The owners of ESSpa Kozmetika have self-financed their way through expansions, upgrades and now, the inception of a second spa.

ESSpa Kozmetika

Every successful spa starts out as an idea or vision. Typically, a business plan—involving investors, partners and bank loans—follows in order to turn that vision into a reality. But not so in the case of Eva and Scott Kerschbaumer, a husband and wife team who have gone about things “the wrong way,” as Scott says, ever since opening their first spa in Aspinwall, Pennsylvania, in 2002—a move they financed by maxing out their own credit cards.

And yet, somehow, they’ve flourished, with four spa expansions and, last August, a second location: ESSpa Kozmetika at The Carnegie Inn & Spa in State College, Pennsylvania. Their secret to success? Preselling, or collecting cash from clients up front for services and memberships to be redeemed later.

The Kerschbaumers’ maverick methodology traces back to 2001, when they tried, unsuccessfully, to secure a loan to open their first facility. “This was shortly after 9/11, after the first dot-com crash when we were in an economic downturn, so it was a tough time to get funding, even if you had great credit,” says Scott (who refers to himself as “the husband of the boss”). “Spas are considered a luxury and that was a hit against us during that time.”

During his college days, Scott launched two successful nightclubs by maxing out his own credit cards. So, in a move that would make most financial consultants suffer a coronary, the Kerschbaumers put close to $100,000 on five or six of their personal cards to launch ESSpa. “Everything business school would tell you not to do is exactly what we’ve done,” says Scott. “But the alternative would be working with partners, and that can be very challenging.”

Here, the Kerschbaumers reveal their most successful independent financing strategies.

Humble Beginnings

About six months after opening their original, 700-square-foot spa (“about the same footprint as a walk-in cooler”), the Kerschbaumers still needed more space. To finance an expansion without leaning on the bank, they created a program called Spa Club: an annual membership starting at $2,500 (paid up front) that included a weekly treatment, anytime use of the facilities, and 25% off all retail and additional services. They also created a Family Level option at $4,500, for two treatments a week; and a $6,550 Corporate Level membership, including two weekly treatments plus two additional services per month.

Scott went door to door throughout ESSpa’s surrounding neighborhoods—including the school district in which he grew up—to promote the program, placing hanging ads on 3,000 doorknobs, many belonging to longtime family friends—i.e., the Kerschbaumers’ built-in client base. “I’ll never forget this,” Scott recalls. “Five minutes in, our receptionist called saying someone had just spent $2,500. That guy has bought a membership every year since. It just shows the power of a great deal.”

Now called ESSpa’s “Annual Wellness Membership,” all sales were earmarked to fully fund the spa’s first wave of expansion, which included installing a $5,000 patio and purchasing new furniture and spa equipment.

Who Needs Groupon?

By the end of ESSpa’s first year, the Kerschbaumers were itching to expand again. So they planned to shut down for two weeks in January of 2003 to remodel; and to help fund that facelift, they launched their now renowned Black Friday BOGO (buy one, get one) Gift Card Sale. On BOGO Black Fridays, clients can purchase one gift card in any amount and receive a second card free, in that same amount, for a limited time.

The sale is limited to two hours, in person at the spa, and is available to the first 100 buyers, prompting cider-sipping clients to camp out in tents outside the spa for hours before the midnight sale begins. The appeal for clients is that there’s no limit to the amount that can be loaded onto the gift card.

The Kerschbaumers advertise the promotion via word-of-mouth, Facebook, their website and the spa’s extensive email database (to which Scott also blasts a twice-monthly newsletter including personal information such as his and Eva’s vacation tidbits and updates on any renovations or expansions, inviting feedback).

In its first year, the BOGO promotion brought in approximately $20,000; last year, $94,000.

“We’ve seen double-digit percentage increases every year,” Scott says, “but it took some fine-tuning to find a happy medium that provided enough limitations on the free certificate, yet not so many that it would dissuade customers from purchasing them.” For instance, the cards now have expiration dates (Pennsylvania is one of the few states that does not ban expiration dates on gift cards), and purchases cannot be broken down into multiple certificates (a $400 gift card buys you another $400 card, not four $100 cards). The Kerschbaumers also limit the amount that can be redeemed on any given day, to ensure they still do a minimum amount of cash business.The BOGO model has been so successful that Scott now provides consulting services for other spa owners hoping to create similar promotions.

“A normal business model would have you build the place first and then get them to come, but we’re the ‘reverse engineering’ guys,” Scott says with a laugh. “We’ve built in bits and pieces as we’ve raised money for each leg of expansion.”

And the Kerschbaumers have continued to make over their spa each year since then, giving staff 10-14 days off each winter while they rebuild, repaint or renovate ESSpa Kozmetika.

“A normal business model would have you build the place first and then get them to come, but we’re the ‘reverse engineering’ guys.”

A New Spa is Born

Thanks largely to Annual Wellness Memberships and Black Friday sales, the Kerschbaumers managed to gradually expand ESSpa to 6,000 square feet by 2009—without help from a single partner, investor or loan—and, recently, launched a second facility in a boutique hotel overlooking the 17th green of Pennsylvania’s famed course at the Toftrees Golf Resort.

