Intro: Do you feel like you were meant to have a kick career as a hairstylist? Like you got into this industry to make big things happen? Maybe you’re struggling to build a solid base and want some stability. Maybe you know social media is important, but it feels like a waste of time because you aren’t seeing any results. Maybe you’ve already had some amazing success but are craving more. Maybe you’re ready to truly enjoy the freedom and flexibility this industry has to offer. Cutting and coloring skills will only get you so far, but to build a lifelong career as a wealthy stylist, it takes business skills and a serious marketing strategy. When you’re ready to quit just working in your business and start working on it, join us here where we share real success stories from real stylists. I’m Britt Seva, social media and marketing strategist just for hairstylists, and this is the Thriving Stylist podcast.
Britt Seva: What is up? And welcome back to the Thriving Stylist Podcast. I’m your host, Britt Seva, and today we’re talking about can you rent a studio suite or a booth? And this episode is not just for commission stylists or employee stylists, it’s for booth renters. By the way, some of you are in a studio suite and you cannot afford it, and some of you are in an employee-based situation and you’re asking yourself, “Can I go into a studio suite? Can I go rent a booth? I’m feeling ready. Am I really?” I love this question. I love that, hopefully, all of you are asking this question before you make the leap and go out on your own. There are so many misconceptions in this industry, and one of the big ones that kind of irks me is this idea that salon owners are keeping all the money.
I know it’s hard to believe, and if you go ask your salon owner, you’re like, I don’t even believe them when they say they’re not keeping all the money. Okay, well, for me, I’ve literally been in the books of a couple hundred salons at this point. Y’all, the salon owners are not keeping all the money. The overhead in running a hair salon is incredibly high, and if you want your salon to stay open, if you want your salon to stay cutting edge, if you want it to have all of the amenities, you want it to stay updated and upgraded, the owner has to be turning a profit, otherwise, why would they do it? And so what I want everyone to understand is renting a booth, renting a studio suite is a little bit more expensive than we would think it would be. We’re going to undercover that today. That being said, some of you would make more money working independently, and I’m a realist on that.
So for the employee based salon owners who get frustrated with me for doing this episode, don’t bother because me doing this episode is not going to make your team members decide to go or stay. If somebody listens to this episode and they’re like, “All right, I’m going to pull the trigger,” It’s because they were already thinking about it and now the math maths for them. For some, you’re welcome because they’re going to do the math and realize they can’t pull it off. And so I believe this episode is coming from a place of education and information and empowerment, and if you are a studio suite owner, a booth renter, and you’re like, “Man, the cost of doing everything is just eating me alive,” I hope this is very eyeopening to you. If you are considering making the jump and the leap, I hope this is really informative for you as well.
So let me explain exactly what I’m doing and how I got here. One of the things that I felt like was pretty innovative when I was a leader is a dozen times, maybe more, one of my employees stylists would come up to me when I was the director of the salon and say like, “Hey, Britt, I want to be honest with you. I’m thinking about leaving and going and renting a chair at X, Y, Z salon.” That was just the kind of relationship that I had with these people, and they knew that I wasn’t going to fire them on the spot, and it was more of just an open conversation about where they were at. And I would always say, “Congratulations. I’m so excited for you. It’s very exciting that you feel you’re at a place in your career where that’s the appropriate next step. Amazing.” And I would say, “Can you give me two days? What I would like to do is crunch the numbers for you so that you know exactly how much you’ll be taking home when you make this move.”
And the answer was always yes. And if I had to guess, the reason they were coming and telling me ahead of time is because they wanted me to do this exercise because they had heard I had done it for others. And what was interesting is probably it was 50 50. Half the time I’d go back to a stylist and I’d be like, “Honestly, you’re going to make more money going to booth rent. You should probably do it.” And we would talk about the additional work involved and the insurances and the taxes and all this stuff. They would go into it eyes wide open, but for some it made a lot of sense, and for some I was like, “You’re not going to be able to afford to eat if you do this,” And it was eyeopening in that sense as well. So one of the things we have in Thriver Society, we have about a gajillion calculators in the programs, and if you join any of the memberships, you get access to the calculators. We have a couple.
