A salon's compensation model can make or break the business. Commissions must be high enough to attract quality employees yet leave enough for the salon to pay the bills. Owners can choose between a straight commission or a mixed commission compensation model and additional bonuses to incentivize stylists.
When crafting a commission plan for stylists, the salon owner needs to consider both the market rate for stylist services and business expenses. The traditional compensation method for stylists has been commission of around 50 percent. However, a 50 percent commission rate may not leave the business owner with enough cash to pay general business expenses. Salon owners should have a firm grasp of both fixed costs, like rent and utilities, and variable costs, like hair products and taxes, and set a commission rate that allows the business to pay the bills.
One option for compensating stylists is using 100 percent commission structure. Under this method, the stylist receives no base pay but a high commission rate on services and products sold. Although straight commission payment has been the industry norm, it has significant drawbacks. Straight commission creates more incentive for the stylists to build solo customers, which means customers may leave if the stylist does. Owners should be aware that if stylists are considered employees, they are responsible for ensuring commissions are at least equal to the state minimum wage
Commission and Hourly Pay
An alternative to straight commission is a mix of commission and hourly pay. Under this method, the stylist is paid a base hourly rate plus a smaller commission on services rendered. This model creates more stability in the stylist paycheck. It also allows stylists to be compensated for the work they must perform when they're not styling, like cleaning, greeting clients and answering phones. However, the highest-performing stylists may discover their overall compensation is lower under this model.
Nuances and Modifications
Small modifications and nuances in the compensation model can help a salon avoid typical problems in the commission compensation system. Stylists are less likely to cross-promote to other stylists offering different services or more-profitable services under a straight compensation method. To mitigate these problems, salon owners may also want to set a higher commission rate on high-margin products and offer a small bonus when a stylist refers clients for other services. Owners can issue bonuses for both individual performance and team performance to create healthy competition and foster a supportive environment among stylists and salon employees.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.