Money Matters

Are High Commissions Pinching Your Profits?

If clients keep pouring money into your salon, but none of it is flowing into your pockets or the salon's coffers, it's time to re-examine your compensation structure. After all, why follow the competition's lead if the road heads toward bankruptcy?

"I think the business models the beauty industry is used to operating on are very different from what other industries are doing," Webster concludes. "I think this notion that we don't have to pay as long as someone is not working creates inefficiencies, and someone pays for that," he says. "When you choose salary, the owner takes on the responsibility to pay for it, but that way you can set up a situation that makes you more profitable by using your labor sources more efficiently. A fully-booked nail technician on commission can never make more. But if she's working as part of a team and cross-selling services in the salon, she's contributing to the salon's profitability and can raise her income in a profit-sharing mode."

Productivity-Based Commission California Nails, Miami, Fla.

Co-owner Louis Mattassi's theory on commission is that once you reach the top layer — a whopping 65% in his salon — it's time to graduate into your own salon. Contrary to what many in the industry think, the theory is one that's so far worked well for him.

"I hire assistants while they're still in school and pay them an hourly salary," he explains. "While they're still in school, I train them by having them do the prep work, including the cleansing, polish removal, massage, etc. Then I overlay the product and finish with polish. This is a way to get more clients on my floor and for them to become accustomed to my two assistants and me. When they are ready, the assistants get all the new clients that came in during their apprenticeship and go on to commission."  

Nail techs at California Nails have a choice between a straight 45% commission or a 40% commission with a guaranteed base wage. If they're ready, after 90 days they can earn a higher commission. "They can work all the way up to a 65% commission, but that's where price enters. A full set of nails is $95, fills range from $40-$65, a spa manicure is $45," he explains.

Too, their commission is based on productivity. Initially Mattassi limits the number of hours technicians can work, essentially forcing them to book their appointments tightly and maximize the salon's overall productivity. "When someone maxes out I will let them open another day if I have the space to offer," he says. More often, though, the space isn't available and he instead bumps them up to the next percentage level. This decision is also based on how full their book is, seniority, and skills, among other factors.  

He limits the number of technicians at the top level to two, and he has high expectations in exchange for the 65% commission. "These senior technicians do training, run staff meetings, do continuing education, offer leadership, and anything else that I can't do as a busy salon owner," he says. From there, Mattassi encourages them to use the management skills to open their own salon. So far, he says, he's had two technicians leave to do just that with his full support.

 

At any one time, California Nails has 12 technicians spread over the six "growth steps" Mattassi and his partner have developed. Additionally, as a group they set performance goals and name leaders to oversee meeting those goals. Often, Mattassi says he chooses lower- performing nail technicians as leaders, which he has found almost always inspires them to improve. In addition to its generous commission, California Nails offers access to group health insurance and paid education.

Commission Ladder Mad Hatter, 12 locations in Va.

"I've been in business 27 years and I've seen it come full circle," says Peggy Hatter. "Today, employees need benefits just to survive, and how do you pay benefits with a 60% commission?" She notes that her salon has gone from mostly full-time employees to mostly part-timers.

Mad Hatter begins all employees with a 50% commission until the individual reaches a predetermined point based on what a station needs to produce for the salon to break even. "Our break-even point includes all of our overhead, including receptionists and assistants," she notes. For each additional break point reached, the employee earns another 2% commission. For example, if the first break point is $500 a week and the second break point is $750, a nail technician who generated $800 in services would receive a 50% commission on the first $500, 52% on the next $250, and 54% on the last $50.

Also, nail technicians can advance to master and then senior pricing structures. "Our fills start at $ 15 and can go up to $30," Hatter notes. "Advancement depends on meeting certain criteria, which includes education, customer service, and generating certain service dollar amounts." All full-time employees (32 hours/week) are eligible for Mad Hatter to pay half the medical insurance premiums in addition to vacation and retirement benefits.

Mad Hatter's philosophy is partly based in efficient space utilization. "We're shooting to utilize station space all the time," Hatter explains. "With space rents and lifestyles the way they are today, there's no other option. We've had to set it up where the work fits the lifestyle. A woman with children can't work three to four nights a week and be gone on Saturdays, so part of the incentive we offer is that once you have built a clientele, you can choose the hours that suit your family and your clients." Mad Hatter benefits in that a station then opens for an up-and-comer on evenings and Saturdays, which is when the salon chain enjoys a high volume of walk-in traffic.

"I think in the old days people reached for higher commission," Hatter says. "Now, we focus on trying to open more doors for our staff, be it a flexible schedule, bonuses for production, and benefits. We don't automatically increase our prices each year because we know where we need to be positioned in our market, so we've had to find other ways like these to make everyone happy."

