Booth Renter Vs. Employee

One of the unique aspects of the beauty industry is its double structure-both a solid base of employees working mostly on commission and a large community of booth renters who pay the salon owner a flat rent and virtually run their own business within the salon. What is equally unique is the conviction with which proponents of each setup give their reasons for doing business their way.

Booth rental salons are either made up of “the most motivated, hard-working salon professionals you’d ever want to meet” or “a bunch of profit-mongering mercenaries.” By the same token, employee-based salons are credited as being team-based and customer-driven or denigrated as a resting place for the inexperienced and unmotivated.

When pressed for their reasons for choosing one setup over the other, however, most salon owners give answers as simple and individual as local practice, personal goals, or pride of ownership. Here, salon professionals on both sides of the fence explain why they favour one setup over the other as well as discuss the pros and cons of both. Whether you’re considering opening a salon, evaluating your current setup, or even trying to decide which you’d rather work in, your must take all the intangibles into consideration because, as they say, money is only one part of the picture.

One for All...

When Amy Marshal bought Moda Salon in Scottsdale, Ariz., several years ago, all the nail technicians were booth renters, and the hairstylists were a mix of employees and independent contractors. Marshall had no plans to change things—until she saw client satisfaction slipping and retention dropping. “We had clients walking in and having no one there to service them,” Marshall remembers. “I knew customer service was the way to grow, and I felt I had no control.”

After a year, Marshall slowly started to convert the salon, replacing booth renters with employees as they left. The ensuing three years were a struggle in an area dominated by booth-rental salons, she says, as she kept turning down inquiries for space rental from nail technicians and stylists with full clienteles. Marshal resisted the temptation, instead cultivating people new to the area or fresh out of school. She says this has worked well, although the salon has to help them build a clientele.

Les Edgerton, the former owner of Bold Strokes Hair Design in Fort Wayne, Ind., and co-author of Salon-Ovations’ Guide to Becoming a Financially Solvent Salon, commends Marshall’s actions saying that, in his experience, booth rental signifies a last-ditch effort for many salons.

“How is an owner going to build client loyalty to the salon running 5-foot by 8-foot spaces?” he asks. “I’m not saying people won’t do their best work, but their interests are different. I don’t see how you can build the professional’s loyalty past a certain point in a booth renter setup.”

By the same token, since he and his wife closed their salon so he could focus full-time on his writing, she herself has become a booth renter, and Edgerton says he now understands the attraction. “My wife brings home more money even though she does the same amount of work, and she has flexibility now,” he says. Still, he says he’d never do it and he discourages salon owners from even considering it. “Salon owners go to booth rental because it offers them at least some type of guaranteed income But a salon has to create a reputation in its city or town, and I don’t see that happening even in the best booth rental situation because you have too many egos going in too many directions.”

“Our employees are what our reputation is built on,” agrees Lori Piskur, who co-owns the Avon, Ohio-based Nail Clinic with Lori Gillespie and Michelle Barna. “We have established standards, and by working and living up to them daily, we hope to reinforce the team commitment. The biggest advantage of an employee-based salon is that we have 10 people with a common, well-defined goal.”

Like Marshall, Piskur says finding qualified nail technicians is a challenge, but she says it’s one all salons face, regardless of which side of the fence they’re on. “There are some highly skilled individuals out there who would never consider being an employee,” she notes. “On the other hand, there is so much talent waiting to be molded into successful nail technicians.”

Dee Levin, owner of the nationally acclaimed Salon Norman Dee in Philadelphia, says that for her, the issue comes down to pride of ownership. “I have control over whatever I want my business to become,” she says. “When I opened this salon I invested my time, my money, my heart, and my soul. It’s my business that I’m willing to share by providing employees a place where they can earn money. If they want to own their own salon, they can do it on their own.”

When asked where her salon would be if she had gone booth rental, Levin declares, “Out of business.” She immediately qualifies her statement by explaining that everyone has to know their strengths and weaknesses, and one quality she counts as both a blessing and a curse is her need to control. “I’m a strong believer in a good, fair leader and an atmosphere where everyone pulls together for the same purpose and goals,” she says. “How can a business succeed where everyone works their own hours, chooses their own supplies, and sets their own standards?”

Levin also agrees with Edgerton that a salon’s strength lies in its reputation. “With a booth rental salon, they can’t even advertise effectively unless they agree everyone will contribute to the budget, but then how do they know they’ll get their share of the business that comes in? We get a lot of press in our area, and I select people to showcase as a reward for their work or in recognition of the extra services they’ve given the salon. If I had booth renters, how could I do that? And if I can’t showcase someone, how can I showcase the salon?”

While Levin says these examples prove that a booth rental salon is harder to build and less profitable to run, the reason she would be out of business is much more simple: “I broke my back once and couldn’t work, yet my salon continued. With employees, I had revenue above my expenses. For most owners of booth rental salons, their income stops when they stop doing services “

All for One

These arguments are all well and good for the larger salons, says Ken Cassidy, owner of Kassidy’s Salon Management Consulting Company (Long Beach, Calif.), which consults with salons on booth rental and commission issues. But, he says, small- and medium-sized salons don’t always have the luxury of putting “teamwork” and “image” first.

