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 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:
What is up? And welcome back to the Thriving Stylist podcast. I’m your host, Brit Siva, and today we’re talking about how to undo gratuity-free. Now disclaimer, if you’re doing gratuity-free and you love it, amazing. If it’s not broken, don’t fix it. The reason I’m recording this is because we started getting some posts in our Thriving Stylist community in the spring of this year is when they really started to pop up at scale, and by at scale, I mean, I don’t know, nine. Less than 10. 7, 8, 9, something like that. And we’ve steadily seen them coming through ever since, I just started getting DMs about them too. So when I see trends like that where it’s not just one or two people having some kind of challenge, but several people saying, “I’m looking to make a change.” It’s an indicator to me that it’s least a conversation worth happening.
That being said, like I mentioned, if you like it, that’s amazing. I’ve done a couple of episodes talking about gratuity and gratuity-free and how it’s generally rolled out in the past. So if you look at episodes 183 called The Pricing Model Breakdown, or episode 246, which is called Pros and Cons of not accepting Gratuities, this is not a new topic. I’ve talked about this for a few years, but I’ve never talked about working it backwards. What to do if you decide, listen, I tried gratuity-free, it did not work for me, now what? And I think this is a very fair conversation. I think that our industry is incredibly cyclical and like anything else, we’re going to try things and then decide not to do them. Some of you started your career doing cuts, colors, perms, extensions, styling, everything under the sun, and now all you do is colors and blow dries, right?
You phased out other things, you changed your mind about how you want to navigate the industry. For those of you who are like, I tried the gratuity-free thing, it didn’t work for me, it didn’t work for my clients or whatever, I want to explore the option of what it would look like to work that backwards. So I’m going to read you a few of the comments, quotes that I received that led me to this point and I will not share the names of the people who reached out. So the first was, “I fell into the trap of going gratuity free. Part of me loves the ease, the other misses the gratuities. What should I do to bring it back? Is it too late? I’ll be moving from my own one chair salon back to booth rent in a couple of months.” I assume that means I’m moving from studio suite ownership back to booth rental in a couple of months.
“Thoughts on bringing it back, and verbiage you think would help? If so, thank you.” Okay, so that’s the first one. That was from an independent stylist obviously. Then another salon owner also reached out and was saying that they’re struggling because they had shifted their salon to hourly and then removing gratuity. And what she was saying was they’re struggling to grow as quickly as they wanted to and she ran herself through the Thriving Stylist method pricing calculator and the calculator tells her to price herself lower than she’s priced. Now I always say I very rarely, less than 10 times in the 15 years I’ve been coaching stylists have I coached a stylist or salon owner to reduce their prices. I’m not a big fan of price reductions, so please know that. But what she was saying was, “I’m priced 20% above my market and we are not growing as fast as we’d like to be. What should I do?”
And so I asked more questions. I was like, “How do you believe you got priced 20% above market?” And what she said was she raised the stylist and salon’s prices by 20% and eliminated gratuity, which has been happening in recent years, and I do talk about that in the podcast episodes I mentioned at the top of this show. So couple things I want to talk about that both of these people mentioned in the conversations I had with them. Both of them mentioned shifting to hourly and or gratuity free as a way to make things easier on the business owner and/or the stylist, right? A, I understand the desire to make things easier as a stylist or salon owner. Aren’t we all trying to make life easy? Amen to that. I get it. The challenge is there’s no business advisor that’s going to tell you a really good idea in business is to do the things you need to do to make your life easier.
It is about meeting the client where they’re at, serving the client at their highest. And I don’t mean self-sacrificing. I don’t mean letting go of your boundaries. I don’t mean letting go of your values. I don’t mean becoming a human doormat, none of that kind of stuff. But generally we don’t say, “Screw the customer, I want to do what I like to do.” That’s generally not going to be great advice, and that is an extreme statement. I don’t think most people walked into going gratuity free saying screw the customer. I think that most people walked into gratuity free based on a couple things. Either values-based decisions, when you look at the history of gratuities, it is a dark past and it’s something, industries that have relied on gratuities for years are mostly service-based industries. So we’re looking at hospitality, restaurants, certainly us, estheticians, stylists, things like that. And those are generally industries where rates of compensation are lower.
