Hotels typically spend a great deal of money on the build out of spas, which sometimes appears to provide no return on investment. In the beginning (before spas became a staple in the industry), spas set hotels and resorts apart as a differentiator. They then became more experiential, which required a greater build out and a higher level of investment. Now, since almost all hotels above a three-star level require a spa, the focus has changed to profitability.
A 1999 benchmark study by a spa consulting company found that the following percent of hotel management said spas enhanced their:
- Marketing advantage: 97 percent
- Revenue per occupied room: 83 percent
- Occupancy: 73 percent
- Perceived value of room rate: 70 percent
- Room rate: 57 percent
- Length of stay: 43 percent
- People per occupied room: 27 percent
In a follow up study of 30 spas, the firm concluded the spas' average contribution to the revenue per occupied room was $35.28. A 2004 study showed that 3 percent to 5 percent of the conference/group/business market and 7 percent to 10 percent of the leisure guests used the spa, according to Hotel Executive.
How do hotels measure profitability? On a purely departmental basis, do they include a rent figure for the square footage that the spa occupies? Do they allocate a percentage of the overall resort's advertising budget, since it is included in all of the advertising? Do they include the interest on the finance to build that portion of the hotel?
Every hotel does it a little differently, but most do not include the rent factor, or interest expense, as mentioned previously. Some hotels measure purely on a cash basis. At the end of the day, did we take in more money than we spent?
Let's explore additional ways that hotels view and measure the profitability of a spa amenity. For example, let's say we're looking at a 500-room hotel with year-round occupancy of 70 percent and an average daily rate (ADR) of $250. At 70 percent occupancy you are looking at 350 rooms a day or 10,500 rooms a month (350 × 30). Now, let's say the hotel adds a spa and increases occupancy just 1 percent. So instead of 350 rooms a day you occupy 355, times 30 days is 10,650 room nights, which is 150 more room nights a month. So, 150 extra room nights times $250 ADR, equates to an extra $37,500 a month or $450,000 a year in additional revenue for the hotel. A 2 percent increase would bring you close to a million dollars in extra revenue.
Now this is just the tip of the iceberg. This hotel may have previously had an average stay of one-and-a-half days, but due to the spa it has grown to two days. Additionally, it may grow from an average of one person per occupied room to one-and-a-half. This would have a tremendous effect on all of the other profit centers of the hotel such as increased spa product sales (typically, a good profit margin), phone calls (Did you ever see the price for a phone call in a hotel? Thank goodness for cell phones!), valet service, food and beverage, business services, mini bar and sundry shop sales. If the customer enjoys the product and the spa has a solid Web presence, the online sales create an annuity stream for the spa/hotel. Okay, with all this traffic we will have to net out some extra ashtrays, towels and whatever else guests take as souvenirs these days, but that won't eat into too much of our added revenue.
Another area that has the potential to generate additional value but is a bit more difficult to measure is that of press. The addition of the spa and subsequent public relations can land the hotel a mention in prominent travel and leisure magazines, local newspapers and other media vehicles. How much is that worth? When you think of Mandarin Oriental Hotels, what do you think of (besides incredible service and impeccable design)? You think of their spas. Their spas get an enormous amount of press, which is worth a tremendous amount of money. It is difficult to put a dollar amount on the value, because you cannot put a value on an endorsement from a third party with a great deal of respectability. Obviously, the flip side to this would be negative press, which has a tremendous effect as well, so make sure you have a sound management company operating the spa for you.
We've discussed the potential of spa profitability in a hotel resort setting without even mentioning the actual spa performance. So I hope this sheds some light on how spas can add to the profitability of the hotel, even if on an operational side, the spas are just breaking even.
Glenn Colarossi is the president of Colarossi Spa & Health Club Consulting & Management. He has worked on projects throughout the world for five-star clients. He can be reached at 203-357-7555 or at www.healthclubandspa.com