared our “new normal” with our team. This included heightened standards of cleanliness and safety for team members and guests alike, as well as an “all hands on deck” approach necessitated by reopening without our beloved and oh-so-essential spa attendants.
Again, our focus was bringing as much revenue as pos-sible to the bottom line, so every ﬁxed cost was scrutinized. Without open amenities and food service, we decided to re-organize our check-in, locker room and service provider processes to see if it was even possible for us to operate without spa attendants. Everyone (and I do mean every-one) cleaned and sanitized, folded laundry, assisted guests, turned over rooms, stocked restrooms and more. For most of us, the days were much longer than usual and a couple of us went more than 45 days without a full day off. But the sacriﬁce was worth it.
When we received our month of May P&Ls (and just re-cently our June P&Ls), we learned that we had surpassed our very aggressive goals for EBITDA (in the 20 percent range). However, there were additional beneﬁts to our yield-ing plan that were equally important. By offering only those highest proﬁt margin services, our team received peace of mind during a challenging time. They had the time to focus on all of the new policies, procedures and tasks and not protocols that required a large number of products or extra steps (such as cleaning hot stones). In essence, removing the most product-intensive services allowed our smaller reopening staff to focus on what mattered most. As a bonus, their paychecks reﬂected our “full services only” approach, with higher commissions and service charges than typical. Applying yield management to our reopening menu was a true win-win.
We have learned much these past few months. With the many beneﬁts of this modiﬁed yielding approach, your spa will be able to focus on the ever-evolving needs of your team and your guests, while remaining a vital and viable business just as La Rive Spa has.
Pre-pandemic, we offered a very robust spa menu with everything from decadent lavender bolus massages to slimming body wraps and more. We will re-introduce many of these services over time, but our ability to maximize our back bar and leverage it across multiple services—similar to the way a restaurant chef uses ingredients in multiple dishes—will impact those decisions moving forward.
We rely heavily on several KPISto ensure strong EBITDA month after month: on a daily basis we track average revenue per guest, average retail per guest and revenue per labor hour. We incentivize our team to set achievable goals and to then meet and exceed those goals.
Yvonne Smith is senior director of resort experience at Northern Quest Resort & Casino in Spokane, Washington. She spent nearly 10 years directly overseeing Northern Quest’s La Rive Spa as director of spa & resort retail, where she led the spa to a Forbes Four-Star rating. Smith currently serves on the ISPA Board of Directors.