Intro: Do you feel like you were meant to have a kick-ass career as a hair stylist? 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 hair stylists, 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 going to talk about the pros and cons of not accepting gratuities.
I know this has come up in the industry more recently than ever. However, it’s not a new concept. I’ve seen it rattling around for years and I want to talk a little bit about the history behind it, the pros of doing it and the things to consider before you pull back gratuity.
Now the reason I think that’s important is I probably wouldn’t even bother talking about this in a pros and cons type of way if it weren’t the timing that it is.
So I don’t know about y’all, but every morning I wake up and I see what’s going on with the economy. I’ve been following what’s been happening with inflation since mid-2020 and it continues to get worse. We had a really negative first quarter of 2022. The reports I saw before recording this podcast is Q2 of 2022 will likely very narrowly scrape by without a recession being declared, but we are not in a great economic position.
Inflation is as high as it’s been. Inflation hasn’t been this high since the 1970s. We are watching interest rates rise incredibly rapidly. We’re watching the housing markets start to fall apart. We’re watching big businesses start to implement big layoffs. And so when you look at the things that are happening around us, when—go ahead and look it up. Most major economists, I won’t say most, but more than 50% are predicting a recession by Q1 2023.
So what happens in a recession? People start to get very nervous about financial decisions. And so, because of that, I think some of you are like, “Ah, so this is why we should actually phase out gratuity because if people are nervous, then lumping gratuity in as a service cost might actually be safer for us,” but be careful with that.
I want to just share all sides of that and just allow you to think like, “Maybe I’ll do it, but maybe I’ll wait. Or is this really something for me?” I want to just more than anything have a really well-rounded conversation about it.
I actually had a conversation about this topic on my Instagram feed and there were some great points that were brought up and I want to talk about some of those things here on the show and bring up different points of view and all of that.
First of all, there’s a few reasons why this is something that’s been trending in our industry. Let’s go back to the history of tips and gratuities for a minute. Now, if you look this up, there’s a few different ideas of where gratuity came from, but if you’re familiar with The 1619 Project, Nikole Hannah-Jones, you’ve likely heard that she mentions that there is a tie-in to gratuity tipping and slavery, and that it was something that was used to essentially underpay for work in the past. Now she’s not the only one.
Saru Jayaraman is an anti-tipping activist who leads a minimum wage hike advocacy organization and she’s quoted as saying, “Tip minimum wage is a legacy of slavery that needs to be abolished.” So because of those things, there is this social call to change and not have gratuity be in place.
I want to share something with you though. When we think about gratuity—I looked up surveys of like, okay, great. So I wanted to really research this and look at what industries rely on gratuities. There’s only one statistically that is deemed as relying on gratuity. What is it? We probably all know it. I’m sure you said it out loud as I said it. The restaurant industry, the food and beverage industry, right? Bartenders, waiters, waitresses, hosts, cooks,. That is primarily if you go out to a restaurant and you expect—gratuity is expected. If you walk away and don’t give a tip, we feel a type of way about you. It is the expectation. That is one of the only industries where it is that hard, fast expectation.
Now I’ve been in our industry Facebook groups where I read the post where someone’s like, “…and they didn’t leave me a tip and I’m outraged,” and I’ve never agreed with that. Never, ever, ever. I’m of the mindset of “If you’re relying on your tips, your compensation is too low,” but y’all, we’re in charge of our own compensation. It’s not like your manager is keeping you down. You’re in the driver’s seat on that.
Now when we say things like, “I know, that’s why we combine the gratuity with the service charge,” I’m not on board with that. I’ll get there for a second because it’s not the same thing. You can’t just say, “Well, I’m just going to give myself a 20% raise then,” and I want to share why.
If we know that the restaurant, the food and beverage industry—I’m going to say it like that—that the food and beverage industry is the one that relies most heavily on tips, not the only one, but you can look it up, look up. Statista, it’s a really well known statistics site. So they’re the ones that reported, by far and away, this is the industry that relies on them the most, so I’m going to use them as an example.
Do you know what the profit margin is on the average restaurant? We look at restaurants and they’re packed and we’re like, “They’re making so much money.” On average, three to five percent profit. Many run in the red. Many don’t make a profit at all. It’s why you see restaurants open their doors and close their leases within three years.
When you look at even franchises, even franchises have really small margins, really small margins. When you look at where the money is going, food accounts for 30%, really high overhead, rent and utilities, is another 30%. And then payroll is 30 to 35%. Payroll is already their highest or equal to food and rent and utilities expense that they’re paying, right?
