Well, last week we ranted about over the top commissions and promised you an alternative solution. First of all, let’s take a look at what went wrong with the commission structure in the beauty industry. Back in the last century (love saying that!) most salons had a set price for services across the board; everyone charged the same price no matter what experience or education they brought to the business. 50% commission was the basic deal in North America; some got a little higher and some got a little lower, but pretty consistent.
Commission structure for a service oriented business meant that you didn’t have to pay a service provider unless there was a paying customer in the chair, aside from minimum wage for the amount of time spent in the salon. That also meant the owner/manager could send the service provider home if there were no clients booked and then they saved the wages. And usually, it was the stylist who brought the clients into the salon. This worked out well for most businesses until inflation and rising costs took a mighty leap forward. All of a sudden, pricing of services stopped keeping pace with rising costs! Since the early ‘00’s, we have seen costs double and triple! But service pricing hasn’t kept the same pace.
Once upon a time a 50% split left the owner with enough money to pay bills and perhaps make a bit of profit.
Today, that same owner has to find $3 in revenue for every $1 in expense. Over the last ten to fifteen years we have seen salon owners trying to claw back the commissions paid rather than increase the price of services to compensate for rising costs.
Everywhere we go (and we mean EVERYWHERE) we hear the same statement, “Oh, we couldn’t charge that in our neighbourhood!” And yet, we see rising prices from every other industry around us. Have you checked out the cost of a plumber coming to your house lately? Or what about a dentist? Chiropracter? I hired a duo of housecleaners the other day. Their price is $65 per hour.
Two other things play a big part in our industry today: Tiered Systems and Marketing.
The tiered system has created a career path for service providers and that’s a positive! It means that juniors starting out can see there is a future ahead with growth and potential in their future. It also means that experience gets rewarded!
Marketing is the other big change in driving our business. If you aren’t drawing clients into your space you are being left behind. Again, in the olden days, it was often as easy as opening your doors! Marketing means more costs to the business owner!
We have created this huge disconnect between service providers and business owners.
So the service provider takes it into their own hands and looks for a place to chair/booth rent. Business owners now face empty stations. Not being able to find commissioned employees, they start renting out chairs in their salon to help them make up the lost revenues! Now we’ve got a mix of commissioned employees, chair renters, etc. The other option is offering unrealistic commissions in order to get service providers in the salon!
So you can see from this quick overview that we have gotten ourselves into quite a pickle! The solution? An hourly wage plus bonus system. Before you get all bent out of shape, let’s take a look at what it can do for both owners and employees. From the owner’s point of view, it means consistent costs and therefore more realistic pricing. Pricing is based on costs rather than what T, D, and Harry are doing down the street. A tiered system is still an important component of the salon world. It means we can create a career path for our service providers and guide, tutor, and encourage their growth. And it also means that changing levels charge out at different prices and earn different wages.
It is important to offer an incentive program to our providers.
The bonus system is a key point. It keeps them motivated and then rewarded for their work. Everyone benefits. For the service provider, hourly wage plus bonus insures a consistent paycheque and a more secure future. They get paid for coming to work!It means the onus is on the owner of the business to bring clients into the salon, putting the cost of doing business in the right hands.
Bottom line? What’s happening right now isn’t working! For anyone! This is a pretty loose overview of the situation, but damn it, if we don’t look for change and solutions, nothing will change. A majority of Australian salons/spas work on an hourly basis and it seems to work very well.
We would love to hear from you on this subject; ideas and input are VERY welcome! Let’s work together to find new ways to direct our businesses.