Intro:
Do you feel like you were meant to have a kick-ass 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 weren’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 life long 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 hair stylists, and this is the Thriving Stylist Podcast.
Britt:
What is up and welcome back to the Thriving Stylist Podcast.
I’m your host Britt Seva, and this week, we’re talking about salon profit margins and stylist compensation.
This is a fun hybrid because yes, I do think owners will get takeaways, but I think stylists will get takeaways as well.
I think compensation is always a hot topic, but right now especially, I think everybody wants to make sure they’re getting theirs, and I think that’s totally fair.
There’s a lot of economic pressure as it relates to inflation, and there’s a lot of shifts in what it’s looking like to build a clientele right now.
And I think concern over keeping as much of the pie as you possibly can is so fair, and it goes both ways, right?
So something that I think a lot of, maybe Stylist, but maybe everybody doesn’t understand, is there’s a lot of salons in crisis right now.
And I’m hearing about this kind of at scale, that a lot of salon owners are holding on to models that were fragile at best, when times were good, and now where business is getting harder, they’re really feeling the pressure.
And so I want to talk about how to properly compensate, how to keep Stylist motivated, how to make sure that Stylist get the most that they possibly can, how to make sure that your salon is never running in the red, like all of those things.
So one of the things, not one of the things, the thing I’m going to talk about a lot in this episode is called profit of profit method.
It’s a compensation model we teach in Thriving Leadership.
And it’s unique in the sense that with this model, the Stylist gets the split of anywhere from 65% to 80%.
So the Stylist is always making the most.
Very transparently, the Stylist is making the most by far.
And then the salon keeps anywhere from 20% to 35% profit.
And why I love this is it respects the fact that the Stylist should be making the most.
And in these instances, they make the most by a long shot.
It’s impossible to argue that they don’t.
That’s just the way it works out on paper.
The nice thing is too, the salon’s profit margin is always protected.
So it would be, if you use the model, and I’m not going to lie, the model makes you make some tough decisions as an owner for sure.
But if you use the model, it would be fairly challenging to run in the red because your profit margin is protected and your team is still making the vast majority of the profit that is generated from the business.
So often when an owner goes in and uses one of these calculators for the first time, they have like an oh shoot moment because they realize that their current compensation model is overpaying underperformers and underpaying high performers.
This is very common in our industry and any other business like a traditional business, that would never be the system that one operates from.
But in our industry, salon owners feel like the way to keep the team happy is to bribe them with a high split.
And so what we do is we try and have a, I hate this word, but a fair split.
And that’s, I call it fair the F word.
Like fair is so subjective.
Nothing in life is truly fair.
And when things are fair, let’s say something is fair.
Like, well, they won the game, that was fair.
No, they didn’t win the game in a fair way.
Someone’s gonna blame the ref.
Somebody’s gonna have their feelings hurt.
Like even when things end fair, somebody is sad.
And so I think when we try to make compensation models fair, and then somebody is sad, it’s like, well, what did you expect?
Fairness is fake.
Like there is no such thing.
You each get half the cookie, half is fair, but then the big sister’s like, well, that’s ridiculous.
I’m the older sibling.
This kid weighs 25 pounds and is a toddler.
Why should we split at 50-50?
It doesn’t make sense.
There’s always somebody who will feel like they were taking advantage of when you try and make things fair.
And that’s the problem with fair compensation models.
Instead, compensation should be appropriate.
And high performers should make a significantly higher share and low performers will have to make less money, which is how it works in every other business model.
But in ours, we really struggle with that.
I think because we the owner feel like if I don’t pay a high enough split, nobody will want to work for me.
I disagree for a lot of different reasons.
One, when you look at any study on employee behavior, the reason for choosing to work somewhere and the reason for leaving is not money.
You can look at the studies for that.
Like, there’s a lot of other reasons that would motivate a stylist to decide to leave your business.
Money is probably reason number three, four or five.
Because if everything else was going phenomenally and they felt like they were really well cared for, and would they like to make a 3% higher split?
Of course, but things are so damn good that it’s not really worth rocking the boat for, they’re going to stay.
The reason why stylists leave, and they’ll always tell you it’s to make more money.
But then also when you talk to studio suite owners and booth renters, most will tell you there’s at least a temporary financial dip when you first go out there.
So yes, over time, you can make more money.
And by the way, there’s some people who do make significantly more money working booth rent than they do commission.
But what if it didn’t have to be that way?
Because I don’t believe it does.
Like even just thinking with that logic, if a studio suite owner can run their suite at a 61% margin, why can’t a commission stylist be paid at 61%?
