Dream to Reality: How Much Does It Really Cost to Open a Spa?
By Lisa Starr
Based on the continued growth in the wellness category, there has been a renewed interest in opening spa and wellness-related businesses. As a consultant, I field inquiries from interested parties, and lately, they are often coming from business professionals who have retired from their ‘career’ job, and want to do something different—or perhaps are still working professionals who have always wanted to do something they felt was more meaningful.
As you might expect, one of the early questions is typically around finances; how much will it cost to realize my dream? This is a valid question to be asking! The answer is multi-faceted, but I’ll address it in a general way, and divide the response up into three segments: hard costs, soft costs, and operating costs
The term ‘hard costs’ refers to the actual facility expenses. These items may include:
- Construction and/or renovation
- Procurement of FFE (furniture, fixtures, and equipment)
- Inventory for professional and retail use
- Administrative and office supplies
- Signage all fall into this category
Of course, these can vary widely based on a number of factors—are you renting space in a strip center and doing a complete build-out, or are you able to take over an existing business whose layout lends itself to your needs with minimal adjustments? Other variants will include whether your intended spot is in an urban, suburban or rural environment, and whether you would be able to work with union or non-union laborers.
Taking over a facility from an existing and similar business can certainly be the least expensive method of entry, but it is likely you would still need to do modest construction. Depending on the sophistication of your plans and vision, you may find it just as expensive to retrofit something that is already built—and with existing spaces there can also be unwelcome surprises once you get the construction going. This means a new space that you can design and build from scratch can be more beneficial in the long run. One general rule-of-thumb is that finished construction will likely cost $90-$130 per square foot, so if you are taking on a 2500 square foot space, that translates to $225k-$325k. Yes, perhaps your brother is a plumber and you can save some money there, but broadly speaking, this is what it will cost!
Your furniture and equipment needs will vary widely depending on the type of spa or wellness center you are creating. Basic treatment tables, facial machines, technician chairs, treatment trolleys, quiet lounge furnishings and office equipment typically runs to about $30 per square foot. If you will be providing medical-grade services or unique, equipment-specific treatments, it will be more expensive.
Whether or not you will process your own laundry, it is common to at least have a small washer/dryer unit within the spa, as well as other support equipment like a refrigerator and dishwasher.
Inventory investments also cover a broad spectrum based on the type of services you will offer and the brands that you carry. For an average spa, say less than 3000 square feet with six or fewer treatment rooms, you should not need more than one main skincare brand, perhaps augmenting with a smaller niche brand, and some other retail products such as travel-sizes or lifestyle products. There are options in deployment of merchandise and cabin stocking, but you can expect to spend $5k-$10k for enough products to stock the treatment rooms, dispensary, and a three month retail supply.
Soft costs are just as important, and encompass the services and structural components that the business will require to operate smoothly, but which are not necessarily ‘things.’ Some examples include:
Getting your spa open will involve the help of a host of experienced professionals who will guide you in effectively creating a fully functioning business out of your original vision. At the onset, you’ll work with an architect to lay out your space, maximizing revenue production and ergonomic flow, while adhering to multiple building and licensing regulations. An interior designer will help you to narrow the options in carpet and flooring, lighting, furnishings, wall colors and coverings, and fixtures.
You’ll want to have a lawyer to review your legal structure, contracts and agreements, and an accountant to guide you in the setup of your chart of accounts and financial planning. A graphic designer will create your logo and marketing collateral, and a web designer will handle the website setup, and e-commerce and the creation of an app, if relevant.
Whether you build from the studs up or renovate an existing space, you’ll need building permits and business licenses, Ideally, you’ll have a spa business consultant to help you with creating your HR infrastructure, staff compensation and operations plans, as well as to guide you through the entire process. Again, these fees vary widely based on the size and scope of the project, as well as the expertise that you and your management team bring to the project.
Many of the systems that you’ll need to run the business are cloud-based, and run on subscriptions; for example, the spa software that you’ll use to operate the business, and which would include your transactional, client, and inventory databases. You’ll also need a separate accounting software package, a security system with cameras and visual feeds, and a subscription to a payroll service, as well as payments for opening and operating your bank accounts.
Additional necessary items will include marketing and support collateral such as a printed spa menu/brochure (yes, clients still ask for these!), retail bags, linens including sheets, blankets, towels and robes, and staff uniforms.
Finding, selecting and hiring the right staff members is crucial, but they don’t arrive trained in your own specific operations procedures. The technical staff will need to be trained on product knowledge and treatment protocols, some of which can be done by your product partners, but you will need to put your own spin on it. The support staff will need to learn how to use the operating software, telephones, and security systems, and the entire staff should engage in some team-building and sales and service exercises, so budget needs to be reserved for this important aspect of your business, as this is the point where clients and the business intersect.
Lastly, and probably most importantly, you will need to budget for operating capital. Once you’ve got the spa designed, built, equipped and open, you will need enough cash to fund daily operations for the time period between the day you open your doors for the first time, and the day you are generating enough money to pay the bills out of your cash flow. This can generally be between six and 12 months after opening, although it is impossible to predict.
So, if your monthly expenses (rent, salaries, marketing, banking and support, subscriptions, etc) are $18k, you will need another $100-200k in reserve to keep things running until you are cash flow positive. Many is the new business owner, whether that of a spa, restaurant, or other business, who was able to bring their vision to fruition, and was receiving great customer feedback, but just didn’t have the cash to keep the doors open for the required period until there is enough business on a daily basis.
So, the quick answer to “how much will it cost to open my day spa” is this: look at the square footage you would be using, and multiply by $200 per square foot. For the 2500 square foot typical spa referenced earlier, that comes to $500k. This amount should be enough to cover the hard and soft costs mentioned above, but not the operating capital. You should also keep in mind if you plan to create a high-end facility, your costs per square foot can increase by 75% to 100%. This could include:
- A facility with wet amenities and/or high-quality finishes
- A spa you plan to open within a hotel or other existing business
- A spa that offers specialized equipment and/or treatments
According to the US Small Business Administration, from 2005 to 2017, an average of 78.6% of new businesses survived one year, and almost half survived five years or longer. More interesting data on small businesses can be found in this SBA handout. Investopedia reports that the four most common reasons a small business fails are lack of capital, inadequate management, business and infrastructure issues, and marketing mishaps. Research has shown that most owners do understand and have correctly predicted the costs of running a business, the failure comes in an overestimation of the business’ ability to create revenues; in other words, overly rosy utilization projections. Clearly, having accurate estimations of operating costs as well as realistic revenue projections will be key in managing this entire budget process. While the economic picture is currently good in the US, and spas and wellness-related businesses continue to grow in popularity, bank lending to startup businesses can still be a challenge, so make sure to have the details of your operation planned so that you can successfully bring your vision to reality.
Ready to open your own spa? These checklists can help you get started: