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What is the best commission rate to pay salon or spa staff?

July 24, 2015 | By Neil Ducoff | 9 Comments

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?”

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.

Total service payroll (hands that do the work) for the business must live between 30% to 35% of business’ Total Revenue (Service + Retail Sales) – as it appears on your Profit and Loss Statement. (Again, that’s 30-35% of the company’s Total Revenue, which is very different than 30-35% commission per service provider.) 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.

For over 24 years, Strategies has been teaching and coaching a compensation system called Team-Based Pay. It is not “controversial” as many people say. Salon/spa payrolls that are unsustainable – that’s controversial. Salon/spas going out of business because they “grew broke” – that’s controversial.

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. Sign up for a free coaching session. Open up to new thinking that works and end the insane cycle of “who gets what piece.”

You can also learn Team-Based Pay at our flagship four-day seminar, the Strategies Incubator, and our annual Team-Based Pay Conference.

Categories: Compensation , Financial Literacy , Team-Based Pay

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Comments

  1. This definitely makes sense but how would you change to this structure with stylist that are already making a certain amount of commission? And are there local reps in our area that could come out and work with our salon?

  2. I have been here in a booming salon for 35 years. We have had many leave because they want insane levels of 65% and no service product fee. I can show them the massive casts of being here but they don’t care. I deserve it is common. Raise prices I say. No I don’t want to. You owe me. Well I guess we are done then. Profit margins were once 20% after all bills paid. Now if you make 10% you are lucky. I had a woman take 10 stylists with the promise of 60% and no product fees. In 3 months they were running out the door. The woman now has 2 employees and her dad pays for the bills. Nice guy. Those who wanted to come back got a big,NAH! We kept at least 50% of those clients too. Oh the pain they have to live with.Fact,4 of 5 fail within 5 years. We are packed and continue to grow. I don’t even do hair anymore. Somebody said,The owner makes too much money. The educator said,They’re supposed to.

    1. I would love to see your model of your pay structure.I always seem to break even my bills are paid but there is not alot of profit. Please help

    2. Edwin are you using team based pay and this company? Has it worked well for you? If not how do you determine commission levels? If retention levels are not good do you lower commissions?

  3. This is what my company need. How does it work? We are small team of 4 stylists plus I part time stylist 1receptionist 2 full time juniors and 1 full time elf employed

    1. Hi David,
      Best next step to attend our Incubator Course in CT. Go to http://www.strategies.com and click on Events/Seminars. You will learn our entire system and how to implement. Next best is to start with a free coaching call. We work with many salons that are your size. They get efficient, profitable and grow stronger.

  4. Hi ive just opened a hair salon and want to treat my staff fair and hopfuly be able to pay them a good wage so am trying to work out a commision but am not sure how much to set the target what they have to make befor i pay them commision is it 2×s there wage then comission on what they make after that i would be gratful for any help ir information about targets and commision for hair stylist thank u annmarie

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