Like if it’s possible to do it while they’re working independently, why wouldn’t it be possible when they’re an employee?
And I’ll explain the reason why.
I know the reason why.
But we should be able to offer comparable compensation models so that nobody’s reason for leaving is I’m not being paid enough.
When you look at salons that are operating really well and highly profitably, everybody is compensated appropriately.
And when you look at the reasons why high performers stay, yes, they’re well compensated.
The reason why low performers stay is there are so many perks and benefits to being a part of this salon team that they would never find anywhere else.
So yeah, could they be making a 40% split at the salon down the street?
Sure.
But the trade off for that would be so massive that they’d rather stay working for you to make $17 an hour.
And that’s where some salons are really, really winning right now.
So let me math this for you for a minute.
So let’s look at a high split on a low performer.
Because for some of you, you’re like, I don’t want the $17.
I’ll take the 40%.
You have to listen to this for a second.
When we look at a high split for a low performer, so let’s say a stylist is doing $2,000 a month in services.
That’s a pretty low performer in most salon standards, only because most salons overhead is quite a bit higher than that.
So $2,000 a month in services.
And let’s imagine you’re not doing this profit of profit thing I’m going to talk about.
You’re doing a very traditional split.
So let’s say the split is 40-60, very typical, right?
So the stylist gets 40 and the salon owner gets 60.
That stylist would be taking home $800 a month.
If you increase their commission split to 45%, they’re going to feel like landslide victory because now they’re making an extra $100 a month.
And we have stylists who are fighting for that extra $100 bucks because they need it.
The problem is the salon can’t afford it.
So now nobody is happy.
And for anybody who’s like a salon can afford an extra $100, I have a story that’s coming up that’s going to make you rethink that.
Now, what if instead of doing that, instead of taking this underperforming stylist, the stylist who’s doing $2,000 a month in services, and instead of increasing their split to 45%, we market them and they increase their monthly service dollars by $500.
We keep their commission split at $40.
That same stylist is going to take home $1,000 a month.
So while we’re arguing with this stylist who wants to make 5% more in commission, we’re arguing about the wrong thing.
To take somebody who’s doing $2,000 in services and increase their revenue by $200 a month, it’s not about the commission split.
It’s about the service dollars.
And this is part of the reason I’m really feeling passionate these days about, let’s focus on building up our stylist that we have.
There is not a single stylist I talked to today who doesn’t tell me, man, if I worked for a salon that built up even just 50% of my clientele for me, it would be such a game changer.
If you are building up your team, it is not about commission percentage.
They just want to see their take home pay coming higher and higher all the time.
And when you do a profit of profit model, they’ll be earning commission increases all the time as the service revenue grows.
So let’s do story time.
So every once in a while, I get lucky, and a salon leader shares their real numbers with me that I can share with you, and then we can play and troubleshoot together, and you can see in real time what a real salon owner is experiencing.
So this leader said that she has five stylists, and as a collective team of five, they’re producing $7,964 a month in services.
So five people, and production for the month is under $8,000.
That’s extremely low production for a team of five.
So keep listening.
She pays a 46% commission, because that’s the going rate in her area.
So that means commission going out is $3,751, plus she pays a 20% retail split, so that was $220.
Contributes 2% to 401k, so that’s $135.54.
She pays 21% in employee tax, so that’s $1,039.
And 15% in employer tax, which is another $526.
So the total going out the door for this team is $5,671.
So they’re producing $7,964, and she’s paying out $5,671.
So her profit leftover is $2,293.
So then we say, wow, that’s good.
No.
So she hasn’t paid for anything else in the salon yet.
So she goes to pay for the salon rent, which is $4,300 a month.
Cost of services, which is color and retail, $1,500.
Laundry and cleaning, $1,200.
Utilities, $700.
Credit card fees, Boulevard and Vish, $1,500.
Marketing, $1,500.
Education fund, $250.
I mean, this salon owner is trying to do it so right.
And like, that’s the part I can deeply emphasize with is like, she’s literally trying to do the damn thing.
And I so feel her on that.
So that her overhead is $10,950.
And her team is producing $7,964.
And after she pays the team, she only has $2,293 to go towards that $10,000 bill.
So it’s not even like the $7,000 that the team does goes towards the $10,000, not even close.
After she pays the team, she’s only left with $2,200 to pay for the $10,000 in expenses I just rattled off.
So who’s paying for that?
She is.
In the services she’s doing behind the chair, right?
And by the way, with her service dollars and that $2,000 that’s left over as profit from her team, the salon is losing $1,200 a month.
This is so real.
