Spa Owners Work Out the Kinks

Spa Owners Work Out the Kinks When Marcia Connelley and Terri Paradise, friends and colleagues at the Chicago office of payroll services company Paychex, first discussed starting a business together, the idea seemed like just a fantasy. “I never thought it would actually happen,” says Connelley. And for two years it didn’t. But in 2006, Connelley called Paradise to say that she had found the perfect business: Massage Envy, the country’s biggest spa franchise. Connelley, who had relocated to Phoenix, had the idea while visiting a Massage Envy spa, where the massage therapists were so busy that booking an appointment was difficult. She started researching the firm and was impressed by its smart business model and rapid growth rate. Connelley also found an available territory in Louisville, not far from where her relatives live. Paradise was intrigued, despite the fact that she was then living in Minneapolis. She wanted flexible hours that would let her spend more time with her infant son and thought a venture with Connelley could offer that: “I trusted her,” Paradise says. The women started talking to Massage Envy franchisees and eventually visited the firm’s founder. The trip convinced them that they should commit to the $39,000 franchise fee. The following year they relocated to Kentucky to get started. The first three years were rough. The spa opened in 2007 and grossed under $200,000 that year, forcing the owners to dig into their 401(k)s to cover living expenses. They realized they needed help and turned to the nonprofit SCORE. The advisers there helped them spot mistakes, like pouring money into ineffective ads. Things began to turn around when they started focusing on raising the spa’s profile locally, joining community groups and putting on events. Related: Suite dreams: Opening a bed and breakfast In 2009 they took in $840,000 in sales, turning a profit for the first time. Now they’ve added a second location and are expecting $2.8 million in revenue for 2013. And the two plan to keep expanding, says Connelley: “We like the challenge.” HOW THEY DID IT Cost of getting the spa off the ground: $267,000 The partners paid the franchise fee using their savings and took out a $228,000 loan to rent their space and pay the staff. To cover personal expenses, Connelley and Paradise also drained a total of $210,000 from their 401(k)s. First year the partners topped their old salaries: 2012 At Paychex, Connelley and Paradise made $65,000 and $85,000, respectively. The spa brought in $1.9 million in 2012, allowing them to take home $100,000 apiece. This year, they expect to earn closer to $120,000 each. The spa’s revenue growth from 2011 to 2012: 31% SCORE advisers helped the entrepreneurs use their customer management software to learn more about their clients. A key discovery: Most people learn about the spa through word of mouth. Today, they’re using more local marketing â€" and seeing positive results.