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.
Here are some basics that every business owner must understand and some practical steps to making your salon more profitable.
• Minimum wage. Every state has a minimum wage law. That means for every hour an employee works in your salon you must guarantee her at least minimum wage for that time period. But many in the industry believe that because we pay our employees a commission, we do not have to comply with the minimum wage law. This is not true. As owners, we must make up the difference between what an employee makes in commission and the minimum wage applicable to the hours that employee works. If an employee makes more in commission than the minimum wage for the hours she works, you do not have to give her any more income. You have complied with the law.
• Structuring commission. Whether it’s minimum wage or higher, each employee must receive a compensation guarantee. Then, before she becomes eligible to receive any commission at all, she must double that guaranteed amount in service sales. Then you should create an incentive system to reward that employee so the better she does, the greater the rewards she receives throughout her career at your salon.
To institute the program, first you must set a starting guarantee for each employee. In other words, a masseuse or esthetician could receive a guarantee of, say, $18 an hour and a nail tech might get an $8 an hour guarantee. You would double that dollar amount to determine how much a technician must produce before she begins to receive any commission.
Here is an example. Mary worked 40 hours during your weekly payroll period. She received an $8 per hour guarantee. So $8 an hour x 40 hours = $320 for that pay period. In order for Mary to receive any commission she must double that guarantee and generate at least $641 before she is eligible for a commission of, say, 40%. This means Mary would make 40% commission on any dollars she generated over $641 up to, say, $950.
You always want your staff, meaning Mary in this instance, to make more money, so you should create another scale from $951 to $1,250. If Mary generated those kinds of service dollars you should give her a 3% bonus up to $1,250.
These examples of levels are only to show you how to build a foundation to reward your staff differently. Whatever compensation and commission numbers you agree to must be clearly spelled out in writing. Be advised that new techs will cost you more in the beginning than any other time in their career. You cannot afford to start them off in their careers at a top rate of pay.
• Written agreements. In today’s business world you must have a legal document such as a Pay Incentive Compensation Agreement or an Employee Agreement in place to guide and direct your employees to a successful career within your salon. [Editor’s note: These agreements can be purchased at www.kassidys.com.] This way they will always know what they have to do to get their next pay increase. These legal documents should also, among other things, place a dollar amount of different levels of educational training your company may provide. If a staff member leaves your company before a specified amount of time, she will have to repay you for the training you have provided her.
These legal documents should also create a new structure in terms of how you compensate each staff member for any retail service sales they produce within a designated period of time, usually at least monthly. One of the most important issues within these agreements is the ability to protect yourself from an employee who is leaving the salon and taking the salon’s valuable client information with her — information you have spent a lot of time and dollars to create.
• Financial statements. The last part of establishing a successful foundation for success is getting a financial statement at least twice a year, if not more often. Among other things, these financial statements will contain a profit and loss statement. You must learn how to read them so if you do not like the bottom line of your salon’s income or expenses you can make a change. You can create new or different categories to track your company’s income and expenses in detail so you can see exactly what is going on and figure out where to make the changes to create a better and healthier investment for you future. You will also have the information on hand to communicate better with your tax preparer to get the maximum benefit of their services.
Ken Cassidy is president of Kassidy’s Management Consulting Company in Long Beach, Calif. He is also a salon owner and hairdresser with a full clientele. You can reach him at (562) 432-4462, e-mail email@example.com, or visit www.kassidys.com.