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 talking about where is that profit at. Is it in booth rental? Is it in commission salons? Is it in both? How do we find it? What should we be shooting for? All the things.
I will say everybody should be able to be profitable. Whether you’re an independent stylist, whether you are a commission salon owner, a booth rental salon owner, you should be able to turn profit. I think there is a lot of misunderstanding in what it means to be profitable, where the profit lives, how to secure yours, all the things, so I want to dive into as much about profit potential as we possibly can.
I would like to talk about a variety of models and cover as much as we can no matter how you work. So even if you’re like, “Well, I’m a booth renter, this doesn’t apply to me,” or “I’m a studio suite owner, this doesn’t apply to me.” I’m going to give you a little something too, like a little nugget here and there.
If you’re commission stylist, definitely listen up. I’m going to be talking about compensation structures and all kind of stuff. so this is for everybody.
First of all, I just want to start at the top and say salon owners should take a profit. They should get a profit cut. They should not operate their salon at a breakeven or a loss. I think it is incredibly unreasonable for stylists to say, “The owner should not be making profit on me.” That statement grinds my gears more than most. Unless everybody listening to this would prefer to pay for a studio suite, you need salon owners.
If you’re a seasoned stylist, think back to when you first started working. Could you have afforded a studio suite? Heck, I’m going to be honest, some of you are in a studio suite right now and you can’t afford it. It is a very expensive way of working. It is desirable. There’s perks and benefits. It’s not for everybody, but for some people, it’s like a godsend. It’s what they’ve been waiting for. I love it. I think it’s amazing. It is the most independent way you could possibly work.
That represents the minority of the industry. Most industry professionals today do still work in some sort of team-based salon, whether it is three stylists working there or 30, right? The idea that the salon owner is taking all your money or that an owner should not make profit off you—I’m doing air quotes as I say that because like I said, it grinds my gears to hear it—it is nonsensical. Nobody starts a business hoping it doesn’t turn profit unless you’re starting a nonprofit, in which case your goals and objectives are completely different. Those who run nonprofits generally take home a hardy salary. You should look into the deep underground of nonprofits. It’s a scary world out there. Some are wonderful, a lot are not, good to educate yourself. But unless somebody is truly starting up a nonprofit, businesses are created to turn profit.
If we as stylists said, “I don’t think that that’s fair,” that’s fine. As long as everybody is prepared to pay a really huge amount to lease a studio suite because that will be the only viable option.
A lot of stylists, not a lot of stylists, but a handful of stylists have reached out to me over the years and said, “You know, I think that my salon owner is ripping me off.” Y’all. 99% of salon owners are not taking your money. They’re not ripping you off, they’re not taking advantage of you. 1% are, one to 2% absolutely should never have become salon owners, honestly don’t know what they’re doing. I think very few are so manipulative and selfish that they’re literally trying to take it all for themselves. I think that represents a very small minority, but the majority who are taking advantage of stylists are simply just not cut out for the job.
When salon owners are taking booth rent from you, when they are taking a commission split, I know firsthand 90% or more on average is being used to cover the massive overhead in a salon space. When we look at the average profit margin of a salon—I’ve seen statistics through the internet—it’s anywhere from one to 3% the average. So 97% of money collected from salon owners is simply being used to cover cost of stocking your color room, insurances, replacing the water heater, the water bill, the electric bill, the lease, the phones, the computers, the booking systems, the software.
I mean, even if you say like, “Well, if independent, I wouldn’t have to pay for so many things,” you’re right. The salon owner takes on way more liabilities and things like that than an independent would ever do. There is a cost to run all of that.
Now, if you are the stylist who’s like, “No, Britt, legit, my owner is taking all of my money. They’re taking advantage of me,” it’s likely because you don’t feel like where you’re working is worth it.
