Is there a best commission rate?
This question is routinely posted in discussion forums. And just as routinely, and with the best intentions, the same old responses begin piling up.
Some suggest 45%, some 50%, and some even 60% and higher.
Some suggest sliding commission pay scales. Others advocate commission with product charges. Heck, it’s even assumed that if a salon isn’t booth rental, then it’s a “commission salon.”
FACT #1: The question, “What’s a good commission rate?” is the wrong question. The question itself identifies a lack of understanding of the financial realities of a salon/spa business.
FACT #2: The correct question is … “What percentage of my salon/spa’s total revenues can it afford in service payroll expense?”
I have been involved in salon and spa compensation systems for over 40 years. The days of 50% commission are long gone. The days of 60/40 commission split rates in salons (40% to the salon) never should have happened because it is financial suicide for the business.
Service payroll (hands that do the work) must live between 30% to 35% of Total Revenue (Service + Retail Sales) – as it appears on your Profit and Loss Statement. Again, that’s 30-35% of the salon or spa’s total revenue, which is very different than 30-35% commission. Once you understand what THAT number is … you can design your pay system.
With the utmost respect, most commission and sliding scale systems are either too high from the start or eventually become unsustainable as more service providers move up to the higher commission levels. That’s why too many owners are stuck behind the chair cranking big dollars and making less.
If you’re salon is not generating 10%+ Net Profit AFTER you (the owner) are paid, your pay system needs to be fixed. That’s as straight forward an explanation there is on why salons and spas struggle with cash flow.
Any conversation about compensation needs to be thorough so both owners and employees understand the process. I am not about paying service providers less – I’m about paying for the right performance and behavior. Any commission rate is pay based on individual sales.
The problem is that salons are paying for attitude, lateness, low client retention, low productivity, dismal retail sales (if they’re selling retail at all) and other stuff – at the expense of service providers that really show up to work and bring their best game.
It’s not about the commission rate!!!!
It’s about how much personal income a hair stylist or massage therapist earns. At Strategies, we coach salons/spas where top service providers make $50,000, $60,000, $75,000 and more based on overall performance. We coach a number of salons/spas where service providers make over $100,000 … with benefits including health. That’s all possible when owners and service providers think beyond the limitations of commission pay and focus on real earnings and dollars.
When the smoke clears, a salon/spa can’t compensate the right people well if the wrong people are sapping cash flow. More importantly, we are able to address … and eliminate … the ceiling that stylists and spa technicians hit when they’re booked solid. It’s simply about looking at compensation differently and understanding the inherent limitations of commission pay.
If you’re looking for a compensation program that controls payroll costs, creates a team culture where everyone is motivated/motivated by growth, and incorporates bulletproof systems to ensure consistency, we highly suggest you look into Strategies’ Team-Based Pay program.
You can download a free Team-Based Pay White Paper report here. You’ll learn the in’s-and-out’s of the program and read testimonials from owners just like you that are thriving (their staff too) with Team-Based Pay.
The question, “What’s a good commission rate?” is a symptom of a problem.
It’s feeding the defections to booth rental and suites. Asking the right question and understanding commission alternatives will stir things up. (And no, “what are the advantages of salon commission vs. booth rental” is not the right question either.)
Things need to get stirred up if salons and spas are to succeed and good employees can earn great pay for great work. BUT … owners need to learn how to run their companies differently. Do your research. Call for a comp coach call. Open up to new thinking that works and end the insane cycle of “who gets what piece.”
In addition to the free white paper download above, you can also learn about Team-Based Pay at the four-day Strategies Incubator Seminar. We usually sell out, so reserve your seat now!