Our Client’s Day Spa Had a Growing Membership Program. But Was It Making Money?
By ProfitWise - a Visa Business Plans company
A day spa owner came to ProfitWise because she wanted to understand whether her membership program was as profitable as she had expected.
The spa offered monthly memberships that included a massage or facial at a discounted price, along with reduced rates on additional treatments. The program had become popular, and the owner was pleased to see membership payments coming in consistently every month.
However, as the number of members increased, she started noticing that some customers accumulated unused treatments while others redeemed their services regularly and rarely purchased anything additional.
She wanted to know whether the membership program was generating enough profit to justify the discounts and ongoing commitments.
Recurring Revenue Doesn’t Automatically Mean Recurring Profit
Monthly memberships can be attractive because they provide predictable revenue and encourage customers to return regularly.
For our client, however, we needed to understand what the spa was actually earning from each membership after accounting for the cost of providing the included treatments.
Consider a membership priced at $99 per month that includes one 60-minute massage.
If the therapist’s compensation, treatment products, laundry and other direct expenses total $55, the spa has $44 remaining to contribute toward rent, administrative expenses and profit.
That may be reasonable, depending on the spa’s overall cost structure.
But if the membership also includes discounts on additional services, those discounts need to be considered when evaluating the program’s financial performance.
We also wanted to understand how frequently members booked additional treatments or purchased skincare products, since those purchases could affect the overall value of the membership relationship.
What Happens When Members Don’t Use Their Treatments?
One issue that concerned our client was the accumulation of unused membership credits.
Some members paid every month but didn’t always schedule their included treatments. Depending on the membership terms, those unused services could remain available for future redemption.
Although the payments improved the spa’s cash balance, the business still had an obligation to provide treatments that customers had already paid for.
If several members decided to redeem accumulated credits during the same month, the spa could face additional therapist compensation and supply expenses without receiving an equivalent amount of new cash from those appointments.
Through specialized bookkeeping, we could track membership payments, redemptions and outstanding credits to give the owner a clearer understanding of those obligations.
The appropriate accounting treatment would depend on the membership terms and applicable revenue recognition requirements, so maintaining accurate records was essential.
We Needed to Understand How Members Actually Used the Program
Not every member behaved the same way.
Some booked their included massage every month and occasionally added a facial or purchased skincare products.
Others used only their included treatment and took advantage of discounts on additional services.
There were also members who accumulated credits and redeemed them less frequently.
We wanted to examine these patterns to understand how much revenue and direct expense the program generated over time.
For example, a member who regularly purchased additional services might contribute more to the spa’s profitability than someone who used only the discounted monthly treatment.
However, we couldn’t assume that members who redeemed fewer treatments were automatically more profitable. Their unused credits could represent future service obligations.
Combining the spa’s membership data with accurate financial records helped us evaluate the program more realistically.
Was the Membership Price Still Appropriate?
As we reviewed the program, we also considered whether the monthly membership price adequately reflected the spa’s current costs.
Therapist compensation, skincare products, laundry and other expenses can increase over time, reducing the margin on treatments offered at a fixed membership price.
If the spa introduced the program several years earlier and hadn’t adjusted its pricing, the original assumptions might no longer be valid.
Through our Fractional CFO services, we could compare different membership structures and estimate their financial impact.
For example, we could evaluate whether increasing the monthly price, modifying the included benefits or adjusting discounts on additional services would improve profitability.
We also needed to consider how members might respond to those changes. A price increase could improve the margin on each membership but lead some customers to cancel.
Understanding the potential effect on retention was just as important as calculating the additional revenue.
A Membership Program Should Benefit the Spa, Too
Our client introduced memberships to encourage loyalty and provide customers with an affordable way to enjoy regular treatments.
The program had achieved part of that goal by attracting members and generating consistent monthly payments.
But as the program grew, she needed a clearer understanding of its actual financial performance, including the cost of providing treatments, the value of additional purchases and the obligations associated with unused credits.
At ProfitWise, our specialized bookkeeping services help businesses accurately track revenue, expenses and financial obligations. During our monthly financial reviews, we explain what those numbers mean and identify trends that deserve attention.
Through our Fractional CFO services, we can evaluate pricing, customer behavior and different membership structures to help owners determine whether their programs are financially sustainable.
For this day spa, the analysis helped the owner understand what the membership program was contributing to the business and what adjustments might be necessary to maintain profitability as enrollment continued to grow.
