Choosing the Right Salon Compensation Model For You

Are you a salon owner (or planning to become one), but you’re unsure which salon compensation system to use? You’re not alone! There are several different options, and your preference may differ based on your management style.

You can either have employees or booth renters. If you don’t want to manage anyone, the booth renting route may be a better option. If you want more involvement and active control over your salon, then staffing your salon with employees could be the best plan.

Booth Renters

Cons: Booth renters are technically self-employed, so you have little control over them (this could be a pro to some). You cannot tell them what to wear, how to act, what to charge, or enforce other requirements like you would a paid staff member. You also can’t require any specific training or education other than what is required to maintain a license. Additionally, if there is a client complaint, you don’t have the power to remedy it. Unfortunately, clients don’t always understand salon business models, so they may talk negatively of your business, rather than directing complaints and negative reviews toward the specific stylist.

Pros:  Booth renters pay you a set amount each month. They manage their business, buy their own products and tools, handle their schedules, and typically carry their own professional liability insurance. Booth renters are not on your payroll. They’re simply renting your space for their business.

Employees

Cons: Employees come with business responsibilities such as employment taxes, overhead, and training costs. You also have a part in ensuring they are staying productive and meeting goals. If this isn’t something you’re interested in or good at, you may need to hire a salon manager, which adds to your costs.

Pros: Alternatively, if you’re someone who enjoys managing people and having control over business decisions, you may find having stylists who are employees rewarding. You’ll be able to enforce continuing education, assign salon duties, coach newer stylists, and determine salon schedules, offerings, product lines, policies, and many other details of the business.

Commission

You can choose to pay your stylists an hourly commission of the service (commonly around 50%, but can vary) less a backbar charge. The backbar charge covers the cost of product and color. This is often a flat charge, such as $2 per client.

Many salon owners set up a sliding commission scale. This allows the commission to vary based on certain benchmarks. Not only does this approach reward stylists, but it motivates them to continually increase their average ticket amount. Keep in mind, commission structure encourages stylists to have a solid clientele, which is a good thing, but those clients will likely be loyal to the stylists if they move to another salon. This is one reason to make sure you have a great work culture within your salon.

Hourly

Paying your stylists an hourly rate provides more stability to them. This is desired by many newer stylists who like the peace of mind that comes with a guaranteed income while building up a clientele base. Some stylists also like feeling they are getting compensated for salon duties such as laundry, phones, cleaning, and greeting. 

More established stylists may not like this compensation model as much. While they probably receive more in tips than the newer stylists, they may feel they aren’t appropriately compensated for their efforts. While you can vary the hourly rate based on experience or seniority, that could lead to problems when the stylists inevitably talk about compensation.

Some salons transition hourly employees to commission pay once they hit a certain service average. Another option to reward higher performing stylists while keeping an overall hourly pay structure is to create a secondary incentive program that motivates stylists to continually increase sales and build clientele.  

Retail

Retail is handled in various ways. Some salon owners choose to give a percentage of total retail sold once a certain benchmark is reached. For example, once a stylist is selling retail to 30% of their clients, they get a commission on the total products sold. That can be a set percentage or a sliding scale based on goal amounts. Other salons owners require a set dollar amount in retail sales to be reached before they start paying a retail commission to the stylist. Setting challenging yet achievable goals that reward the stylist the more they sell are the most motivating. Be sure to provide education and tips to your employees on the best ways to sell retail to clients.

There are many variations to these compensation structures that you can consider. The size of your salon, experience level of stylists, what you can afford, and level of engagement that you want are all things to consider when establishing your plan. While rental is a great model for salon owners who want stable income with less responsibility, having multiple renters operating in the same space can lead to some competition drama. Having paid employees, whether commission or hourly, is a great plan if you want more control over work environment and employee fulfillment.

Sources: 

http://avedameansbusiness.com/get-solutions/article/pros-cons-payroll-methods/

https://www.gettimely.com/the-source/growing-your-salons-revenue/salon-salaries-4-payment-structures-for-your-staff/

https://www.phorest.com/us/blog/salon-pay-structures/

https://bizfluent.com/how-8716387-set-up-commission-structure-salon.html