While many Spa and Salon businesses recognize the need to measure KPIs, the truth is many rely more on intuition than analyzing the numbers. While creating an atmosphere, happy clients and happy employees takes fantastic soft skills, “knowing your numbers” will help your spa or salon find its place in the market.
Think of a KPI indicator as a map. You have a destination point, and you have your path, with a giant “you are here” sticker as well showing where you currently stand. You talk to your clients about balance, and the numbers are a big part of the balancing act for any business. Here is a helpful list of the top KPIs for spas and salons.
1. Cost Per Lead (CPL)
Every marketing effort should be tracked, since what gets measured, gets improved. It helps you understand how much you are spending on leads, and if you should continue to invest. For example, if you are getting $25/lead off of Google, and a bunch of traffic off of Facebook, but 0 leads, you should reconsider the time, money and energy you are investing in Social.
CPL = Cost of Marketing Program/Total Number of Leads
Note when calculating, a lead has two main aspects:
- They are actively searching for the service
- They provide a way for you to contact them for follow up
It is a good idea to put aside a small amount of your budget, such as 10%, to experimental initiatives to make sure your marketing mix is the right one for your spa, your target market and your area.
2. Average Treatment Rate (ATR)
You may think that because your salon or spa is busy, it is successful, but that is not necessarily true. At the end of the month, it is a good idea to get an idea about how much you are making for each treatment as well.
ATR = Total Number of Treatment Hours Sold / Total Number of Treatment Hours Available
As you look at this metric, one thing to take into account is that some treatments take longer than others. So – a 2-hour treatment of $180 is less efficient than a 1-hour $100 treatment.
3. Spa Productivity or Occupancy
With the rent or mortgage costs associated with the space typically being the biggest cost associated with a spa understanding the usage of treatment rooms is an important indicator of how productive your space is.
Spa Productivity = Total Number of Treatment Hours Sold / Total Number of Treatment Hours Available
4. Capture Rate: Retail
Spa and Salon revenue comes from two sources: services and retail sales. According to Winn Claybaugh, co-founder of Paul Mitchell Schools, “Per square footage, the footage devoted to selling products [like shampoo and hair gel] is more profitable than footage devoted to service”.
Capture Rate = Total Retail Guests/Total Spa Guests
5. Net Promoter Score (NPS)
Offering an exceptional experience will not only keep your guest coming back, but they will also tell their friends. Best of all, they may even take a “selfie” of them looking fabulous after their treatment! Technically a loyalty measure, the Net Promoter Score (NPS) is a fantastic way to measure this on a quarterly basis.
This measure compares your biggest fans (promoters) compared to your biggest critics (detractors). Learn more about Net Promoter here.
NPS= % Promoters-% Detractors
Your NPS can help you in your marketing efforts, by asking promoters to leave reviews or recommend to their friends and family and it can help prevent churn in terms of the detractors.
6. Repeat Guests
Repeat guests generate a higher return on every dollar spent getting them in the door. Also – practical experience shows that repeat customers tend to spend more on subsequent visits as well. This metric is calculated through the following:
Total Number of Repeat Guests/Total Number of Guests
7. Employee Retention
Customers are more likely to develop a bond with their stylist or therapist than the brand itself. If you have an employee who leaves, you risk their clients moving with them. For this reason alone (even though there are many others), you want to make sure your team is happy. Employee retention is measured as follows:
Total Number of Employees that Left for a Period/Total Employees at the End of that Period
This is a strong indicator of performance because it looks at how good you are at generating revenue, controlling expenses and making strong utilization of your hours.
GOPPATH = Total Spa Gross Operating Profit (GOP)/Total Treatment Hours Available.
9. Earnings before interest, tax, depreciation and amortization (EBITDA)
EBITDA is a measure of a spa or salon’s operational effectiveness. It is a way to evaluate a company’s without having to factor in financing decisions, accounting decisions or tax environments. Although difficult to say or even fully comprehend for gym owners who have come up through the health and fitness operations side, it is a key indicator.
To calculate the adjustments needed for EBITDA, please see this article from Quickbooks.
EBITDA shows how good your business is at generating cash thus your business is valued as multiples of this metric.
Metrics Are a Beautiful Thing
While you encourage your clients to balance mind and body, at the same time, you want to make sure your KPIs are balanced. Look at our post on how to use KPIs in Franchising. With FranchiseBlast’s Scorecards, you can track all of your metrics in one place, and modify metrics on the fly. Learn more here…