I know plenty of commission stylists who have never uttered the words “My owner is taking advantage of me. I feel like my owner is taking more than their fair share. The owner is taking all the money,” and it’s because the owner really runs the shop like a leader and they’re giving back to the stylist and the stylist cannot imagine working anywhere else because the salon that they’re at can’t be beat.
If you’re a salon owner, that’s what you’re shooting for. You’re shooting to be the salon where nobody ever utters the words, “but I feel like you’re taking advantage of me. But I think you’re taking more than your fair share.” Whenever anybody feels like they’re getting what they pay for, that is never a part of the question.
Let’s take a look at where the profit potential is in any business. If you’re an independent stylist, anywhere from a 50% to a 30% profit margin is pretty typical. That’s an average. That being said, there are some stylists who are taking home over 50% profit. There are some that are taking home much less than 30% profit and there’s everything in between. But when I survey independent stylists, generally speaking, they’re taking home 40 cents, something like that, on the dollar of the services that they produce.
You can assume that when you go independent, you’re going to have an overhead of somewhere around 60%. I think that’s reasonable. For those of you who are thinking about going out on your own, assume that about 60% would go to cover your cost of running your business. That’s a great place to start. If you can end up turning more of a margin than that, excellent, but that’s probably an industry average.
Now with salon owners, it is radically different. For salon owners, if you are turning more than a 5% margin, that is considered decent. A 10% margin is considered good, a 20% margin is considered excellent. Anything above that is exceptional. That is fairly typical for most service-based industries. I think that, like I said, there’s a huge misconception about how deeply expensive it is to run a salon, and so anywhere in that range is kind of what we’re looking for.
Let me talk about what is not profit. If you’re a salon owner, the income that you produce behind the chair is not salon profit. That is personal margin. Now, depending on how you are legally structured, yes, I understand that money is going towards the salon’s bottom line, and you’re like, “No, no, no, no, no, that does feed into my profit.” No, no, no, I get it. But my challenge with that is why wouldn’t you just rent a studio suite? If that is your entire profit margin is the services that you are doing behind the chair, the salon isn’t profitable. You’re profitable and you’re just as profitable as the average booth renter would be.
When you open a salon and you open a business for profit A), I hope that your intention is to give back to the community. I hope that is the primary intention. It always should be. The secondary is generally to turn some sort of profit.
If you were to—I did an episode a few months back now about what people look for when they’re looking at the value of a salon. If a stylist is still taking clients, they’re called the keyman and there’s a lot of keyman risk and there’s always the concern of, “Well, what if you blow your shoulder out? Will the salon still be able to survive? Will you still be able to feed your family if you’re running a profitable business?” The answer is yes.
The owner of my salon, for example—let’s see, I’m trying to think the timeline on this. I believe he was absentee for about 10 years, taking home six figures. By the time I showed up, he was already absentee. I never was in the salon with him when he was working. Not one time. When I showed up, he was part-time owner, not taking clients at all. He was in the salon sometimes, not in the salon often. When I was promoted to salon director, he was in the salon 90 minutes a week, so he was in the salon, what does that work out to be? Six hours a month? And he was pulling in over a hundred thousand dollars.
That is called absentee ownership. That is the result of having a profitable salon and that’s what happens when you have margins and systems and metrics and magic and marketing and training programs and you know, all of the things that you need to have in order to bring in the right talent to make that possible.
When we say, running on a 20% margin is exceptional, that was exceptional and that was the environment I was raised in, so I know that it is very possible. I know that it’s not easy, but I know that it can be done with systems and frameworks.
Let’s start by looking at booth rental salons. There’s a couple different ways that booth rental salon owners feel like it’s good enough.
One is if the rents collected by all of the other stylists in the space pay the salon bills. The salon owner essentially says, “Well, I’m getting free rent, like I don’t have to pay for my booth and everything I produce minus the cost of color is essentially gravy.” I see the benefit of that because it probably takes your profit margin. You’re probably profiting 70% or something like that, which is juicy. You would not be able to pull off a 70% profit margin as a studio suite owner more than likely, unless you’re charging a really premium rate.