One is like a take home pay predictor where you enter in all of your expenses and it tells you, okay, if that’s what you’re paying for everything, this is how much you’ll likely keep. And then we have one that works the opposite, which is like, this is how much you’re making, this is how much you can afford to spend on all the stuff. This is the calculator that makes people angry because it’s frustrating because they’re like, “Wow, I feel like I’m doing $7,000 in services, but I’m paying $400 a month above and beyond what the calculator says I can pay for rent.” I know that’s a hard pill to swallow, but it’s also the reality. So I just went in this morning and updated the Thriving Stylist Method, actually the Thriver Society, it’s in all of the methods, the booth rental rate calculator that shows you how much you can afford to pay in all of the different categories. I had to adjust it because the cost of doing business has increased so greatly.
We’ve seen rental increases over the last couple of years, cost of goods has obviously gone up, so I had to shift the allocations a little bit. I’m going to be sharing a lot of those allocations here with you on this podcast episode so that even if you don’t have access to that tool and resource, you still have some of the guidance and guidelines that I think will help you. So today I want to talk about three different types of costs. I’m going to rattle some stuff off. I’m going to call them what I like to call them, another coach is going to call them something else. That’s fine. I’m going to talk about fixed costs, fluctuating costs and growth costs. So fixed costs, if you’re a booth renter, would be things like your rent. That is just going to be X amount usually for a one year lease or a six month lease or whatever, but that’s fixed. And then there’s what I’m calling tech and tools, meaning your booking software, if you have to pay for your own wifi, your cell phone.
There’s these things that are just a part of doing business, I’m calling it like the tech and tools fixed cost. Some of you use Jotform. That’s a monthly subscription fixed cost for tech and tool. Usually these things are almost like recurring, but they’re set, they’re stable, they are what they are. Then there’s the fluctuating cost. So here we have color and back bar. Some of you don’t do color, so it’s going to be chemical services or extension supplies. Some of you are only doing cuts, so your back bar is probably going to be it. You’re not going to incur a color cost or a chemical cost, which is great. I know a lot of very high producing barbers and hair cutting specialists because their overhead is much lower. But that’s one of the fluctuating costs. And then we have credit card processing. Now that’s a bittersweet one because it’s like the more you make, the more you pay, kind of like taxes, but that’s a fluctuating cost as well.
Then we have growth costs, which are amenities, marketing and education. Generally speaking, the irony is when somebody’s running tight on cash, they start to cut the growth costs. Like, okay, well less amenities, less marketing, less education. That’s fine, but you’re almost handicapping yourself because now you’re going to grow slower. So you’re cutting costs, you don’t have enough money, and then the way you overcome that is by handicapping yourself. So just be really careful on that. A lot of people are like, “I don’t want to pay less rent. I like this elevated space and place I’m in, so I’m just going to cut back on my education, my guest experience.” Be really careful of that. Those are kind of the three big buckets, and there’s nuances too. We have things like insurance and cost of tools like shears and clippers and brushes and gloves and whatever. I understand this is a real generalized calculator. I’m going to run you through right now.
If you’re in Thrivers, you can log in and use the real calculator, there’s lots more categories, but we want to keep it high level so that you can run this math as you’re walking the dog or driving the car or whatever it is you’re doing when you’re listening to this episode. So how do you know if you can afford to go booth rent or go in a studio suite right now? So let me give you the math. Generally speaking, product cost is going to be roughly 18% of service cost if you do chemical based services. This does not include extensions. That cost of hair and all of that is something totally different. And then if you are somebody who just specializes in cutting, no chemical or styling, no chemical, that’s going to drop as well. Product cost is something that did go up on the budget calculator because the cost of products has gone up as well. Rent. The rent should be 25% or less of the total service revenue that you bring in.
