An owner of a booth rental establishment advertises his business and wanted to know if he could charge his tenants a fee for walk-in business.
Before we get into this, let’s acknowledge some facts.
- It is not the salon landlord’s responsibility (nor are salon landlords in any way legally obligated by any state or federal law) to advertise or provide a clientele to self-employed renters. Self-employed professionals rent space and conduct their business without their landlord’s interference. Therefore, the renter must secure their own clientele. Owners who advertise booth rental establishments are awesome for investing in their tenants.
- Renters cannot be required to do anything aside from paying their rent and abiding by the terms of their lease agreement. As business owners, renters can choose to participate and pay a referral fee to obtain the client, or not.
- Salon landlords aren’t required by any state or federal law to allow renters to take walk-in or call-in clients. If the landlord works in the salon as a professional, they can take those clients for themselves.
If you are one of those awesome salon landlords who advertises the rental salon to attract potential clients (as opposed advertising it to potential renters) you only really have two options to cover those costs: including the cost in the rent or taking one-time payments when renters benefit from the investment.
When you charge more for rent, you know your advertising costs will be fully covered, however, that system isn’t entirely fair as renters who are fully booked and those who don’t work many hours during the week likely won’t benefit much at all. Plus, you’d have to devise a walk-in rotation system and police it. That type of arrangement tends to invite conflict, exploitation, and abuse unless they’re diligently managed.
When you take fees for walk-in or call-in clients, you ensure that the renter who directly benefits from the advertising pays for it.
To be clear, the referral fee must be:
- optional. You cannot force renters to take walk-in or call-in clients and pay you for the privilege. Either they pay the fee and get the client, or they do not pay the fee and you assign the client to yourself or one of your own employees (if you have them).
- a one-time occurrence. You don’t get to charge the professional every time the client returns. That constitutes a few violations of the 20 Factor Test the IRS uses to determine employment classification.
- a flat dollar amount, set in advance. You should not be taking a percentage of the sale. At best, this puts you into very murky legal waters because again, this constitutes a violation of the aforementioned 20 Factor Test.
For a client to be considered a walk-in or call-in, the client must not have a preference for any of the renters. These clients are attracted by the salon’s signage, location, or advertising. They call the salon’s main phone line or walk in through the front door, asking for an appointment with “whoever.”
If multiple renters have gaps in their schedules they’d like to fill, no matter how you handle the fee, you’ll have no choice but to establish a rotation.
I recommend doing so in advance to eliminate the possibility for conflict.
- Establish the order of priority yourself before clients begin arriving. You don’t want people arguing in front of the client over whose “turn” it is.
- Make the rules clear. For instance, you could prohibit renters from passing a walk-in to the next renter on the list to keep them from declining a client requesting low-cost service in hopes the next client will be requesting something more profitable. (That’s a classic example of how professionals can exploit a walk-in rotation system.) Should they attempt to exploit the system, you could revoke their eligibility to participate that day.
- Ensure the renters know where they stand. You own the salon. You’re responsible for the walk-ins and call-ins if they’re brought to the business by your advertising. You retain ultimate authority with regards to if a particular walk-in is to be distributed at all. (Essentially, you have dibs.)
Whatever system you decide to use in your rental salon, just be sure you stay in your lane, landlords.
The Salon Landlord’s Toolkit
Are you renting space to beauty professionals? If so, this toolkit is for you. The Salon Landlord’s Toolkit includes:
- Rental Salon Ownership 101: A 22-page comprehensive guide to rental salon ownership
that breaks down everything you need to know in language you can understand.
- The Rent Calculator: A spreadsheet system that will automatically calculate your rental rates for you.
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- The Rental Salon Owner’s Lease Component Checklist: What makes a perfect lease that’s appealing to tenants, protects landlords, and fair to both parties? This checklist covers the terms and covenants every great lease should contain.
- The Sample Lease Agreement: Against my better judgement, I have included a sample lease agreement. This lease is not meant to be used as a template, but to illustrate what a formal lease agreement looks like. Feel free to use this tool when drafting your lease terms, but never, EVER use it in your own business until a qualified attorney has reviewed and approved it.
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Great article. As you know, I turned down a place because the owner had no idea how to move forward with determining whose clients would be whose although she didn’t “do” nails at all and wouldn’t be in direct competition with me at all since she did facials as I don’t care to “do” facials on clients. The establishment I’ll be renting a room from wants to help market the place; I fully feel that a $5.00 fee is more than amply fair as a decent “kickback”: if I retain that client and that client comes to see me 1-4 times a month, that’s hundreds a year in my pocket.
That’s what I’m saying. I get messages from renters that bitch about how their owner won’t give them walk-ins unless they pay a fee to help balance out advertising costs. They feel that the rent they pay should cover advertising.
I’m like, “No. Your rent covers your space. That’s it. Do you think the stores located in shopping malls require the mall to pay for their advertising space? No. That’s not how it works. If you want the business, invest in yourself and help the owner pay for advertising.”
Say a booth rental establishment is seeing 5-10 walk-ins a day. If the staff are giving the owner $5 for each client they take, the owner is making $25-50 a day. At the end of the month (assuming they work a 5 day work week), that’s $500-1000 a month for advertising.