“Larger salons aren’t that affected by normal employee turnover, but middle- sized salons that lose two or three people get hit hard because they pay the largest rent and carry the burden of high operational costs,” he explains. “Also, large salons can afford to pay commission because they’re doing the volume.”

By the same token, Cassidy agrees with Levin that most booth rental salons are less profitable than employee-based salons, but he says that is not an inherent flaw of booth rental itself. “Booth renting can be profitable, depending on how you structure it,” he says. “For example, there are at least 10 different ways you can incorporate additional income into your contract. Think of it in terms of an a la carte restaurant, with the entree in this case being rent. Anything like soup, salad, or dessert is additional. In a salon, those additional items would be a receptionist, phone service, retailing, and assistants.”

Cassidy says most booth rental salons do not charge booth renters for new clients, but he insists they should. “If booth renters want the salon to give them new clients, the salon owner must charge for providing that client the first time,” he says. “Anyone who calls up or just walks in without asking for someone specific is a non-request client, and the owner should charge a 50% finder’s fee for that first visit only.”

As for the argument that a booth rental salon can’t build an image or contend with the big-name salons, Cassidy says the comparison is apples to oranges. “What it means is that these salons have established their names, have a really good structure, and take people right out of school and train them the way they want to establish that standard, versus another business that doesn’t have that image or structure. In our industry, there are so many ways to run a business, and some are better than others,” he says. “That doesn’t make one wrong and one right.”

Donald Anderson, owner of Emerald Salon in Tustin, Calif., says his salon is proof positive that both systems work, as he operated successfully for years as an employee-based salon before converting to booth rental in January 1997. He spent years managing his salon, dealing with personnel issues, training assistants, and coordinating education for his 40+ staff of nail technicians and stylists when his energy and enthusiasm started to flag.

“I couldn’t find a partner, and I couldn’t do it all anymore,” Anderson explains. At the same time, he watched his best staff members be swayed by bigger money. “People get to making $3,000 to $4,000 a week and they want to see more of it in their pocket. That doesn’t make me mad; if I were in their shoes I would want the same thing,” he says. “Our prices — $27 for a rebalance and $32 for a French manicure rebalance — is top of market for this area. What do they do when they top out?”

While Anderson says he doesn’t see the profits he used to, he by no means depends on his own work as a nail technician and stylist for his income. The trick to running a profitable booth rental salon, he says, is all in the planning. With his CPA’s help, Anderson structured his rental agreement as an association membership, “like you have in a condo complex,” he says. Each year he sets a budget that includes his costs for an umbrella liability policy, advertising (including a three-quarter page Yellow Pages ad), building rent, receptionist, and other projected expenses, and divides this cost by the number of stylists, nail technicians, estheticians, and masseuses in the salon.

“My goal is to pay the rent in the first week of the month. In the second week I want to pay the electricity, the cleaning crew, and the receptionists. Then the rent from the third and fourth weeks goes in my pocket. The formula is to at least double your expenses,” he says, admitting that it works best with a large, high-volume salon. “The bigger the square footage and the more people you can accommodate, the better you’ll do. I know people with 60 stylists and they’re making a killing.”

As for the issue of control, Anderson says he finds it’s easier now to get the coverage he needs because booth renters tend to be more serious about work because they know the rent will come due regardless of how much they worked that week.

Kathy Smith, who co-owns five Beauty Center salons in Las Vegas with her husband Don, agrees, saying that all of her 60+ nail technicians are booth renters and consummate professionals. “They handle themselves very professionally, take pride in their work, and take care of their business,” she says. While she admits that along with the loss of control comes some loss of continuity on issues like dress codes and product usage, the freedom from many management functions is well worth it. Instead, she spends the bulk of her time managing the retail areas, which is where she realizes her greatest profits.

Ultimately, whether a salon operates with employees or booth renters is just part of the bigger picture, says Cassidy, whose salon has both. “The important thing,” he points out, “is to do what you do professionally and legally.”

 

By the Numbers

It’s no wonder so many nail technicians are attracted to booth rental. On the surface it appears to be much more profitable. But when you run the numbers, you may find a different story as higher taxes and business expenses take a large bite our: of a booth renter’s gross profits. Not to mention the advantages of having employee benefits, such as one weeks paid vacation. An employee’s salary may include some time off; while -a, booth renter simply loses income for any day she doesn’t work. Also, a number of employees offer paid education and training for their employees and access to group medical insurance.

But many booth renters say they wouldn’t trade the satisfaction of being in charge of their own destiny. They enjoy considerable freedom in setting their own hours and policies.

While compensation is only one aspect of job satisfaction, it is an important one In deciding winch situation works best for you, make sure you consult a financial advisor or accountant to estimate how your income will be impacted — the number s may surprise you. In our worksheet below, we provide the general steps you need to take to make a comparison (please augment this with the proper tax forms in your state). Start with a hypothetical total service income; say, $45,000. As an employee, you would begin your calculations by taking a certain; percentage out of that as your commission income. As a booth renter, this is your gross income. Or use a figure that comes closest to what you’re already being paid.