Our industry is in a state of flux! One of the major components under discussion is the way we pay our employees. For the longest time the benchmark has been 50% commission. Yes, we know of lots of salons who pay higher than this, but here is where it all started!
At the end of the last century, service pricing increased in small increments, usually on an annual basis and across the board. What history shows us is that COSTS were jumping faster and higher than service pricing! 50% commission became harder for salon/spa owners to offer to their service providers as there were less funds available to pay costs after the 50% commission.
Owners started dropping their commission rates in order to stay profitable.
Service providers were insulted to be offered less. It’s not that they're not worth every penny, but costs have outstripped the 50% left to the owner. We have seen an exodus of service providers as they move to booth/chair rent in an attempt to retain their commissions.
"The fact is this: for every dollar that you spend on expenses you must generate three dollars in revenues!"
It is easy math to see that 50% commission is going to send you into the red right from the start. Your only saving grace here is to have a smoking retail revenue stream!
Here are your wage options:
Commission based pay structure.
Still a viable option but not at 50%! No matter what commission you are paying, you must make sure that you take off your product charges before paying out your service provider.
For example, if a service is worth $100 and your costs are $10, you pay commission on $90. This would still be a tier system and a provider’s income growth would be from the increasing prices as they climb the ladder. If your revenues for month are $30,000, your commissions paid out should be around $10,000.
Hourly wages plus commission.
This has to be the smartest choice in the coming years. Here’s how it works: if a service provider is earning $20 per hour they must generate three times that to meet the minimum requirements. After they achieve that level you can offer a bonus or commission of 25%. In a thirty hour work week, your service provider would earn $600 and the minimum requirement would be $1800 in services. If their revenues were $2200, a difference of $400, you would pay a bonus of $100.
The beauty of this structure is that the provider has a solid and steady income with enough incentive to encourage the motivation to attain more. It is the STEADY income that will hold your providers in place. This is still a tier system, so again the opportunity to grow is part of staff development. Start your newbies at a basic wage and show them how fast they can increase their income!
Chair/Booth Rent.
If you are the owner of a chair or booth rent salon you have actually become a landlord, which is a different business model. There are pros and cons to this model which we will tackle in a future newsletter. Today, we’ll focus on the pay structure. The concept here is usually to recoup the expense of the business and keep the commissions earned behind the chair by the owner.
Remuneration is different in every province, state, and country, so please make sure that you clarify expectations with your local bureaucracy. We have seen some harsh fines from government because the owner was not in compliance with employment expectations. The obvious downside to being a landlord is that your income is capped by the amount of rent you receive.
That’s it in a nutshell! We don’t have a crystal ball, but we CAN tell you that change is inevitable!