The most popular post on this blog is "How to Pay your Technicians" and if you read through the comments (there are over 90 comments on that post) you will see owner after owner struggling with the compensation structure they put in place.
It seems to me that most people who open salons are by nature a very generous, caring group. They want to pay people fairly and make a decent profit. But time after time they give the farm away and put themselves, their salon and their technicians in a precarious financial situation. So this post gives some do's and don'ts for owners followed by some for Technicians.
1) DO understand what your overhead costs are. Rent, utilities, phone, internet, insurance, water, receptionist, cleaning, advertising, office supplies, repairs, taxes, licenses. Realize that the revenue that is left after paying your technicians has to cover all these things and your profit. Be realistic.
2) DON'T pay full commission on services with high product costs. Salon supplies (back bar, color, etc.) will usually run about 6% of sales. With some services, however, (like Brazilian Blowouts) the product cost is very high. You should be backing off the product cost before calculating the commission so you are paying the technician commission on the portion of the sale that represents their time and talent. Example...a $200 blowout service has product cost of $20. If you pay 50% commission on whole sale, stylist gets $100, but you only net $80 because you paid the $20 product cost. Instead, commission on $180 ($200 less $20 product cost) and you each get $90.
3) DO consider having a product charge across the board if your commission rate is 50% or more.
4) DO take into account product cost when setting commissions initially and you won't have to worry about a product charge. If you are paying commission of 42% or 45% instead of 50%+ you can absorb the cost of product without annoying your technicians with a charge. I recommend a product charge when you have already committed to an unrealistic commission - it can be more palatable to technicians than a commission reduction and achieve basically the same thing.
5) DON'T be held hostage by any particular stylist. Sometimes the best thing you can do is let them go and tough it out. Usually a lot of toxic energy leaves with them and you can rebuild the team you want.
6) DO try to keep your cost of services (technician pay, taxes on their pay, salon supplies, retail cost and credit card fees) at 55% or less. Think of it like this:
Cost of Services 55%
Gross Profit 45%
This should be an absolute worst case. You really want your cost of services closer to 50% and your overhead closer to 30%, then you can profit 20% which is fair and reasonable given the risk involved in running a business. DON'T build a comp plan that can't accomplish at least this.
1) DON'T be fooled by promises of ridiculously high commissions. You want to work in a secure, stable environment where stained ceiling tiles can be replaced and equipment gets repaired...where you have a capable receptionist and opportunities for training. Salons offering above-market commission cannot offer you these things. They may mean well - they may be very nice (albeit naive) people who truly want to do the right thing. But it's not sustainable and it will not end well.
2) DO understand that it's ok for a salon owner to make a profit. Salon owners invest their own money and take on a great deal of risk to build their business. Business ownership is rewarding in many ways, but financial reward should be a part of it.
Readers, feel free to add your own DO's and DON'TS in the comments.