How to Set Up the Commission Structure for a Salon

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When you operate a salon, and you have bad stylists who leave you with negative Yelp reviews and a terrible reputation, then it doesn't matter if your services are affordable, your marketing campaigns are buzzworthy or your location is convenient.

That's why it's important to ensure you bring in the right stylists who attract loyal repeat customers. Of course, the best way to attract good stylists and keep them at your salon is to ensure they are paid well. The best way to do that is to set up a salon commission structure that will keep talented employees motivated to do their best.

Hourly or Salary Wages

Paying stylists an hourly or salaried wage can give them a sense of stability since they know what they can expect to be paid, and it also encourages them to do more of the tasks that they won't be rewarded for doing through a commission structure, such as cleaning, answering phones and greeting guests.

Unfortunately, with an hourly or salary rate, it can be hard to incentivize stylists to do more than the bare minimum since these pay structures don't motivate workers to attract new clients, move products or even encourage existing customers to return again.

Hourly rates can create additional problems because if you don't carefully monitor your schedules and make sure workers don't routinely offer to help walk-ins at the end of their shift, then you may end up paying a fortune in unexpected overtime wages, taking a huge bite out of your profits.

Commission or Performance-Based Pay

If you offer each hairstylist a commission percentage, you can solve many of these problems by tying your employees' wages to their performance. Stylists who attract new customers, push product sales and ensure clients return again and again are rewarded for going the extra mile. On the downside, those with commission-based salon jobs may be stressed since their wages can fluctuate drastically from week to week.

A performance-based pay system allows you many of the benefits of hourly or salary pay as well as the benefits of the commission pay structure since you give employees a base rate regardless of performance with an additional commission tied to their performance. Alternatively, many salons offer booth rentals, which means the stylist just pays to rent a space and is an independent contractor who keeps all of her profits.

Experts in the salon industry tend to agree that commission or performance-based payments are the best way to ensure you get top stylists to work in your salon in order to help bring you the most revenue.

Flat vs. Tiered Commission Structures

If you decide to go with a commission structure, you'll need to decide whether you'd like to use a flat commission structure or a tiered model. Either way, the exact terms of your structure need to be very clearly spelled out in your hairstylist commission agreement. A flat structure means you will give a flat percentage of the money made from each service, usually between 35 and 60 percent, as well as a flat rate for the earnings from products the stylists' customers buy, usually 10 to 50 percent.

On the other hand, tiered commission structures are a little more complex, but they offer even more incentives for a worker to do his best. There are two ways a tiered commission may operate. Stylists can either be put in a tier based on their total earnings from that period, or stylists can earn a stacking tiered rate for all services in a tier until they reach the next tier and then all services they perform for that tier are paid according to that rate until they reach the next tier, and so on and so on. Product sales can be included in the same tiered structures or in their own sales tiers.

Hairstylist Commission Percentage Example

To make things more clear, it can help to work with an example. Imagine that Denise is an average stylist who performs $1,156 worth of hair services in a week. Emily is highly motivated and does $1,498 in services in that time, and Tom is a little less motivated and only earns $658. Under a flat 45-percent commission structure, Denise would be paid $520.20, Emily would get $674.10 and Tom would earn $296.10.

That's simple enough, but now imagine that they work for a salon that offers 35 percent for stylists who perform up to $750 worth of services, 40 percent for between $751 and $1,000, 42.5 percent for between $1,001 and $1,250, 45 percent for $1,251 to $1,500 and 50 percent for over $1,500. In this case, Denise would earn $491.30 because she would fall in the 42.5-percent tier, Emily would still earn $674.10 since she would be in the 45-percent tier and Tom would earn $230.30 because he would fall in the 35-percent tier.

Stacking Tiered Commissions Example

The stacking tiered commissions can be even more confusing, but imagine the salon offers a stacking commission of 35 percent for up to $500 worth of services, 40 percent for between $501 and $750, 45 percent for between $751 and $1,000, 55 percent for between $1,001 and $1,250, 60 percent for between $1,251 and $1,500 and 65 percent for over $1,501.

That means everyone would earn 35 percent ($175) for their first $500 in services, and then they would get 40 percent for up to $750 in sales, meaning Tom would earn $63.20 for the last $158 earned in this tier, and Denise and Emily would get $100 for their $250.

Denise and Emily would go on to earn 45 percent ($112.05) for between $751 and $1,000 and 55 percent for $1,001 to $1,250, meaning Denise would earn $85.25 for her final $155 in sales, and Emily would get another $136.95. Lastly, Emily would get another 60 percent ($148.20) for her final $247 in sales. That means that in total, Denise would make $472.30, Emily would make $672.20 and Tom would earn $238.20.

How to Pick a Rate

Commission rates for salons are all over the place, with a handful of businesses offering as little as 35 percent and others offering 65 percent, but the average rate is around 45 percent. While it can be tempting to believe that offering the greatest possible rate will help you attract and retain the greatest possible people, it's important to remember that your salon still needs to make money.

Industry experts widely agree that offering 60 percent commission rates or higher is a surefire way to bankrupt your salon. This is one reason so many salons choose to offer stacking tiered rates, which give their stylists a chance to earn particularly high commissions once they reach a certain level of sales without bankrupting the salon in the process.

Of course, if you notice your stylists' calendars are constantly full, and they're frequently staying late to handle as many customers as possible, you may raise your prices a little since your stylists may hit a glass earnings ceiling because they can't possibly bring in more clients no matter how motivated they are.