So is there profit from the team?
Kind of, until the salon owner goes to actually pay any bills, like keep the water and the lights on.
And now, despite the fact that she herself is a high producer and is doing the most, there is no profit left in the salon at the end of the day.
So this owner said, please help me understand what I’m doing wrong and how to fix it.
So what I did is I pulled up our 80-20 split calculator.
So it’s the most generous calculator to the stylist, and the owner takes the smallest percentage, but she’d be able to run her salon on this percentage and be fine.
So I ran her team through the calculator, and there is not a single person on the team who could be paid more than hourly minimum wage right now.
I mean, you could offer something like 6% commission, but no one’s going to work for that, right?
So and the 6% commission, by the way, is less than minimum wage.
Let’s actually work out what that would be.
So on $2,000, let’s see what it is.
Oh, perfect.
On $2,000, a 6% commission is $120 a month.
Like no one’s going to do that.
And by the way, it would be a legal employment.
So the best this salon owner can do is pay her team minimum wage.
She will still be running in the red.
She will still not be profitable, but to give these people commission split, it’s just not there.
The money’s not coming in.
So let’s take a step back from our example for just a moment.
The problem with most compensation systems is they look at high producers as the key to success, right?
The sun rises and sets on all of the high producers in the salon team.
I’ve worked in a salon that operates like this.
I get it.
The challenge is there’s two big issues.
One, high producers are often undercompensated, and I feel a type of way about that, because they’re covering the cost of the low performers who are being overpaid.
Truly.
That’s usually what it boils down to is like, well, if it wasn’t for Jacqueline’s revenue, we wouldn’t be able to pay Joey, who just started last week.
Good, but not Jacqueline’s problem.
Now, difference, if Joey is assisting Jacqueline, then we’re talking about something totally different.
I’m not talking about that.
I’m talking about two independent stylists.
Joey’s not doing enough and Jacqueline’s doing the most, and Jacqueline, we can’t pay her more because Joey is bleeding the salon dry.
How does that motivate Jacqueline?
It doesn’t, and this is why salons lose really good people.
Because eventually she’s going to learn, like I feel like I’m carrying too much weight around here.
When you see senior stylists say things like that, this is where they’re coming from.
This causes resentment.
Even when high producers aren’t 100% sure why they feel resentful.
Have you ever had a high performer say they feel like they reach their glass ceiling?
It’s like this.
It’s like an undercurrent that they don’t realize is happening, but it’s there.
It also causes a power imbalance and an unhealthy reliance.
Has anybody ever worked in a salon where there was like a diva person?
Like somebody who just had a little too much control, a little too much power, felt like they could get away with whatever they wanted and nothing could be done about it because they knew that the salon rose and set on them.
So if they were gone, everybody’s lost their job.
And that’s not good either.
Like that’s a tricky power dynamic.
And that’s how toxic stylists can end up staying in a space too long because the salon can’t function without them.
And that’s not good either.
So what we do in this model is instead of looking at people as the profit centers, which is what a lot of compensation models do, right?
They’re based on high performers and high performers carrying the weight, and then low performers kind of hanging on.
Instead of looking at the people as the profit centers, I look at each chair as a profit center.
So each chair is a potential profit center, just like the way you would look at a traditional business.
So it’s not the person, it’s the square footage, it’s the chair, it’s the opportunity.
That is our profit center, because at the end of the day, it is.
Your entire team could walk out tomorrow.
And all you’ve got left is these six chairs in the building.
Those are your profit centers.
And that’s a huge part of the mindset shift.
So going back to the salon owner, I was like, how do I help this person out?
How can we make this work?
So I looked at, she’s got these five stylists, and on average, between the five of them, they’re doing about $8,000 a month in services.
So it boils down to around $1,700 per month per stylist in services.
So when we run them through this calculator, the cool thing about it is it shows you the cost to host each profit center.
And what we found out was based on this salon owner’s overhead, which was about $10,000 a month, it costs her $2,100 a month to have each of those team members just in the building, in the space functioning.
So if they’re producing $1,700 and they’re costing her $2,100, she’s losing $400 a month.
Like the person is in there working and just draining her dry.
Like she’s actively losing money.
So that team member who’s doing $1,700 a month in services will cost the salon $4,800 a year.
It’s a lose-lose.
Like you can’t financially pull it off.
It doesn’t make sense.
The best thing to do for that person is to pay a reasonable hourly wage, knowing you’re going to lose money on them, but you’re going to build their clientele.
Like you have to hire that person and be like, okay, this is going to suck for a while.
