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Why Retail Commission Does Not Work in Salons & Spas
March 21, 2016 | By Neil Ducoff | 2 Comments
For an industry that is so dependent on professional products, we still haven’t broken the secret code to get professional service providers to sell.
Even with the advancement and sophistication of salon and spa retail space, service provider engagement in retail selling is disappointing at best, and frustratingly indifferent at worse.
We’ve all heard the infamous, “I’m not a salesperson,” statement from service providers. Yet, the predominant reward for selling retail at salons and spas is a salesperson commission rate. If the process of selling retail is distasteful … will a retail commission rate make selling retail taste better?
A frequently asked question is, “What’s a good retail commission rate to motivate my employees to sell?” Here are three reasons why this is the wrong question to ask:
- And my motivation is what? … : The question assumes that there is a magic retail commission rate that will motivate employees to sell. As previously stated, if the majority of service providers just don’t like to sell retail, there is no retail commission rate that is going to motivate them to sell.
- And the profit on retail is… : The standard 50 percent “Profit Margin” on retail is NOT “net profit” on retail. To properly understand the TRUE profit on professional retail products, you must charge retail its share of the overhead expenses for “living” in your business. Retail overhead is based on the percentage of square footage that retail occupies. Overhead expenses for a salon/spa typically run +/- 40 percent of total revenue. If the product cost is 50 percent of selling price, you pay a 10 percent retail commission and overhead is 40 percent … there is NO retail net profit. Pay more than 10 percent and your retail business is running at a loss. Sorry, but that’s how the numbers really work. RELATED: Want a some help understanding how the numbers work in a salon/spa? Check out part one of this three-part post on salon/spa profit.
- And the credit goes to … : Salon/spa software can track every service sold … by an individual. But retail is not a service. Very often, retail recommendations are closed at check out. Very often, guest services sells additional product(s). Very often, the client buys products that weren’t recommended. Just because a service provider delivered the service doesn’t mean he or she created the entire retail sale. Who gets the credit for the retail sale is complicated when one or more service providers and guest services staff are involved. The “who gets the credit” quagmire for the retail commission almost always creates more hurt feelings, in-fighting and indifference. Check out this article on “Who Owns the Client.”
When professional product retailing truly emerged in the early 1970s as a profit center, the seemingly logical reward systems were to offer service providers retail commission. That’s how they were paid for service – so it just made sense to do the same for retail. The instantaneous problem was that retail is much more of a team sport than a service. Multiple employees can be involved in creating a retail sale while, for example, one stylist can deliver a cut, color and style.
Why retail commission doesn’t work:
- Commission isn’t team: Retail commission, just like commission on services, is an “I/me/mine” pay method that creates behaviors that conflict with teamwork. For example, a stylist that never does retail recommendations sends a client to check out. At checkout, a guest services staffer recommends and sells the client a product. The stylist learns of the sale and starts complaining that she didn’t get the retail commission because that was “her client.” The guest services employee can’t believe it and decides then and there that it’s not worth bothering with retail if the stylist gets the credit no matter what.
- Makes retail optional: How long have you been saying to your employees, “Gotta get your retail numbers up”? How long have you been handing paychecks to employees that put zero effort into recommending and selling retail? How often have you wondered if your beautiful and fully stocked retail area is actually invisible to your employees? The simple truth about retail commission is that it makes selling retail optional. If a service provider sells retail, they make some extra money. If they don’t … they don’t … and clearly the majority of service providers are okay with that. Some salons and spas play a little harder with rules like, “If you don’t sell at least 10 percent of your service sales in retail – you won’t get any retail commission.” Guess what? They’re okay with that too because they weren’t selling retail to begin with.
Professional product retailing in salons and spas is – and always will be – about the professional recommendation and a proper closing process at checkout. For some strange reason, professional product retailing became about the retail commission as the primary motivator.
No retail commission – impressive retail sales
Because Strategies’ Team-Based Pay (TBP) business model is pay based on overall performance rather than a commission on service and retail sales, the professional recommendation is both a requirement and an expectation.
On TBP, there is no retail commission. Professional recommendations and retail sales are a performance requirement. No retail – no raise. No more paying top dollar in exchange for retail indifference. The immediate reaction from owners sounds like, “But they won’t be motivated to sell retail.” Strategies response is, “They never were and opted out.”
With over 22 years of teaching and coaching TBP, there are thousands of salons and spas doing 15 to 25 percent and more of total revenues in retail without any retail commission. The focus is on the consistent delivery of the professional recommendation. No Compromise! You can learn all about TBP by downloading our free Team-Based Pay White Paper report.
My intent is not to “sell” anyone on Team-Based Pay. My intent is to emphasize that retail commission motivates the very few, and how “who gets the credit” thinking compromises teamwork. More importantly, retail commission diverts the focus away from the true retail driver – the professional recommendation.
Here’s my challenge to you: Take a serious and brutally objective look at your company’s approach to retailing professional products. Examine your true net profit on retail by charging retail its share of the overhead expenses. Evaluate how the “who gets the credit” thinking is compromising retail sales at the front desk. Lastly, shift your thinking, systems and focus on perfecting the delivery of the professional recommendation to each and every client. Your goal is to have every client receive a verbal and written professional recommendation … which is a key feature of Strategies Happiness System.