Scott describes the new addition as a day/resort hybrid facility—and it boasts many eco-friendly design features. “From the discarded mantles and river rock we used to build the fireplaces and light fixtures to the actual equipment, which was purchased secondhand from spas that didn’t make it through the economic downturn, almost everything has an eco-conscious history to it,” Scott says. Any new purchases were selected based on green bona fides: Energy Star windows, high-efficiency laundry machines, tankless hot-water heaters and flooring created from cork, bamboo and recycled concrete.

For this second spa, Scott hopes to attract local and traveling guests by combining their traditional Hungarian skincare offerings with the variety of programs and activities available at the Carnegie property. To that end, the Kerschbaumers have worked with the hotel to devise several cross-promotional packages. Ranging from $750 to $7,997 and lasting one to 10 days, the programs include yoga retreats, culinary courses, life-balancing and detox, as well as golf, tennis and ski packages and more. All include daily spa treatments and made-to-order meals.

To attract regular spa guests, the Kerschbaumers held a random drawing of locals—who registered on the spa’s website—awarding one winner with a series of free, weekly manicures for life. Sounds like a recipe for loss of profits, right? Not if you apply the Kerschbaumers’ “reverse engineering” ethos.

“We expect the winner to eventually try a variety of our treatments, since they’ll already be coming in every week. And we’ll do everything we can to make that person our most outspoken ambassador, the ultimate raving fan,” Scott says. “We just didn’t want to give Groupon or another deal site any of our money to draw traffic that’s mainly interested in discounts.”

Naturally, another benefit of this risky promotion is the bulkening of ESSpa’s new client database.
“Giving away a low-maintenance, low-cost service such as a manicure once a week is a small price to pay to build a loyal following in a brand-new market so quickly. We want as many people, with as much personal information, as possible,” Scott says. “The faster we can collect that information, the sooner we can start targeting specific individuals to fill our schedule.”

“Giving away a low-maintenance, low-cost service such as a manicure once a week is a small price to pay to build a loyal following in a brand-new market so quickly.”

The Kerschbaumers have also partnered with the State College Chamber of Commerce and Visitors Bureau to schedule happy hour events at the spa to introduce their offerings to other local businesses. Their first event resulted in more than 400 people touring the new facility and becoming registered in the ESSpa database.

They’ve also worked with nearby Penn State University’s Pan-Hellenic organizations to offer their spa’s space as a setting for sorority formals, happy hours and other social events.

“These young ladies still have significant disposable income and are interested in maintaining their youthful glow in an organic and sustainable, healthy way,” Scott says. “We’re attracting a very wide demographic—18-year-old college freshmen to 80-year-old ladies who lunch!”

The Kerschbaumers say they plan to continue their hands-on financing and managing of both facilities as operations grow. “The combination of our spa offerings and unique, overnight retreat programs creates a new standard of excellence for us,” Scott says. “We can now focus even more intently on enhancing the overall health and wellness of every single guest.” •

Lessons Learned

Eva and Scott Kerschbaumer’s self-reliant modus operandi was put to the test throughout their second spa’s early stages. Here’s what they took away from that experience.
• The opening of ESSpa Kozmetika at The Carnegie Inn & Spa was originally scheduled for May, yet was delayed until August, due to a variety of operational issues. Scott explains: “This was the first time we left things to the mercy of others. In the past, we’ve always acted as the on-site general contractor. But because our new spa was an addition to an existing boutique hotel and restaurant—and because we live three hours away—we weren’t in a position to oversee construction on a daily basis.”
• As a result, many additional players—contractors, subcontractors, designers, managers—were added to the process. Combined with a highly regulatory local government, it was a recipe for delays.
• Surprisingly, one major issue involved stereo speakers! The Kerschbaumers’ occupancy permit was delayed because their wall-mounted speakers were not yet attached.
• “In the future, we will make every effort to build establishments ourselves, with as little outside influence as possible,” Scott says. Here is his protocol for success:
1) Have a vision;
2) Hire great people to buy into and help you create that vision;
3) Give them and yourself more than the bare minimum of tools and freedom to nurture that vision and make it successful;
4) Repeat.

ESSpa Kozmetika at The Carnegie Inn & Spa

Open since: August 10, 2011
Average ticket: $100+
Size: 3,958 square feet
Facilities: 6 multipurpose treatment rooms (can be made into 3 larger treatment suites); 1 wet treatment room; 2 patio massage suites; lounge overlooking golf course; 4 mani/pedi stations; his/hers locker rooms with digital steam showers; reception area; retail area; staff room
Employees: 12
Popular treatments: Signature facial/body/nail treatments, which include a visit to the fresh, local-produce bar where a “sparista” creates a custom smoothie, based on evaluations from each guest’s therapist
Retail lines: Nia24, ilike, gloMinerals, Karin Herzog, Skinceuticals, Zoya, hand-made African soaps and ESSpa’s private-label Spa 101 line

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