In this article, you’ll learn:
-
What commission-based pay is
-
The difference between flat-rate and tiered commissions
-
Real-world examples of flat rate vs. commission for services and products
-
How commission provides more control over services, sales, and payroll
-
About using commissions to motivate staff and bring in more sales
-
How Vagaro makes is easy to customize flat-rate or tiered commissions
-
Additional resources to help you
Disclaimer: This article is not provided as legal or financial advice, nor is it a substitute for professional counsel. As laws in jurisdictions vary, it is incumbent on the recipient to ensure compliance with State and Federal labor and tax laws. The content of this blog should foster discussion with your financial adviser to determine parameters of state and federal laws affecting your business. To learn more about laws specific to commission arrangements in California, visit the National Law Review, NOLO, or the US Department of Labor.
What Is Commission-Based Pay?
Commission is a payroll structure calculated as a percentage of the value of sales (services, classes, or products) your employees make during a pay period. But more importantly, it’s what your staff wants to see on their paycheck—the reward for their hard work! In most cases, commission-based pay includes some sort of a base wage. It also represents a variable cost for your business, or, a cost that changes in direct proportion to the volume of services you provide. Therefore, your commission rates directly influence how you set your service prices.
What’s the Difference Between Flat-Rate and Tiered Commission?
Flat-rate commission pays one fixed rate for every service, product, or class sale. This kind of commission can be a great advantage for employees who are still building a clientele, because it provides an even playing field for all levels of experience!
Tiered commissions use a sliding scale to calculate pay after employees hit a certain sales goal (“tier”.) This structure encourages employees to constantly improve their service and upsell more. And for business owners, it can also be an early-warning alert for underperforming or struggling employees, who may need more training to meet sales goals. Tiered commission gets your staff excited to step up their game to hit higher sales targets by rewarding them with a bigger paycheck every time they pass one of the sales goals. The more tiers they hit—the bigger their paycheck!
Industry Examples: Paying Flat-Rate vs. Tiered Commissions
Combining Hourly Pay, Flat-Rate, and Tiered Commission
Combined commission structures are common in salons, spas, and fitness centers. For example, a spa may offer massage therapists $15 hourly—or 35% commission after they hit a service sale target of $600. That means that even if the massage therapist falls short of the $600 sales goal, they’ll still have a paycheck. Or, in a spa that combines flat rate and tiered commissions, newer massage therapists earn 35% commission on service sales, while established therapists earn 40-45% commission, depending on the length of time they’ve worked at the spa. This kind of combination rewards established massage therapists for their experience and the time they’ve been working at the business. It also inspires junior massage therapists to keep working hard, to get to the next commission tier and make more money!
Commission pushes your staff to focus on sales, while still having a “security net” in the form of base wages. A base wage lets staff know they’ve got a paycheck they can rely on, even if they have a bad week. But if they’re having a good week, they’ll see the rewards for their work on their paycheck. By combining different pay structures, you have more control over payroll costs— while letting your employees know you’re invested in them. Commission motivates your staff to sell more products, book more classes and services—and bring more revenue into your business.
Commission Gives Owners More Control Over Services, Sales, & Payroll
Here are two ways commission (flat rate or tiered) gives you more control over payroll:
-
Employees are more motivated to make sales when their paycheck depends on it.
-
Commission ensures your payroll costs are directly related to the money your staff brings in.
Because tiered commission rewards performance with a bigger paycheck, it also causes employees to:
-
Constantly improve their performance
-
Focus on rebooking and customer satisfaction
-
Hit higher sales targets
-
Beat previous sales goals
Being able to adjust commission rates by employee, experience level, sales goals, performance, or by specific retail product gives you more control over the flow of money through your business. Commission helps you make sure that you’re only paying out higher commissions to the workers who go above and beyond to make your business exceptional.
** Motivate Staff & Bring in More Sales with Commissions
It can be difficult to motivate hourly wage staff to do more than the bare minimum. After all, hourly pay doesn't:
-
Reward employees for their hard work
-
Motivate them to attract new clients
-
Encourage upselling services, classes, or products
-
Put the focus on re-booking clients and customer satisfaction
Commission puts you in the driver’s seat of your payroll costs and inspires your staff to do their best every day. Whether you decide a flat rate or a tiered commission model, always make sure to communicate the terms of your commission structure in writing with staff as part of their employment paperwork. That way, everyone is clear on what they need to do to earn a bigger paycheck, and there aren’t any surprises on payday.
Vagaro Gives You More Control on Your Business Commissions
Vagaro makes it easy for you to calculate commission pay and hourly pay every time you run payroll—without having to become an accounting expert. Customizable commission rates for product, service, and class sales let you design the right payroll for your business—and keep your staff happy by rewarding them for the work they do.
** Additional Resources
-
US Department of Labor – Commission
-
National Law Review – A “New Look” for Salon Employee Commission Arrangements in California
-
Modern Salon – Two Views: Working the Tiers
-
The Beauty Experience – Pricing Salon Services: The Four Tier Strategy
-
Cosmetology-License.com –Commission vs. Booth Rent: The Pros and Cons of Each
No matter what kind of commission structure your business needs, Vagaro makes it easy to customize and set up so calculating payroll doesn’t gobble up your valuable time. Whether you want to set up flat rate commissions or design customized commission tiers, it’s easy to get started with your Vagaro software!
Header Image: Giorgio Trovato via Vagaro
Icons & Infographics: Mia Montemayor via Vagaro