In previous posts, we have discussed the importance of adopting effective yield management within the spa and wellness industries. There is little doubt that this is a crucial issue especially with the worldwide revenue our industry generates each year (over US$70 billion) and the ongoing challenges and opportunities we face.
Our previous discussions covered different matters including revenue management for hotel spas, pricing strategies and new models of yield management based on lessons from the hotel sector. In the following post, we would like to focus on what spas are doing to ‘yield manage’ and the key performance indicators (KPIs) they are using. Moreover, we would like to highlight the importance of embracing a more integrated approach for dealing with revenue management.
In order to do this, we will bring into this discussion some of the insights provided by the Spa Revenue Management report elaborated by Kimes, Sheryl E. Singh and Sonee. Let’s have a look.
The present of yield management
Today, the spa industry is in its developmental stages, which means our field is still looking for a set of global standards regarding every single aspect of our business. That, of course, also affects yield management.
According to the classic definition provided by the Spa Revenue Management report, “revenue management is the practice of allocating the right space to the right customer at the right price at the right time so as to maximize revenue or contribution margin.”
That said, most spas treat revenue management today as something that is exclusively aimed at setting prices according to specific demands. This not only explains the popularity of discounting among spa managers but also reinforces the role played by the Average Therapist Occupancy and the Average Treatment Room Occupancy as the main KPIs our industry uses when dealing with revenue management.
Although useful, this approach is limited in several aspects. First of all, most spas think the best way to optimise revenue is by filling treatment rooms. Second, operations are evaluated according to the volume of sales, which is a big mistake similar to “hotels’ measuring effectiveness by recording occupancy without paying attention to average rate.” Third, this approach leaves spas with an inaccurate idea of their revenue-production performance.
An integrated approach
Our industry has certainly acquired a good level of awareness regarding the importance of yield management. However, our field needs to improve revenue management by adopting a more integrated approach to it.
First of all, we need to set standards regarding what we consider ‘right’ in terms of treatment, customers, price and time. By doing this, we will be able to achieve “the most revenue possible for the spa while at the same time delivering the greatest value of utility to the customer.” It is essential that we put more emphasis on the perceived value that the customer receives from our services.
Similarly, it is crucial that we bring into revenue management the ‘time’ variable. The lack of this variable is exactly what prevents spas from getting a good idea of their revenue-production performance. This is why the Spa Revenue Management report suggests the adoption of the more effective KPI revenue per available treatment-hour (RevPath).
Revenue management can be significantly improved with this KPI thanks to its capacity to combine “information from the average customer expenditure and treatment room use (or occupancy) to provide a measure of the flow of revenue through the system and to indicate how effectively a spa is using its productive capacity.”
Besides adopting RevPath, an integrated approach on revenue management will also put emphasis on the treatment menu so the spa can better identify the weaknesses and strengths of it. We firmly believe this integrated approach is essential if we are serious about yield management. An important part of our profit depends on it.