You’re proud of your salon or spa business. You’ve earned each and every one of your loyal customers, and your brand is synonymous with quality. While your skills, work ethic, customer service and passion have built your brand, it’s your team that grows and strengthens it. Salon and spa owners have access to a huge wealth of established and emerging talent, and that talent pool keeps growing. In 2010, there were 52,400 hairdressers plying their trade across the country. By 2024, that figure is projected to rise to 79,600.
Still, if you want to recruit and retain the best of the best, you need to offer compensation methods that are suitable for them. While salon owners need to carefully consider their operating cash flow, they also need to establish compensation terms that are fair, flexible and attractive.
Here, we look at how to choose the right compensation method for your salon or spa.
Different pay structures for salons
There are several different ways in which salon and spa owners employ their technicians. Each method brings its own set of advantages and disadvantages, both for the business and the individual. Use one or a combination of these methods when building your workforce.
Rent out a chair, booth or space to technicians in exchange for a weekly or monthly rent payment. The technician will usually supply all of their own equipment and will take payment directly from their clients in cash or via their own POS system.
This is advantageous as it provides a consistent source of revenue for the business regardless of how much the technician earns. This may be a good salon compensation method if you want to keep your cash flow as stable as possible.
However, it’s worth remembering that a client’s bad experience with an individual may reflect poorly on your brand, despite the technician not working directly for you.
An alternative to the above is to negotiate terms with independent self-employed contractors. Rather than renting out space to them, a contract can be drawn up establishing terms of compensation. These contractors may be paid in a number of ways:
- At a negotiated rate per hour or per job
- At set intervals (weekly or monthly)
- At the end of a contract period
- On a commission basis, earning a portion of the profits from all work they undertake
- A combination of the above
Contractors have much the same benefits and caveats as chair/booth renters. They are independent and so they represent very little commitment or overheads; while they do not pay a fixed amount to you every month, their terms will dictate how much revenue they generate and how much of that they keep. They offer your business a degree of flexibility and can be brought on during busy periods to make staff rostering more effective.
However, since they are not employees, they are also not beholden to your brand or your standards. A bad experience with them may reflect negatively on your brand. Also, if a client has excellent experiences with them and the contractor moves to another salon, they may take their enamoured clients with them.
When you employ your own technicians, you have complete control over your relationship with them. Your employees are ambassadors for your brand, and you are free to train them to do things your way, whereas contractors and booth renters may want to do things in their own idiosyncratic way.
However, employees come with extra legal obligations. Employers are expected to provide annual leave allowances, manage tax and superannuation, and determine whether your business belongs to either the state or national industrial relations system. Your obligations vary depending on this.
You have total autonomy over how you pay employees rather than negotiating terms with them. They may be paid on a salaried basis or at an hourly rate. Employed technicians may also earn a bonus or commission on top of their pay. This can be a great way to incentivise outstanding performance and upselling, building value in your brand while generating more revenue for your business.
The right approach to commissions is important and needs careful consideration.
How do salons pay commission?
Let’s take a look at some of the different ways in which salons and spas pay a commission to their employees or contractors.
Commission structures can motivate your team to deliver an outstanding client experience while also potentially encouraging upselling. This is where your technician or stylist will suggest products sold by you for the client to take home and use in order to get the most out of their experience. Alternatively, team members can be recruited on a commission-only basis, encouraging them to maximise productivity.
Bonuses may also be paid on top of commissions. For instance, if an employee’s work generates a 4-star review for the company on Google, Trustpilot or Tripadvisor, they may earn a small bonus on top of their wage and any commission they earn.
Commissions can be structured in one of two ways.
Flat rate commission structure
A flat rate commission structure means that the technician earns the same commission as a percentage of each product or service sold, regardless of its value. However, the dollar value of their commission may increase if the technician is able to sell more or higher-priced products or services.
For instance, a technician earning 20% commission will earn $20 for a treatment that costs $100, and $30 for a treatment that costs $150.
The higher a technician’s base pay (their hourly rate or salary), the higher the commission that will be paid.
Tiered commission structure
Under a tiered commission structure, team members are awarded commission at a higher percentage by generating more revenue for the company. For instance, if a technician is able to sell $500 in products or services in a month, they may earn 20% commission in addition to their base pay, leaving them with $100 extra for that month. However, if they are able to sell $1,000-worth of products or services, that commission rate may be increased to 25%, meaning that they earn $250 extra for the month.
What is the right compensation method for your business?
Now you know the different salon pay structures and commission types available, it’s time to start thinking about what is the right compensation method for your business.
This depends on your company’s needs, priorities and goals. For instance, you may be looking for a way to keep your team more motivated, improve cash flow or drive growth by improving revenue.
Let’s take a look at the comparative merits of each.
Because this method provides businesses with consistent monthly revenue, it is a good option if you want to stabilise your cash flow. However, you may earn less in terms of revenue than you would from high-performing employees.
Contract payments for freelancers
Paying freelancers on a contractual basis can provide more flexibility while enabling you to modulate your staffing during quiet and busy periods, thereby reducing the money spent on personnel.
Base pay plus commission
Employees come with a degree of obligation. Nonetheless, a well-trained and highly motivated team can be the fuel that propels your business’s growth and strengthens your brand’s reputation.
Providing them with a base pay can be useful for managing cash flow, while adding a commission or bonus to this rate can incentivise technicians to sell more and deliver a higher standard of service.
Compensating your staff on a commission-only basis can make them highly motivated to sell, and deliver a high quality of service to keep clients coming back. However, a commission-only basis can sometimes lead technicians to be too ‘hungry’, causing them to put pressure on clients to buy more (or more expensive) products and services than they feel comfortable with.
Let us make it easier to compensate your team!
Each compensation method has its benefits and caveats that can be aligned with your salon or spa’s greater operational goals. It’s simply a matter of choosing the right one for your needs.
Whichever method or methods you choose, we make it easier to compensate your team. As well as offering robust POS integrations with your accounting software for ease of cash flow monitoring.