Somewhere along the line, someone in our business made a big mistake and everyone else followed suit. That mistake was offering high commissions; a compensation system that is significantly flawed for multiple reasons. It does not work in anyone’s favor, least of all the salon itself.
The main problem with this system? Salon owners have given their employees the belief that they should be making just as much (if not more) than the business itself on each service.
Can you think of any other industry that operates that way? Because I can’t.
Employees, please understand that salon owners are not in this business to break even. The became salon owners to make a profit which can then be re-invested into the business or put aside to support you and your coworkers through those rough spots we all have to struggle through. If they’re smart, they’re also setting aside a chunk for themselves to retire on because business owners don’t get 401Ks unless they establish them on their own.
As an industry, we need to make changes to our compensation models so that we can all benefit in the long-term.
The best way to do this would be to follow the examples set for us by other businesses and by the Department of Labor. If you require convincing, I have identified several problems with our current structures and policies.
A commission split works for nobody when you do the math. Industry standard right now is this: stylists make nothing unless they perform a service. When they perform a service, they are handed a large chunk of money from that service (generally 50%). This core problem leads to a bunch of other problems.
Commission-only salon professionals are expected to sit in the salon and wait for business. Salon staff are unhappy because they’re expected to sit in the salon and wait for business without compensation. This current model is illegal if hours aren’t tracked diligently every pay period, so this also puts the owner at risk for labor investigations, IRS audits, and/or civil lawsuits.
Salon owners aren’t making enough money on the split for it to be viable. This leads to them committing other crimes, specifically wage theft, in the form of “head charges,” “product fees,” and misclassifying employees as independent contractors to avoid paying employment tax. Again, this puts the owner at risk for audit and/or civil lawsuits.
Owners will often hire too many professionals. They can afford to do this because if the professionals are not performing services, they believe they do not have to pay them. This is a false belief, since this is typically a violation to the FLSA in addition to applicable state laws. Again, this has the potential to lead to costly audits and/or civil lawsuits. It is also inconsiderate, disrespectful, and completely ridiculous to expect experienced, licensed professionals to sit in your business for hours on end without compensation for their time.
Professionals who are not making money have no incentive to work for the business. Salon owners who believe they are not required to pay their professionals hourly also have no incentive to ensure the business is busy. If the owner were paying hourly for the time of their employees, they would be forced to hire fewer of them and divert more money into marketing strategies to keep those hourly employees busy.
Salon professionals are at the mercy of their employer’s whims with regards to promotional pricing. If the owner chooses to discount a service or run a Groupon, employees are expected to honor it. Because salon professionals are commission-based, this equates to a pay cut for the duration of the promotion.
Professionals who are forced to take a pay cut under the guise of an attempt to “build the business” are unhappy employees.
Salon owners should be making up the difference for promotional pricing, yet hardly any of them do. Again, this is directly related to the first problem–commission works for nobody in the end.
Wouldn’t it be better if we could design a system that guarantees long-term employee and employer satisfaction? A system that doesn’t devalue our experience as professionals and reward poor business management?
The Salon Compensation and Pricing Megakit calculates salon compensation and service pricing for you! It includes:
- The Salon Compensation and Pricing Calculator, an 8-page spreadsheet system that makes salon compensation and pricing calculation as simple as data entry. The best part? The system is enabled with protections to make it impossible to “break” the formulas!
- The Salon Compensation and Pricing Guide, a 44-page instruction manual that not only explains how to use the system but also explains every formula so you’re never confused about what the numbers mean or where they came from.
- A 9-page Employer Obligations Information Sheet to keep you from making very common life-destroying mistakes.
- Be Worth What You Charge, an 11-page checklist and salon evaluation resource.
I often hear salon owners complain that they can’t find or retain quality talent.
How can anyone expect to attract or retain anyone when they aren’t compensating their employees or managing their business?
Let’s evaluate an alternative compensation method: hourly plus commission bonuses. With this method, owners pay their professionals an hourly rate and give them commission on services and retail sales based on whether or not the stylists hit their performance goals.