Profitability-based Salary Shear Success, Bloomington, Minn.

Up until almost three years ago, owner Jenifer Prince paid her salon professionals a commission much like other salons in her areas, but increasingly had the sense she was working very hard for nothing. "It wasn't the way I envisioned," she says. "I didn't like the salon atmosphere, and I didn't like the attitudes of some of the people I was attracting."

So she decided to go back to a system she had tried 10 years before but had dropped due to employee resistance. "I've implemented a profitability-based salary system," she explains. "We look at our growth, take out all our expenses, and we divide the dollar amount that's left over by the number of hours everyone worked in that period. So if we had personnel for 210 hours in that period, we divide the dollar amount by 210. Then we know our profit per hour. Whatever percentage of those 210 hours someone worked is the percentage they get."

Additionally, employees can earn a monthly bonus based on the dollar amount by which the salon exceeds the goals it set for the month. "Say our goal is $ 1,000," Prince says. "Of anything we earn above that, one-third goes to me, one-third goes to the salon, and one- third is divided among the employees."

Additionally, employees are eligible for an individual bonus each quarter based on the difference between the service dollars generated per hour last year vs. this year. "If they were producing $20 an hour last year and are producing $30 an hour this year, then they're eligible for a bonus based on the difference. The amount of the bonus is based on a team review," she explains. "The team writes the questions and then scores each other on them."

If, an employee, say, worked 400 hours in the quarter and generated $10 more per hour than projected, then her total available bonus would be $4,000. If, after team review, she is scored at 75%, then she would receive 75% ($3,000) as a bonus.

"The team bonus recognizes that some people are never going to be great revenue producers, but they are support people so you have to reward them also," Prince notes. "Then you have the superstars, who need to be rewarded as well."

"The old system said 'I'll pay you 5o%-60% and then see if I can make a living,” Prince says. "I see all the time nail technicians who waste product, leave their stations a mess, etc. In our salon, it's tight because everyone is watching and helping everyone. My supply costs have gone down incredibly because they start thinking like an owner."

The only thing that hasn't come down is salaries. "They're making more because the salon is making more," she says. "I will be proud when I have no one who makes less than $30,000 a year. My starting salary, with benefits, now is just under $20,000 a year." Those benefits include medical and dental insurance (Shear Success pays 60% of the premiums), disability insurance, life insurance, an education fund, and a 401 (k) plan.

The new system has worked so well and Prince received so many calls about it, she's written a booklet that she now sells for $50. (For more information, contact her at [email protected].)

 

Team-Based Salary — What Everyone Should Be Doing?

"People think there are only two deals out there—commission or independent contractor," Ducoff asserts. "I've seen sliding scales with break points, higher commissions on anything over a base amount, straight commission, commission with a base guarantee ... the point is that it's always based on a percentage. Commission has been sliced and diced and copied and tweaked as much as one can imagine.

"But what if everyone's pay was tied to the performance of the salon? Think back to the day you opened your salon, when you felt an urgency to get all your people busy. I call that 'thinking wide.' In a commission environment, where is the employee's head? Thinking wide or thinking narrow?"

In Ducoff's scenario, which he teaches in-depth in his popular seminars, everyone in the salon would be focused on filling every chair. "What if everyone's pay was tied to the performance of the salon? What if everyone thinks wide?" he questions. "This is not just about pay — it's about individual and salon growth, customer satisfaction, and overall performance."

With team-based salary, Ducoff advocates making payroll a fixed percentage of the salon's current gross sales, and then creating an environment whereby employees are rewarded for increasing the salon's sales, not just their own. "On this program, payroll is a percentage of sales, so a 5% increase per average ticket could add 15%-20% to sales," he continues. "There's a new focus on what has to happen, and you point your team toward using cash flow projections and scoreboards [that show where you currently are and where you want to be]. It creates a whole different level of energy. Then you create team bonuses to allocate a share of the profit as a reward for the staff hitting specific goals.

"The magic of this whole conversion is making a commitment to your people," he continues. "We're saying we're going to guarantee your pay, but we expect certain performance levels in return. You're removing all the toxic waste in the environment that commission creates because now employees have a reason to get clients into other chairs."

The success measurements Ducoff uses are quite simple: increased visit frequencies, higher ticket averages, and improved client retention rates all demonstrate that the system is working. "If we can do those then we can get sales in a salon with $100,000 annual sales to $120, 000," he says.  

For information on Ducoff's upcoming seminars on team-based compensation, visit Salon Business Strategies' website at www.strategiespub.com/ stratweb/home.html. There you can also access free tools to help analyze your business including a cash flow projection template, a scoreboard, and a PowerPoint forecast to predict future sales figures.

 

 

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