That’s enough money to take out several decent ads in local newspapers, neighborhood newspapers, and even a few Facebook advertising campaigns. I know from experience that those outlets (particularly the neighborhood newspapers) bring in a TON of business. I was averaging 20 new clients per WEEK just based off one quarter page ad we ran every month.
Why the hell wouldn’t a booth renter kick back $5 per client to contribute? It would be like shooting themselves in the foot.
I have a similar situation, my salon owner charges me $120/3 days wk of using her bed for lash extensions. When we get a 1st time client/walk in, with no one else avail to do her services I was allowed to step in to work on her. The last minute I was told it was a 60/40 commission. I went along w it’s 2x bc u didn’t know better what was allowed or appropriate for using their name and branding. Which book should I purchase or the owner to for reference of legit practices for ya both? I need to speak up to her before I work at the salon which may happen again.
Um, no. If she’s going to charge you for walk-ins, that has to be disclosed prior to the service being performed. She can’t arbitrarily decide to charge you after-the-fact. The book best situated to inform her would be (Salon Ownership & Management: The Definitive Guide to the Professional Beauty Business). You also shouldn’t be using their name and branding–ever. You’re your own business. I recommend reading this post if you haven’t already. It will help you better understand (and verbalize) your rights.
As a salon owner who works in the salon this one is a bit tricky. I’m thinking that walk ins should only be taken by commission employees (I have both). My booth renters are willing to help out and I do tons of advertising but I don’t think that a small one time finders fee is enough for bringing in a potential client worth hundreds a month. How do you handle them moving forward? It’s a big profit for a booth renter who pays a flat rate each week. I’m not sure how I’m going to handle this senerio. We are a full service salon so I may be getting equal compensation for their existing clients who utilize our spa services?????
I highly advise against taking a percentage of new clients because it puts you in the questionable gray area, crossing over from landlord to employer. It’s not worth the risk. If you’re worried about lost income, I’d shift all the walk-ins to the commissioned employees and let that be that, especially if you’re really investing in advertising.
I wish my fee was only $5.00! I rent a space from Salon Lofts and they charge use 50% on walk-ins upto $30. I totally understand that they advertise a lot but I usually pay $15 a client.
I work at a salon where I pay weekly booth rent. They have two commission stylist who typically do the walk ins. Sometimes if they are busy the owner or salon manager will ask one of the renters to do the walk in. We are all in charge of our own advertising and the only advertisement the salon does is on Facebook for free. Should I have to pay a 40% commission on a walk in if I do them? I feel like its kind of double dipping on the owners part especially since I would be using all of my own product and I am already paying them rent.
Yeah, 40% is really steep. Personally, I wouldn’t pay that much for access to a walk-in. I’d pay whatever I’d offer my existing clients for referring a friend. For me, that never exceeds 10% of the service value.
I currently rent a booth and my salon owner has decided to add to my contract a 50% referral fee for all new customers only for their 1st visit. I am having a hard time with this bc it has become a very large amount in previous weeks. I expressed I would be happy to pay 25,30, or even 40% but she demanded I pay 50%. I would also be in support of a dollar amount to contribute. I work so hard with 1st time clients and I feel like half of all my work goes to her. I keep thinking it is only for the 1st time and usually I prebook their next visit so it should get better. Is it me or is this steep? I have been taking a big pay cut.
Percentages are really inappropriate, in my opinion. (But that’s all it is–my opinion. There’s no real rules or laws governing this kind of thing.) It’s not just you. I consider it a pretty steep referral fee too. I’d also have a hard time swallowing that, especially if you’re not retaining too many of them and you’re giving promotional discounts of any kind.
Ok…….. if your paying $125. A week and the Salon owner want 40% of all walkins. Even if it’s something they can’t do ? 40% adds up and it’s my product and time. And expect the 40% every time they come in and ask for you after that.
I personally wouldn’t agree to that. 40% is far too steep, and in perpetuity? Lol, absolutely not.
I just bought a salon that already had renters. Were going on one year. The old owner retired and we now own the salon. When I took over his clients were to be referred to me. If that clientele goes to one of my renters, should or can I charge them a fee. One renter well let clients bring in box color and she applies it, and uses unprofessional shampoo on her clients.This same renter doesn’t clean up after herself very good. This same renter always refers clients that she can’t get in to another salon even if someone is available in my salon. This same renter dresses unperfressional, Jean’s tshirs.. This same renter is rude and snippy towards me. This same renter pitched a fit when she heard salon sold but decided to stay. We didn’t increase her rent and we did our own contract. Week to week. Her rent is about $30.00 a week less than it should be totaling $120.00 month. How much is to much to increase her rent? We need to increase it and not sure the best way or time. Or if she should stay or go. She’s great at hair, but personality and rest not so good. I’ve owned salon before but had employees. I know I can’t tell her want to do. But I’d like to keep my salon professional and a joy to come to. Any advice is much appreciated
You can charge referral fees on new clients of any type (including those you personally refer from your chair to theirs). You can’t charge fees for clients who leave your chair and choose another of the salon’s renters of their own volition.
As for that problematic renter–she needs to go. You already know you have no control over her as a landlord and she’s demonstrated that she’s more trouble than her rent is worth. I wouldn’t even attempt to price her out with a rent increase. I’d just let her know that her term will be ending and replace her with someone whose professional values more align with yours and the rest of your tenants.