That used to be fairly easy. It’s been getting more challenging as the years have gone on. We’re going to talk about that in a moment. Credit card processing generally runs anywhere from two and a half to 3.25%. Then we have phone, software, wifi. So again, that goes back to your booking system, Jotforms. If you have a paid Instagram handle, some people pay the monthly subscription fee for that. I put that at 5%. Amenities for clients I put at 1%. Some of these allocations, I’m going to be honest, are pretty skinny. Some of them are pretty tight margins, but just at the ratios I gave you, that is a 51.5% expense calculation. Meaning for every a hundred dollars you make, $51 and 50 cents go to paying overhead. So that means when you booth rent or studio suite rent, if you’re able to stick to this budget, which is not easy, by the way, you’ll make less than 50%.
Now, the other thing I didn’t even take into account is things like education, insurances, tools, some of the things that I kind of rattled off at the beginning when we were talking about the growth expenses, that’s not even a part of this budget. So as soon as you go take a class, which you should be doing, and as soon as you insure yourself, which, hello, you should be doing, when you buy a new pair of shears… And here’s the thing too, it always makes me laugh. And by the way, if you’re one of my friends and you’re listening to this, I love you and I’m saying this, I’m not judging you. When you’ve said this to me, I’m not coming from a place of judgment, I’m coming from a place of, I hear this all the time. I’ll talk about how I’m going on a business trip to go speak somewhere and the person I’m talking to will be like, “Amazing. Write off !” That my flight and my hotel are a write off. And I’m always like, “Y’all know that I have to still pay for that, right?”
Yes, it reduces my tax commitment for the year, I still have to shell out that money. I’d much rather have the money in my pocket than pay for a flight. Write-offs are a really funny thing, and in our industry I think especially. And just to people who don’t run small business and aren’t super savvy, they think of write-offs as free cash. Write-offs are not free cash. All they do is reduce your tax obligation. But running a business with no profit in order to avoid taxes is not smart, it’s not healthy, it’s not a long-term strategy, so I understand that buying things against your business and getting the right offs, there’s perks and benefits to that, I totally get it, a business lunch and all that kind of stuff. For me, I’d rather have money to invest into my business, but there’s that too. So education, insurance, tools, we haven’t even budgeted for that. So if all we’re budgeting for is cost of product, rent, credit card processing, phone software, wifi, basically like the tech bundle, and then amenities for clients were already at 51.15% of the gross revenue produced going to running your business.
Now, your take home pay after taxes would be somewhere around 40 to 35% of gross. So your net income, meaning what you get to keep after you have paid for everything it takes to run the business, which we ran at around 51.5% running lean, lean, lean, lean, plus your taxes, which, on average, I’m going to give you a tool for this in a minute, but on average are anywhere between 11 and 14% of what you’re keeping net. So when you take 51.5 minus 11 to 14, you get 40 to 35% is what’s actually hitting your bank account. I’m going to guess most of you who are employees who have built up at least a significant clientele base are making a commission percentage right around there. It’s often a wash. Where it becomes not a wash is when you’re a stylist who’s doing deep into the six figures. Well, then you’re going to blow these percentages out of the water because if you’re doing $200,000 in services gross, you’re not going to need 50 grand a year to pay for rent.
So even though you have a 25% allocation, you’re not going to likely spend $4,800 a month on rent. Now, some people are, and we’re going to get into that in a second, but more than likely not. And so because you won’t need that full 25%, yeah, you’re going to start chipping away at that margin and making more money. The other thing is, too, when I mentioned if you just do cutting and you’re a cutting specialist who charges 200 bucks for a haircut, your margin on that is massive. So again, you’re going to blow these percentages out of the water. But the average stylist who does chemical services, this is kind of what it looks like, okay? Let’s talk about taxes for just a second, and I want to give you some real numbers. So the self-employment tax rate is 15.3%, 12.4% for social security tax and 2.9 for Medicare. The self-employment tax applies to your adjusted grossed income, meaning how much you are essentially keeping after your business expenses are paid for, so that 51.5% we talked about.