That’s not to say that some aren’t. Some are for sure. You’d be the 1% who pulls that off. To be pulling off a 70 or an 80% profit margin as a booth rental salon owner on your own chair, meaning your own chair is running at 70% margin, that’s incredible.
For some of you, you’re like, “I’m cool with that.” Just know it’s not a business you could ever sell. At some point, you’re likely going to have to transfer ownership to another one of your booth renters who wants to take on the responsibility and get the perks or the free rent or whatever. But essentially that’s your only opportunity for margin.
For a lot of you, there are additional levers to pull, and I want to talk about them.
In a booth rental environment, there’s essentially two ways to create margin without opening up another business venture.
Listen, I’m going to say the two ways, and people are going to say things like, “Well, what if you offer education?” or “What if you bring in paid events once a month?” Yeah, sure. But that’s like adding on another layer to your business. If you want to stay in the realm of stylist/salon owner, there’s two levers you can pull to increase profit retail and increase booth rent.
I know there’s a lot of feelings about retail right now. Retail is still a very viable tool in our industry. The top salons that I’m aware of today do still sell retail and sell it really, really well. I personally think that the reason why retail has gotten a bad rep and the reason it’s taken a slump is that people have stopped teaching the art of effectively suggesting retail.
Notice I didn’t say selling. The art of suggesting retail is a dying art. If you do it correctly, it’s not a sell at all. It’s simply a part of the service experience. Also, retail offered at keystone is not priced for profit at all. I have a whole presentation and a math breakdown in my program Retail Therapy, which comes when you invest in Thrivers, that shows the math on why. But there’s a couple steps in the math on that that people forget that make it nearly impossible to turn profit with keystone markups.
Keystone is if you buy a product for $10, you turn around and sell it for $20. You end up in a cycle of nearly no profit, which is why a lot of people get burnt out of retail. We need to reposition retail in order for it to be a profit center.
Now, I know retail’s not for everybody. The other lever that I think is easier to pull is booth rent. For most booth rental salons today, they’re renting booths at a reasonable rate, right? Well, this is what the average booth goes for In my area. Profitable booth rental salon owners are priced significantly above average. How do they make that possible? They become dream salons. They become the place where everybody’s dying for a chance to work.
If the cost to run your salon is $5,000 a month and you have seven chairs, okay, well, if you can find a way to charge a thousand dollars a month per chair, well, now you’ve just generated $2,000 in profit from chair rental.
For anybody who says, “Well, that’s impossible.” No, it’s possible. There’s thousands of salons all over the country doing it like that and the way that they’re doing it is not by price-gouging stylists. These are dream salons. Studio suites are doing it.
Let me make this very clear in terms that you’ll understand. How many of you have gone to a studio suite, even just walked through the building and said, “Damn, that’s expensive”? Studio suites are offered at a premium. Why do most studio suite buildings have a wait list? Because they’re worth it for people who are looking for that level of exclusivity. You as a booth rental salon can have that same positioning as a studio suite should you choose to rise up and create it.
If you’re a booth rental salon, the opportunities to create revenue beyond what you’re producing yourself behind the chair would be retail or increased booth rent, the second being my favorite. Finding a way to have premium booth rent by taking care of your stylists in a way that nobody else can. Generally speaking, that’s not going to be things like towel services, amenities. I mean, we have an episode coming up talking about what stylists are looking for today and I got to tell you, it’s not things like granola bars and towel service. That’s not it. You’re going to have to dig a little deeper.
Let’s look at commission salons. Commission salons have different profit centers. Their greatest asset is what? Employees. Their stylists, which ironically is the same profit center that booth rental salon owners have. It’s just a different way of doing things.