When you look at the food and beverage industry, it’s cost of goods, people to do the work, and the rent that’s being paid. That’s it. There’s only three big ones, and there’s a few other things like insurance and phone, but they were teeny weeny tiny, and what was left over is a three to 5% profit margin.
If you say, ‘Well, great, give that three to five percent to the employees,” well, we do though, because when you look at like—there’s generally speaking, most states and counties are putting pay rate increases in place. Maybe it’s not happening as fast as we want it to and I agree with that. That’s why I really enjoy things like the minimum wage hike advocacy organization. Like I’m so here for that.
But when we look at like, we’ll give them that three to five percent, who’s opening a restaurant then if there’s no profit at all to be made? And then we say like, “Well, the owner shouldn’t be making money,” but then no one’s going to own the restaurant. I’m trying to figure out who’s running that business model where they’re making nothing and, and this becomes the rub, right? The margin’s too tiny. So then how do we increase that margin so that the workforce can get paid more?
The reason that this weighed heavy on me is that a salon owner and I actually had a really interesting conversation about it, and I’m going to share it with you in a minute, but I was thinking about it for the food and beverage industry for a second. In order for a restaurant to raise wages for their employees by 20%, we’d have to pay about 30% more for the food that we’re getting. We have to create that margin and the margin of 20% is actually quite large, so we’d need to pay about 30% more so that the restaurant could put another 20% on the employee’s paycheck and still pay the taxes and the insurances and all of the other bits and pieces for that payroll to clear, right?
So your $18 overpriced cheeseburger now becomes a $24 overpriced cheeseburger, but no gratuity. You don’t have to do the tip, no gratuity. So you don’t have to pay the extra $4, which would’ve been the 20% tip on 18, but now you’re paying six so that the employee can make more on their paycheck.
The reason why that formulation came up for me is—you can see this—it’s actually public on my Instagram. A salon owner told me, like, “I am actually all for the idea of phasing out gratuities, but I ran the math and my employees will make less money.” This person runs a commission salon. She’s like, “I believe in the employee model, I want to do it. But if I allowed them to stop taking, or if I ask them or force them or put a policy in place or whatever, to stop accepting gratuities and raise their rates by 20%, they would take home less.” She’s like, “So do I give them all a 30, 35% raise?”
This is what we’re going to get into because I know you could argue and say like, “Yes, go for it. Raise them all 30 to 35%.” But the perception of the clientele on that is what can get us and that’s what I want to talk about.
When we look at the perception of clients, they see the base rate for our service as expected, right? And the tip or the gratuity, whatever you want to call it, as discretionary. This is where it becomes a little dicey because it almost is like this bonus, right? It’s not guaranteed. If you do a good job, you might get it or you might not get anything at all. That’s the part that doesn’t make us feel good. Like, “Well, I’m working the same amount whether I make that gratuity or not,” and so it feels like this care that’s being dangled and that stinks.
I can see where it’s perceived that like, “…and that’s how people get more than they pay for,” and it might not feel great.
Now I know, I know a part of the reason why people are thinking about going this direction is that they’re saying like, “Well, we don’t tip our other professionals. We don’t tip dentists. We don’t tip doctors. We don’t tip lawyers. There’s plenty of professions that we don’t tip for,” right?
Remember it probably still happens, but it is an old school theory of you don’t tip the salon owner. Where did that come from? I mean, that’s been around forever where the owner of the salon doesn’t get tipped. Why? Because the assumption was the salon owner is making so much money, they don’t need it. They don’t get it. They don’t earn it. Only those working for them get it. It’s the expectation of the owner to take good care of the people. But the owner doesn’t get a tip because the thought is the owner’s already doing so well, why would I give them more?
Here’s the thing: eventually, as you grow as a stylist, I do think your gratuity percentage will dwindle, right? There is the client that will tip 20% on an $800 service ticket. Abso-freaking-lutely. Of course there is. And then there’s the client that won’t tip 20% on a $20 ticket. It takes all kinds, right? There’s always that, but as you start to get up into the higher ticket price, you, you can’t be expecting a 20% gratuity for everything because it is that subjective, right? That discretionary compensation versus that guaranteed, that cost of your cheeseburger, that like, “this is what I came for” type of compensation.