There is no standard formula for this compensation method, no one-size-fits-all here. These are figures that you will have to work through yourself. Both the goals and commission rates will differ in each department just as your service prices do. (My Compensation and Pricing Megakit can automate that math for you.)
By way of an example, employees would be guaranteed a flat hourly rate. They would receive 10% commission on all retail sales. If their service sales meet the first performance threshold, they earn a modest percentage on their gross sales to that point. (“Modest,” by my standards, is 3%.) Should they hit the second performance threshold, the commission on gross sales bumps up a few percentage points (generally 5-7%, depending on the salon’s structure). Should they meet they third threshold, the commission bonus would hit its peak for all sales in that pay period (8-10%–again, depending on the salon’s finances).
Should the employee not hit any of the performance thresholds, we take a look at why the sales were so low and evaluate how to fix the issue. If the employee continuously fails to meet performance standards, we have to reach a decision about whether or not this employee is a good fit for the business. Employers may also choose to calculate a piece-rate amount into each service price that gets forwarded directly to the employee, eliminating tips entirely.
Salon professionals deserve health benefits. They deserve retirement plans. They deserve to be paid for their time and the reassurance of a steady paycheck.
Salon owners deserve to profit. They shouldn’t be held hostage by their professionals. They shouldn’t be faced with committing wage theft and labor crimes to break even in their business.
So, let’s look at how a week looks for one nail technician working full-time at a base rate of $12 an hour.
Lisa works 40 hours a week. Her hourly pay (before taxes) comes to to $480. This pay period, she did $3,760 in service sales and $80 in retail sales. Lisa’s commission on her services is $299.20 (8%) and her commission on retail is $8. Her tips equal $534.80. When totaled, her total income (before taxes) is $1,321.20.
Lisa’s work has contributed $2,518.80 to the salon.
Now let’s compare this same week, but this time we’ll evaluate the numbers under a traditional commission split, with Lisa making no guaranteed hourly wages. Instead, Lisa receives 50% commission on services and 10% on retail.
Lisa does $3,760 in service sales and $80 in retail. Her service commission (at 50%) equals $1,880, her retail commission equals $8, and her tips equal $534.80. Her performance in every way is exactly the same. However, in this scenario, Lisa is being paid $566.80 more than under the hourly plus bonuses system and has contributed only $1,952 to the salon.
Obviously, this split works out for Lisa–but Lisa doesn’t have to cover any portion of the salon’s expenses.
Lisa doesn’t pay the utility bill or provide the product. Lisa doesn’t pay the rent on the building or the CAM fees or cover the costs of advertising or the receptionist that’s making $10 an hour at the front desk. Lisa doesn’t have to make the business loan payments for the build and the equipment. Additionally, Lisa hasn’t assumed a single bit of the risk I’ve taken on as a business owner, but she’s getting the same cut of the profits that I’m getting.
That isn’t chump change, especially for a salon. Depending on how many professionals work in the salon, the losses could come to thousands for the month and hundreds of thousands lost annually. I routinely work these comparison projections for salon owners utilizing existing data and when they see the losses, they’re floored. (Also, they become less shocked at their perpetual struggle to pay the salon’s bills.)
Stylists, nail techs, estheticians, massage therapists–you know I love you and I’m your biggest advocate, but you are operating under a false belief that you deserve to make more money than the business you work in. In no other business is this the case. Look at grocery stores, fast food restaurants, car dealerships, retail stores, hotels–no other employee in any other industry has this delusional expectation.
Professionals deserve to be paid (and paid well) for their time, not just their services.
Professionals, you deserve the reassurance of a steady paycheck. You deserve the same things other employees have available to them, like healthcare, a retirement package, sick days, and paid vacation time. You can’t have any of those things if you’re working on commission. In order for your employer to afford to give you these things, you need to understand that you are an employee. You do not carry the financial burden that your owner does. Here’s a post about why 50% is ridiculous and another about salon economics. Maybe when you’re confronted with the numbers you’ll better understand where your employer is coming from.
It is time to reevaluate our entire structure and consider eliminating “commission only” entirely. Just because this is “the way things have always been done” does not mean that it is right or that it is working for us. It isn’t. Not anymore