Booth rental salon owners have to be able to charge high rental rates commissioned. Salon owners don’t have to keep an insurmountable commission rate. That’s actually not it. Isn’t that interesting? It’s very different. The profit formula is not the same at all and that is one of the sneaky secret reasons that being a commission stylist isn’t always that bad because you can get a really premium experience without having to pay a premium commission split. Versus when you rent a premium studio suite or you rent a premium chair, you pay a premium for it. You can be in a premium commission salon and not get gouged on your commission split. It’s one of the things that I think is deeply misunderstood and I think it’s just worth considering.
If you were, again, going back to my episode about selling a salon, which P.S., most people in this room are never going to sell their salon and don’t want to. The reason I keep talking about it is there’s a great book, it’s called The E Myth, and I think there’s a new version called The E Myth Revisited. One of the subjects that comes up in that book is this idea that a good business is one that’s built to sell, but generally a business that’s built to sell is so good that the owner never wants to sell it. Because for a business to be sellable, it has to be profitable. It has to run like a machine. The owner can’t be the key man. It has to be pretty perfect and so when you talk to a lot of people who are in the position where people want to buy their salon, they’re like, “This is my baby, like I made this, I’m happy. Life is good. No thank you.” That’s the position you really want to be in.
The majority of salons that get to that position are employee based. The majority, not all of them, but the majority, so it’s just something to think about.
I think we’re living in this new age and era where there are some incredible booth rental salons that offer a lot of the perks and benefits that commissioned salons do. There’s this emerging kind of third variation that’s definitely worth keeping an eye on. But overall, commissioned salons do have the most potential to be profitable for the owner.
One of the things that I talk about in my compensation trainings and Thriving Leadership is this idea of profit for profit, which is not a commonplace pay structure at all. I don’t think it’s been deeply adopted, but I think it’s interesting because we look at basic, basic commission structure, what do most stylists say? “I don’t want anything less than 50%.”
Okay, so you don’t want anything less than 50% of what? Gross? I don’t know of a lot of other, maybe none, businesses in the world today that pay on gross revenue. It’s usually on net margin.
How many of you have ever been privy enough to the numbers of a commission salon where you’re like, “Oh my gosh, you threw so much color down the drain to do that root touch up that it costs you $30 in product and the client only paid 50 bucks, but now I have to pay you $25 in commissions” ’cause I’m paying you 50%, right? It’s like, man, the salon owner’s just getting hosed and the stylist doesn’t worry about it ’cause the stylist is getting their 50% commission and it’s all good.
Stylist, I understand where you’re coming from. I totally get it. The problem with that is it’s not sustainable and it’s not viable. The way that I suggest for compensation is called profit of profit. In the profit of profit model, the stylist always keeps the lion’s share. There’s no scenario in my model where the salon owner takes home more than the stylist. It doesn’t happen.
When stylists are being offered a 40% commission split and the salon is keeping 60 and they’re like, “Haha, Britt says you should never do that,” no, no, no. That’s traditional commission. That’s the kind of commission that I can’t find demonstrated in other marketplaces.
Profit of profit is looking at the actual revenue generated. When we look at the actual profit, my suggestion is that the stylist gets to keep anywhere from 65 to 80% of the profit, so the stylist is always coming out ahead. Now, in doing so, there is a 0% chance that the owner is not taking home any profit at all.
For you as a stylist, that should make you breathe a sigh of relief. If you’ve ever worked for a salon owner who’s in massive debt, your salon is going to start looking like garbage. Your salon owner’s going to be stressed out, they’re going to be angry, there’s going to be no perks and benefits of working there. Working for a profitable salon owner is your best life, let me tell ya.
Let me work through some numbers. I’m going to pull up my Thriving Leadership compensation calculator and this is going to be 20% PFP. That means the stylist keeps 80% and the salon owner keeps 20%.
