Do you remember when you first enrolled in cosmetology school and didn’t even know what commission was? The vast majority of stylists start off working commission or hourly and may never even become business owners themselves. But there are plenty of ways to become successful behind that chair!

The mindset is often “I’ll stay working on commission just until I can afford to rent,” as if it’s some rite of passage.

On the other hand, some stylists go from commission to booth rental and back to commission again. These are the people who swore they’d never rent a booth again.

It got us thinking what actually is the better option?

We are living in a world where we’re always looking for what’s next. Is the grass greener on the other side? Could you be making more money if you did things a little bit differently?

Maybe you’re on the fence, wondering if commission or booth rent is right for you. You might even wonder if you should rent a studio suite or just open your own shop, and what can you really afford? If that’s you, you’re in the right place.

We aren’t diving too deep into salon ownership or studio suites this week (we’ll get there, promise) but let’s compare booth rent and commission for a minute. 

First, a little myth busting…

Myth #1: Commission is a rip-off!

There is a common theory that commission is a rip-off and greedy salon owners are keeping too much of your money.

Any salon owner will tell you that running a commission salon is insanely expensive and having employees in any business in any industry is expensive. The profit margin in a commission hair salon is generally between 0 – 8%, aside from those rare cases where a commission salon owner really hits it out of the park. The stories of current commission salon owners retiring super rich are few and far between.

Why? Well, the overhead to stock a color room in a salon full of stylists is thousands of dollars. Maintaining retail, all the benefits, and everything that goes along with having employees in the commission environment is very high.

It’s not so much that greedy salon owners are keeping all of your money; it’s more that the benefits you get of working in a commission salon are huge and those things cost money.

Myth #2: All booth renters totally lie on their taxes. That’s how they make so much more money.

Like the theory about commission salon owners being crooks, this theory is also fully false. That’s not to say some booth renters don’t pocket some extra cash here or there; there’s always a few bad apples cutting corners. But most salon owners and booth rent stylists aim to be 100% above board and honest, not just for the sake of ethics. Many have learned the hard way: when they wanted a new credit card, buy a new car, or purchase their first home, they were completely shot down.

The problem is that for a lot of major adult purchases, you’ve got to prove your income through tax returns. Nobody cares if you promise you make $100k a year if, on paper, you only make $70k. If you can’t prove it on paper, it doesn’t exist. There are plenty of booth renters who went from commission to booth rent, kept everything above board, and came out ahead. It just depends on the growth and success of your business.

So what are the benefits of working commission?

With commission, your pay is always guaranteed by at least minimum wage. Meaning, if you’re in the salon for eight hours, even if you don’t see a single client, you must be paid minimum wage for those eight hours. This is federal law in the United States, so if you are a commission stylist at a commission salon, you deserve that compensation.  

Your employer will cover the Social Security and Medicare taxes, which equal 7.65% combined at this time. If you’re a booth renter, you have to pick up that 7.65% yourself (and 7.65% of your money is actually a decent chunk, so that’s a nice benefit). Learn more here!

Benefits like free in-salon or individual education, health insurance, and company-matched retirement savings plans are often included. All of these things are worth thousands of dollars each year, so if your employer is footing the bill, that’s a nice thing taken off your plate.

You also get to walk in, serve your clients, market your business, and walk out. You don’t have to worry about driving to the beauty supply store every week or itemizing your taxes. It’s all taken care of for you so when you leave at night, your time is really your own.

Probably the best part of being in a commission salon is having a team. You can’t even put a price tag on that. When you have an incredible team, there’s nothing else like it. The support you get, the love you have, and the way clients feel that love is incredible.

What are the benefits of working as a booth rent stylist?

Probably the biggest and most obvious is any money made behind the chair is yours to manage however you’d like.

However, any money made behind the chair is not all yours to keep. Running a business is expensive, but you get to make all the choices because you’re in the driver’s seat, and that’s powerful.

You can enjoy the tax benefit of writing off business expenses. This is HUGE because it can set you into a completely different tax bracket and save you thousands of dollars each year.

You have complete control of your schedule. You can come and go as you please, choose your hours, and no one tells you when or where to be. You don’t have to follow someone else’s terms — unless it’s the terms of your rental agreement — or the rules like an employee would.

Am I ready to booth rent?

There are some things to consider before you pull the trigger and leave your comfy commission home. You’ll need to pay for things like business licenses, retail sales certificates, liability insurance, employee tax (which is increased from 7.5% to 15% if you’re a booth renter), health insurance, education, retirement savings.

Many booth renters don’t realize how difficult it is to keep the business in order. It’s a lot of paperwork, little pieces to keep straight, and things to itemize. Getting organized is crucial.

You’ll also have to pay the initial investment of stocking color and retail. Just know that the initial investment cost is expensive.

The other thing to remember is even if you don’t have a good week, rent is still due. With commission, you have that minimum wage safety net, right? If you don’t have a good week as a commission stylist, it’s all good because you still get a paycheck. If you don’t have a good week as a booth rent stylist, you still have to pay your rent even if it means you can’t afford to eat dinner tonight.

How much more money does a booth renter really make? 

Let’s take a look at the difference between the pay of an independent contractor (booth renter) versus a stylist paid based on commission:

Commissioned Stylist:

At a 50/50 split, you’d have $25,000 take home but you still have to account for taxes.

Employee tax at 7.65% equals $1,912.50.

At $25,000 income, the tax rate is 15%, so that’s an additional $3,750.

Total take-home pay would be somewhere around $19,375. If the stylist had kids, owned a home, or had other big tax write offs, it could potentially be up to $22,000.

Booth Rent Stylist:

Let’s say rent is $175/week and $50,000 take-home pay, pre-expenses and pre-tax.

Before we figure out taxes, we have to deduct the write offs:

$9,100 in rent ($175 x 52 weeks per year)

$4,800 color cost (let’s estimate based on two colors per day at $10 per application.)

That brings taxable income down to about $36,000, which is in the 15% bracket.

Now, do tax on the $36,000 taxable income.

Employee tax at 15% (double) is $5,400.

Income tax rate is 15%, so that’s $5,400.

After taxes, take-home pay is $39,200.

From that, deduct rent and color cost, which brings total pay to $25,400.  

Did the renter come out ahead? Yes, but we probably underestimated color cost. We also didn’t factor in things like liability and health insurance, cost of education, business licensing fees, or credit card processing so the gap would, without a doubt, close more.  

Basically, commissioned stylists give up income to not have to worry about color, paying rent during slow months, and sometimes benefits like health insurance and vacation pay. Renters or independent contractors enjoy freedoms like truly building their own brand, coming and going as they please, and not being bound to rules such as dress codes and mandatory meetings.  

Bottom line: Quit worrying so much about the structure and just work to grow your clientele! That is where the money is. Most stylists get so caught up trying to figure out how to save a dollar here or there that they don’t focus on what actually matters.

Does the way you are paid really make a difference in your income? We could get crazy and factor in things like having multiple assistants that allow you to triple your income (truth!) or pocketing cash to keep it away from Uncle Sam, but at the end of the day, it’s not about the structure. It’s about the determination to succeed.

Are you a commissioned stylist who receives a 1099? Read this post to dig deeper.

With all that said, if you do this same math with two stylists producing $100,000 per year behind the chair, the booth renter comes out ahead by almost 30%. There is absolutely a tipping point where the scales can land in your favor. Just be sure you are 100% ready to take on the challenge.