People ask often, do I need to pay quarterly taxes? Here’s the current rule as I read it. If any of the following applied to you during this year, you have to pay quarterly taxes. If you owe a thousand dollars or more on taxes, which is most people in the industry, or you’ve made $400 or more in self-employed income. So again, generally speaking it’s going to be a yes, we have to pay quarterly taxes. I found a really cool calculator, and I’m going to give it to you. If you go to www.everlance, it’s E-V-E-R-L-A-N-C-E. We’ll link to this in the show notes as well, .com/tax-calculator. There’s a cool tool there that kind of gives you a rough estimate of how much you need to be saving for your taxes if you’re independent. It takes into account your gross, how much you’re spending, what your net’s going to be, and then it tells you about how much you’re probably going to have to owe for taxes at the end of the year. I think that can be super helpful.
So when we look at these numbers, if you are currently an employee or if you’re a booth renter in a studio suite, I encourage you, look at your average month and say, okay, I’m making $4,000 a month in services. Okay, well then you can afford a thousand dollars per month in rent, so $250 a week, 18% would be your service allocations. Let me do the math on that. Okay, so math on that gives you $720 a month to spend on product. Can you run your business at that rate? If not, something’s going to have to give. So I messaged a friend of mine, I won’t say who they are because I don’t want to put their studio suite on blast, but I asked, I said, “Hey, would you mind telling me what the rate is for studio suites at your location right now?” Sent me the rate list and I’m going to speak in generalizations just so that there’s no funny business. I’m not going to go to the dollar. I’m going to go within 5% of the dollar.
So this is the studio suite range. If you have a standard single studio, no window, weekly it’s $400 every single week. If you have an exterior window, the pricing is $425 a week. That’s for a standard single studio. It’s a smaller studio. So 400 ish dollars every single week. For a large studio suite. If you have an interior space, it’s $600 a week. If you have an exterior space with a window, it is $650 a week. If you have a double studio, it is $870 a week. This is not cheap. So to afford that, let’s run the numbers on… Let’s find the middle. So $600 a week in rent. Where does that bring us? So it’s $600 a week in rent. You’re paying $31,000 a year in rent. You would need to be doing $124,000 in services every single year and keep your overhead product cost at 18% or less. And if you were to do that, you would take home around $60,000 a year pre-tax. So let’s see what the tax on that would be.
So staying on the modest side, let’s say that you’re profiting $60,000 with all of your expenses. You take, let’s say, an 11% tax payment on that. You’re going to be living on a little over $50,000 a year. So you’re doing $124,000 a year in services, you’re living on a little over 50. Now, there’s a lot of perks and benefits to being a booth renter. There’s a lot of perks and benefits to being a studio suite owner. And if you scale this up, like I said, if you are a stylist who’s doing 150,000, 200,000, $300,000 in services, you’re going to blow these numbers out of the water. But if you are kind of at that crossroads where you’re like, “I’m making $60,000 a year, I feel like I’d be making more money on my own,” This is kind of a call out to you. Really know the math, really understand your numbers and ask yourself, am I in a place and space where I can afford this?
My nightmare scenario, and I get DMs about this all the time, is somebody goes independent, they’re so excited, they get in over their head financially and in order to continue to pay their bills, they start cutting corners and they eliminate this, and they eliminate that, and who pays the price when you do that? The guest. And as soon as the guest starts paying the price and you don’t decorate your studio suite and you’re not doing amenities, you’re going to grow slow. And these studio suite buildings in these booth rental salons, we’re often seeing an annual increase in rent because it has to. Just because your cost is going up, their cost is going up too. And so I just want to make sure that everybody is truly prepared to do this. Whenever I talk to anybody who goes independent, they generally say the initial cost to stock the color, to decorate the space appropriately, it’s anywhere around 15 to 20% more than they expected. So if you think you’re going to spend a thousand dollars to decorate your suite, it’s probably going to be more like $1,200.
Everything’s just going to be a little bit more than you expect. So know thy numbers. I hope that this is helpful and just leaves you a little bit more informed as you head into potentially a season of change and growth. So much love, happy business building, and I’ll see you on the next one.