Let’s say that for this stylist, this stylist is doing $10,000 a month in services. Okay, great. Then the next question is how many stylists work at this salon? Let’s say at this salon, there are eight stylists, great. Average monthly total salon investment towards non-retail client services and supplies. We got color developer, foil, chemical service supplies, gloves, extension beads, everything. Let’s say the overhead on that is $3,500 monthly building lease or mortgage payment. Let’s say that it’s $3,000 monthly cost for salon amenities, so food, beverages, welcome packets, client gifts, et cetera. Let’s put that at 500. Healthcare, the cost covered by the salon, let’s say that this salon doesn’t offer health coverage at all. I’m going to zero that out. Monthly cost for cleaning, I put at 400 monthly cost for laundry. Let’s say that there’s none because it’s done in the salon, so I’m going to put that at like 50 bucks for detergent or something monthly. Utilities I have at 1200. Retirement contribution match, maybe your salon offers retirement contribution. I’m going to keep this at 3%. Let’s assume this salon does salon administrative roles, monthly costs. Does this salon have assistants? Does this salon have receptionists? All those things can be accounted for. In this case, let’s keep it at zero. And then we have monthly credit card processing and booking system fees. I put that at 600. Then any other miscellaneous salon expenses, so cost of retail, restocking, bringing in a guest educator, whatever. We account for all of those things.
What the calculator spits out is a couple of different numbers. It gives us how much the salon owner should be saving for the business every month, how much the salon owner should be putting into an educational fund, right? By educational fund, I mean I want the salon owner to bring in amazing educators to this team every year.
And then the employer federal tax contribution. This is an estimate, like the tax rate changes based on your income bracket and all these different things, but at least gives you a ballpark.
What the calculator does is it says, okay, great, so based on how much it costs for you to operate this salon, the total monthly employee cost for this person is just over $2,000. It costs this salon owner $2,000 for this stylist, whomever they are to breathe the air in the space, whether they’re doing services or not, it’s $2,000 a month to have this person in the building. The way that this breaks out is if we’re doing a 20% profit of profit—which means the stylist keeps 80% and the salon owner keeps 20—it puts the stylist annual gross income at $76,000 monthly. Gross compensation is $6,378.
If you were to pay this person hourly, if they were working five days a week, they’d make 40 bucks an hour. The salon would profit on this person $1,500 a month, $20,000 a year, everybody wins.
I would wage a guess that a lot of stylists aren’t even being compensated this well. The way that this is set up is it forces the salon owner to really think about profitability, profit margin, profit potential. It forces this stylist to choose to level up.
Let’s change the numbers. Let’s say that this stylist is only doing $3,000 a month in services. That’s going to change everything. At that rate, I can only pay this person $8 an hour instead of $40 an hour. Their monthly gross compensation potential is now $1,300 instead of over 6,000.
What the calculator does is it takes into account all of the overhead costs to operate this business, and then the realities of the stylist in the space, and it becomes very logical, practical, I guess are the words we would say there. It takes all of the emotion out of it.
How many of you, if you’re a salon owner listening to this, you guessed and you’re like, “Well, I feel like if I do a 40% commission split, then I’ll probably be able to pay my bills.” Or like “I’ll never find a stylist to work for me for less than 60%.” Those are emotional desperation decisions. If you sit back and actually look at, all right, what’s the profit margin? What’s the potential? How much can I possibly pay a person? For me, I think the smartest business owners are saying, “I want to pay my people as much as I possibly can and still put food on my table.” I think that’s the salon owner that’s going to win.
I want you as a salon owner to say to yourself, “Okay, am I running a commissioned salon? Am I running a booth rental salon? Am I looking at my profit levers? Am I looking at my overhead? Am I saying, all right, what are the things I need to do to make this salon profitable while taking phenomenal care of my team?” Because if you can balance those things out, my friend, you’ll be completely unstoppable.
I hope this was a good one for you. If you have any further questions, leave a rating or review on iTunes. Happy to support how I can.
Y’all, so much love, happy business building. I’ll see you on the next one.