So here’s what you’re counting on if you do choose to combine that gratuity, that tip compensation with your service. What I’m seeing people do is they’re saying, “Well, what I’m going to do is I’m going to say I don’t accept gratuity and I’m going to raise my service rates by 18%, 20%,” sometimes more, whatever.
So here’s the thing is that you’re counting on all the potential clients in your target market to see no discretionary pay as an advantage, but at space value, not everybody gets it yet.
We have to remember that the majority of this country is undereducated when it comes to equity and equality, so if you’re going to head this direction, it needs to be all over your social posting and you explaining why you’re doing this, right? This is an X factor of your brand now. It’s one of your values.
This isn’t just a thing that you do. It’s a thing you talk about all the time so people deeply understand why it’s happening and why you’re doing it. This is part of your brand messaging so you have to be willing to go all in on it to that degree. You don’t just post on it in social media one time and throw it up on your website. It’s everywhere and it’s not just, “…and you don’t have to tip me.” It’s why, like if you’re doing this for the social change, we need to explain that. That has to be so clear. You have to be explaining why you’re doing it. Otherwise, it’s just this thing that you do without education. You know what I’m saying? There has to be more to it there. You have to go all in.
Here’s why I’m saying I have a concern over the target market perception. Have any of you seen—I’ve seen it on TikTok, but I don’t know if it’s anywhere else. I’ve personally seen it on TikTok of clients creating videos, talking about how stylists are getting a little too big for their britches. It is a trend. I obviously don’t agree with it. I’m fighting really hard for our industry to be seen as more professional and to earn what is rightfully theirs and to be seen as essential and to not run on these skinny, skinny profit margins anymore. I’m all for it, but it’s a battle and it’s a fight and we know that, right? We’re trying to go from the kitchen cosmetologist, “can you do my hair in exchange for a bottle of wine?”, which is totally how things used to be to like, “No, my rate is $450, please and thank you.”
The reach between there is big and part of what I think happened is some people have moved a little too fast and put the cart before the horse in some of their decisions. I think that we are making massive headway in being seen as true professionals and raising our hourly rates and earning what is rightfully ours. But I think some people—not all—are cutting corners in the process and they’re burning bridges with clients.
And unfortunately, clients aren’t saying, “Well, you know, Sarafina really did me dirty as a stylist.” They’re saying, “How come it is that all of the stylists are charging more money now?”, and we can go to battle with them. We can say, “because we’re worth it and we were being underpaid for decades and now here we are.”
But what I fear and what I think is a real concern if we’re not smart is that there will be a subculture that emerges from our industry of people who are like, “No worries. I’m going to undercut.” And the undercuts are going to do the mistakes of the past and undercharge and undervalue and clients are going to say, “See, this is why I stop going to Sarafina because Nate can do my hair for a third, the price and the result is the same.” Nate is essentially taking advantage of the undercut. That makes me scared because it’s going to be a whole backwards cycle of all the work we’ve been trying to do to get our industry that respect it deserves and it makes me nervous. And do I think that all of that TikTok chatter and all of that buzz about “Who does our industry think that we are?” goes back to not charging gratuities? Not at all. I mean, that would be such a one-sided argument. I don’t believe that, but I think that it’s a piece of it when a stylist goes from charging a hundred dollars an hour to $120 over overnight, that’s big.
When we say like, “Yes, but there’s no gratuity included,” again, is your messaging ultra clear all over everything you do? Or was it kind of a one-time announcement? And you talk about it when clients are in your chair and it lives on your website because otherwise perception’s the reality. There’s a few stylists who I looked at who mentioned in my DMs on my Instagram, they’re like, “You know, I’ve done it and I’m just new to it and I’m giving it a shot.” I look at their website and it’s so not clear what’s happening at all. I’m trying to find it, I’m seeking it out ‘cause I know that you do this and it’s like nowhere to be found. So then if I’m doing research on a stylist and all I see is that Sarafina’s pretty good and Nate’s pretty good and Sarafina charges 20% more, but they both look equally skilled. Why wouldn’t I choose Nate?
This is what it comes down to. If you are going to include your gratuities with your service cost, your perceived value needs to increase by 20% immediately. Your marketing has to improve radically. You need to really shift your messaging radically and you need to be 20% stronger. Something has to be upgraded in your space to justify it. And the messaging has to be there, right?
