Money Matters

Lower Your Commissions or Go Out of Business

If you are paying your salon employees a commission of more than 50%, chances are you are losing money. Learn how to modify your commission structure to motivate employees and ensure a profitable business.

If you want to succeed as a nail salon owner in today’s competitive climate, you face many challenges regardless of the size of your business. Whether you have employees or booth renters, filling those manicure and pedicure stations is a challenge, especially with the number of empty tables and rooms in most nail salon and spa businesses right now. It’s true that today the nail industry is still predominantly a booth rental business, but we must always look to the future when it comes to maintaining and building a well-trained staff.

 

As positions become open, we must keep an eye toward maintaining maximum profitability as we fill vacant spots — regardless of what title you bestow upon your staff. And as nail spas raise the bar higher, making it more expensive to create and maintain a professional atmosphere, you need to look down the road to recapture the investment you have made in your business and other people’s lives.

 

Having employees — as opposed to booth renters — can allow you to generate more revenue long term, if structured correctly. It makes no difference whether you are starting out with a new business location, relocating an existing business, or doing a remodel, it is past time for you to reevaluate your current business compensation structure. For any salon providing nail-related beauty services, the old way of compensating your employees does not work and probably has not worked for several years. Meaning that if you are paying more than 50% commission to any employee, it is costing you dollars rather then generating income for the business, especially if a nail tech is new to the industry.

 

Why do you think that booth rental has become so popular over the years? Most owners have given so much away in compensation that they have little cash to reinvest back into their businesses or even to receive a paycheck if they themselves don’t work for more than a couple of weeks. Then there are the goals of having a paid vacation, putting money away for retirement, and being able to offer benefits to your staff.

 

The True Cost of Commission

Most owners do not realize that on top of every commission dollar paid out under a 50%, 55%, 60%, or higher commission structure, the salon owner pays on average an additional 18% to 20% in taxes on each employee. That means if you are paying an employee 55%, for example, it actually costs you between 73% and 75%. If you are paying an employee a higher commission, it is easy to see why you are not making any income despite all your hard-earned financial investment, not to mention the long hours you spend working. As if that was not enough, this is still before you have paid your rent, bought the supplies, paid utilities, or advertised to generate more business. You most likely also lack the extra funds to remodel or freshen up your salon’s look so you can increase service prices.

 

At this point, it’s easy to think you might be better off renting a nail station yourself. If you don’t think this is true, look at your last financial statement — if you have one. Chances are if you did not provide services yourself, you have only broken even financially, or worse, lost money.

 

A Change of Plan

Getting different results from your business requires looking at it from a different point of view. Now that reality has set in, you can institute some changes. It requires a series of steps, beginning with changing the way you compensate your staff. This requires a new plan.

 

Your new plan begins with doing the homework to lay out a foundation for compensating your staff differently. Under the plan, you would create the opportunity to grow any newly hired staff member or to convert some staff members into a new compensation program that will continue to reward them — just in different ways. When it comes to those staff members receiving high commission rates, the reality is you would be better off converting them to a rental position, which would allow you to make more revenue from them [see sidebar]. If done correctly, you would still be able to capitalize on your investment from them.

 

So what is a sensible approach to structuring an employee business? Too often we get caught up in the emotional side of being a human being in business. Of course, we feel compassionate toward others — both clients and staff members — but every successful business owner knows you must make a separation between being a boss and being a friend. Then and only then does the mutual respect develop that allows you to grow your business.

 

Business Basics

Here are some basics that every business owner must understand and some practical steps to making your salon more profitable.

 

Keywords:   commissions     employee issues     independent contractors     salon finances  

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