Pulse September 2020 - Page 19

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 conversations 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 – commission – 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, utilities, 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 SEPTEMBER 2020 ■ PULSE 15