THE DANGEROUS QUESTION: "I own a salon and I’m hiring a stylist. I was going to do a 60/40 split, with me getting 60% and providing the supplies. Is that accurate or favoring one party over the other?"

OK, on the surface, 60% going to the salon — even with the cost of providing supplies — seems straightforward.

But the problem with the “what’s the best commission rate” question is that it demonstrates the massively oversimplified approach that many owners take concerning their single largest business expense. So much so, it’s created a history of devastating results.

THE MOST HONEST ANSWER ON PAY YOU’LL EVER GET:

As simple as, “What’s the right commission rate?” appears, it is a very complicated question to answer. Here’s why:

1. There’s the financial reality of your business: Only a review of your financials and expenses can determine what your ideal payroll % should be. But that ideal percentage changes as your expenses, productivity rate, and pricing change. The problem is that once your commission percentage is set, any change in operating expenses, product cost, productivity rate, and more — you are stuck with your selected commission rate. Simply put, once commission rates are set, they are extremely difficult to lower without upsetting or losing employees.
   
   FACT: Product cost deductions and service charges are nothing more than smoke and mirror tactics to lower commission rates.
   
2. The “performance and behavior” aspect: Commission is “piece work.” It’s a “you do this — you make that” pay system. It doesn’t address negative behaviors, attitudes, lateness/absenteeism, retail indifference, or, contrary to popular belief, motivate everyone to perform/produce. Commission motivates the few — not the many. Simply put, commission rewards the wrong behaviors and performance just as much as it rewards the right behavior.
   
   FACT: Commission still pays an employee their commission rate for his/her bad attitude, low client retention, lack of retail, behavior, and performance issues.
   
   
   
3. The “culture” of your company: Everyone is beating the “culture” drum. Yet, highly refined and dynamic salon/spa cultures, that attract and retain the best workers, are a rarity. The proof is the industry’s horrendous employee turnover rate and high incidence of walkouts. And when employees would rather work alone in a booth or suite, than be part of a great company culture — it’s more than a trend — it’s a crisis for employee-based salons/spas.
   
   FACT: Commission is an “I/me/mine” pay method and conflicts with teamwork and culture. As long as “what I bring in and get my piece of” comes before company and culture, commission will do its damage.
   
4. You must control your payroll cost: Sorry, you can’t control commission payroll costs. You can implement new or higher product/service charges before commission — but that’s a pay conversion. You can lower commission rates and sliding scales — but that’s a pay conversion. “Selling” a lower commission to employees is a recipe for disaster.
   
   FACT: Service payroll is a percentage on your Profit & Loss Statement. After all your commission level systems and multi-level pricing, service payroll is still a percentage on your Profit & Loss Statement. That percentage is either manageable or sucking the financial life out of your company.

Here’s our challenge to you: For all those reasons and more, Strategies has been teaching and coaching the “Team-Based Business Model.” The foundation is Team-Based Pay which is hourly pay plus bonus. There is no commission — not even on retail.

Since 1993, our Team-Based Business Model has given owners the controls and systems they must have to pay employees based on overall performance — not just how much their two hands bring in. It allows the most incredible cultures to evolve.

And … because you’re no longer paying commission on the wrong behaviors and performance, it allows the best, and most productive, employees to get raises, even when they can’t squeeze in any more clients.

The Team-Based Business Model gives you control over your payroll, rewards the right behaviors and performance, and allows you to build a true team-based culture. RELATED: Download the free Team-Based Pay White Paper to learn what it is, how it works, and how it can help your salon, spa or medspa achieve greater success..

Life would be great if figuring out if a 60/40 split, or any commission plan, was right for your business — but business, profitability, performance, and culture are just not that easy.

Schedule a free 60-minute strategy session, and let a Certified Strategies Coach help you map out a game plan to get more done, and build sustainable growth for your company.