The other thing I want to ask too is like, I get it, but are you also not giving gratuities anymore? You’re not receiving them, but are you also not giving them or are you still giving them when you go to restaurants because that system is still broken? Just really think of it like all the way through of does this make sense for me now? Or am I doing cart before the horse? If I just continued building a strong business and raising my rates and having pay increases as they come based on the seven dynamic pricing factors that I talked about on a previous podcast episode, like if I just keep doing that, will the natural attrition of my gratuity come because my rate is so strong on its own?
I understand the fight for great compensation in our industry. I fully get it. I just don’t want us to make a long-term decision that has a negative impact that’s difficult to walk back from. And I think about if a recession hits and if you were around in 2008, I remember this. 2009, 2010, 2011 clients would be like, “I can pay for my cut color. I’m so sorry. I can’t tip you today,” and it’s like if gratuity is no longer subjective and it’s only guaranteed, well, that’s great for the stylist that they still get their money. Except for that if Jenice just can’t pay that extra 20%, she’s going to have to go see Nate because he charges less. And so just really thinking through like, is this the time for me to combine this subjective cost with the guaranteed?
The other thing is too, there’s somebody on my feed, I actually took a screenshot of it in case it gets deleted because I thought it was so interesting. There was somebody who was like, “I actually feel much better about not charging gratuity because it felt uncomfortable for me to be like, ‘I’m charging you this much and now please pay me more,’” and I get it. And I said, “I’m certain you don’t say it that way.” This person was like, “Well, no, I don’t say it that way. Of course not. But just that awkwardness of like, ‘and would you like to tip?’, like we all know that awkward feeling.”
The conversation went on and this person was saying, “I felt like people sometimes felt like maybe I was being,” I don’t think the word was greedy, “but like that it was just more and more and more, and it made me feel icky.” And I said, “Do you think you lost clients because of that? Do you think the fact that you accepted gratuity caused you to lose clients?” The answer was no. The comment went on to say, “…but I feel better not accepting gratuity. However, there is still one client who wants to give me $200 after her visit. And at the end of the day, if somebody wants to tip, I feel like that’s their prerogative.” I was like, “Wait a minute. So you do accept gratuity,” but it’s like—sometime it just, the concept to me is like I’m just not quite getting it.
There’s another stylist I was talking to, Shannon, recently and her love language is gifts. Which my husband’s love language is gifts and I get it. And if you’re getting a gift, it’s not a greedy thing. A gift is like if somebody brings you a cup of coffee in the morning, that feels like a gift. It’s just thoughtful, physical gestures is a somebody whose love language is gifts. That’s what they appreciate. And Shannon was like, “It makes me feel good if I have an extra 40 bucks to give it to somebody, no matter what.” And she’s like, “If I was to try and do that and someone was to turn me down, I’d kind of feel weird.”
When we make these big policies—and I talked about this recently, like the idea of—I think this was on a podcast too, sometimes we overpublicize our business, like so many rules and so many guidelines and so many structures, it can get a little bit carried away.
Just really think all the way through. In doing this, you’ve essentially created a salary, an income threshold. There’s only so much you can make because you’ve removed gratuity, right? So you’re going to just make your flat rate, basically, whatever it is, and you can’t make less because somebody can’t just stiff you and you don’t get the tip. Just can’t make more really. And so really thinking through is this benefiting me? Is this positioning me in the way I want to be positioned? Am I really going all in with my messaging so that people understand why it is that I’m doing this? And is this giving me the desired result that I’m looking for? Right?
I understand the values behind it, the ideas of equity and equality, and for some people it’s simplified pricing, and whatever it is, I totally understand, but just make sure that your efforts, when we’re doing these things are really aligned in giving the result that you’re looking for and you’re making the impact that you’re seeking and that you are still taking care of your financial stability.
I think that when we are, when we’re doing this, like really ask yourself, is this is my business ready for this right now? Or if I continue growing and continue earning price increases naturally, will that gratuity follow off as a attrition on its own, just as it would for other professionals, as they’re starting to grow and build their business?
Just a little food for thought. I respect you either way, whatever your decision is. I just wanted to in full explain my perspective of it, my thoughts on it, and again, as always, I’m here for the conversation. So hit me up in the DMs. Let me know what’s come up for you. If you’re somebody who has stopped accepting gratuity and it’s been a landslide victory, I’d love to hear from you as well.
So the salon owner who reached out to me and said that they’d love to do it, but, but doesn’t make sense fiscally on paper for them, their stylists would lose money, I hear you on that too. And thank you for being a part of the conversation and sharing that with me.
As I always say, so much love, happy business building, and I’ll see you on the next one.