It’s going to take some of our profit margin, but we have an aggressive growth path and plan.
And by the end of the year, that we profit positive.
Great.
I can totally get on board with that.
So what I wanted to do was use the calculator to find the profit point for each of the profit centers, aka the Stylist chairs.
So we know that $2,100 is the break even.
I just shared that with you.
We just found out that it costs this salon owner $2,100 for each of her profit centers.
That is the overhead that she’s running for every single chair in her space.
So we know her Stylists have to be earning significantly more than that just to be paid hourly and for her to break even and for us to not be operating at a loss.
But at what point can we offer a commission split?
Because I do know most Stylists want to make a commission and I completely understand.
So using the calculator, we found that at $4,000 a month, the salon can offer a 32% split to these people.
With that split, the Stylist is taking home 80% of profit and the salon is taking home 20%.
So the salon would profit $1,200 per year on that Stylist.
But this salon owner is currently paying 46% commissions.
So then the question becomes, where do we need to get her Stylist at in order to pay them 46%?
Now, something I think you should know is, I’m not a fan of reducing commissions.
Good luck telling somebody, like, it’s been nice having you here.
I’m going to need to cut your pay.
Like, very few people are going to stick around for that.
So I’m not a proponent of that in any capacity.
But we found using the calculator, which is why we like to use tools like this, that the Stylist and her space don’t become eligible for a commission split at 46% until they’re doing $6,000 a month in services, which would take her annual salon revenue from around $90,000 a year to $360,000 a year.
Now it’s no small fee.
I’m asking her Stylist to basically triple their production.
But if she wants to sustain that 46% commission, that’s what it would look like.
So here’s what this method gets cool.
So hang with me.
For your Stylist or a Skeptical, hang tight.
So how could this salon pay top commissions?
With this method, once a Stylist is doing $10,000 a month in services, they would make a 56% commission split.
If we’re looking at traditional commission, which is still the 80-20 split that I’m talking about.
At $15,000 a month, the Stylist would make a 62% commission split.
So this entire model, if I wasn’t clear, really relies on not overpaying underperformers, period.
And a lot of salon owners feel like they don’t have a choice.
And I would ask you, how’s that working for you?
Like, are you retaining team members well?
Are they frustrated?
Are you frustrated?
Are you profit positive?
Are you profitable?
Period.
That’s what I should ask.
Are you profitable?
Period.
Do you have a solid training program for a new Stylist to understand how to build a clientele?
Are you providing clientele?
What are you providing beyond?
So this salon owner, like I said, is trying to do all the things.
They have VISH, they have retirement contributions.
Here’s what I have found, though, too.
I don’t know who your Stylists are.
I’ve never met them.
If they’re Gen Z, like they might not even care about retirement just yet.
So I would just figure out, like based on the team that you have, what are the things that you need to offer to keep them motivated?
What are the things you need to offer to fill their chair?
How do you need to show up differently as a leader to increase their demand?
Because for this salon owner, you have two options.
Significantly reduce your overhead significantly.
Or we need to figure out how to get these stylists to a place of high performance.
So a lot of times, like a coach will be like, I think you need to hire more high performers.
That will not solve this problem.
Now she’ll have the high performer who’s doing all the work and carrying all the weight, which is essentially her right now, right?
That’s this owner.
This owner is the high performer.
And everybody’s paycheck is reliant on her performing.
Like, God forbid this owner gets sick or something.
I don’t even know what the plan would be.
It would be really scary.
So if you hire a high performer, it’s just repeating the cycle of high performers being underpaid, low performers being overpaid.
Like, that’s not the solution.
It’s reduce the overhead or increase the demand.
If looking at this business, I had to reduce overhead, it would be tough.
I’d be curious.
You’re spending $1,500 a month on marketing.
I’d be curious.
Where is that going?
You said $1,200 a month on laundry cleaning.
That’s high.
I wonder if there isn’t any margin there.
I don’t know, but that is a pretty high cleaning laundry cost.
And even when I look at Boulevard and VISH, $1,500 a month, I wonder if we could go with something a little bit more budget friendly just until we get performance up or we increase demand.
So I hope this has been clarifying to salon owners who were like, I can’t turn a profit and I don’t know why.
And also to stylists who are still maybe thinking or feeling like, this is how much my owner is taking from me or this is how much my owner makes off of me.
This industry is one that’s very difficult to turn a profit margin in unless you really have strong systems and structure in place.
It’s just expensive.
So this has been clarifying.
As always, leave me a rating or review on iTunes with any questions that you have.
And as I always like to say, so much love, happy business building and I’ll see you on the next one.