And then there’s also the racism that exists in gratuity in the past as well. So some people chose to go gratuity-free because values-wise, it felt aligned for them. Completely respect and understand that. When you look at industries that do accept gratuity, what we often do is we say, well, if the business would pay the people more, gratuity wouldn’t be required. Okay, cool. How does the business have the power to pay the people more? By charging the customer more. So fast forward to now in 2024 when everybody’s complaining that when you go get your kid a happy meal, it costs $10, yeah, to pay the people more, the business has to charge the customer more. And I know that there’s this fanciful idea of if the CEOs would just make less money, I got it, but I have to be honest with you, that’s not going to happen.
So the idea that we’re going to somehow restructure the way business has been done for centuries in the name of fair compensation for everybody, history tells us that’s not going to happen. So what we’ve done in saying we’re going to be the start of this movement we’re going to go gratuity-free, is you have tried to circumvent natural consumer behavior and natural business tendencies, which generally speaking isn’t advised, which is why you don’t see a lot of other businesses going this direction. There was a restaurateur that shared recently that he tried, it was a big New York restaurant. He tried to eliminate gratuity and simply increase the cost that the consumers were paying to have their meal, and then even openly said, “I’m going to take care of my staff.” And he was doing that. That was the plan of you don’t have to pay the gratuity. They make a wage that’s 20% above average.
He openly stated in this article it was a failed model and he’s now working it backwards because customers were like, “I don’t want that. I want to pay the same for my meal here that I’m paying at a comparable restaurant.” The consumers weren’t ready for the change. So that is one of the challenges that’s certainly come up. The challenge that I think is actually more prevalent is that what we’ve done is combined subjective cost and anticipated cost. So subjective cost is not guaranteed. It’s an opportunity. Tip and gratuity lives in that subjective cost. If I don’t like you, I don’t have to tip you. We say tips are a gift. It really is a gratuity. You can’t expect it, but it’s nice when it happens. We say those kind of things, so it lives in that gray area of subjective cost. You know how if you’ve ever served tables, I worked in a restaurant, it was my very first real adult job, and you see a group of teenagers come in and you’re like, “They’re probably going to stiff me.” Right?
You immediately think that because they don’t have to tip you. However, you see a nice couple coming in to celebrate their anniversary, you’re like, “They’re probably going to take care of me today.” It’s just the nature of the beast. Versus the anticipated cost is the cost of the service. If I want a haircut, your haircut price is $85. I expect to pay that period. I have to. I can’t go in and be like, “Oh, I’ve decided today I’m only going to pay you 50.” It is 85. I got to pay 85. That is anticipated. When people chose to go gratuity free and raised their prices by 20% to do so, that’s when it became a problem. Going gratuity-free in and of itself doesn’t have to be a problem. You can just say, “I don’t need that money. I’d rather my clients keep it for themselves, use it on something that means a lot to them. It feels values aligned to me to, I don’t need that money. I don’t want to take that money. It’s not for me.”
You don’t adjust your prices. You just make a value-based decision on, I’m not going to do that. No worries, that works great, but then you have to be totally okay with you’re not going to make that money anymore. And if you are, that’s great. Where this became a challenge for people is when they raise themselves 20% above market price point, expecting an entire community to just adjust and accept and get on board, and they didn’t. And so now, several years later, some stylists and salons are saying, “I don’t think this is working for me. I’d like to work it backwards.” If you go back and listen to those podcasts, what I actually say, and I can’t remember which one of them or maybe I do say in both, I say this model’s, okay until the economy takes a downturn and when the economy takes a downturn, when you have combined anticipated in a subjective cost, now you’re in trouble.
Because we watched, if any of you were in the industry like I was in the last recession, which was called the Great Recession, 2007, 8, 9, 10, 11, 12, 13 is when we started to recover, people stopped tipping. And they would tell their stylist, “I still want to come in to see you, but I am sorry. All I can afford is my service cost.” And the stylist was like, “That’s okay. We’re going to get through this together.” That was very, very commonplace because they could just opt out of that subjective cost and still play the anticipated cost. Now, when we’re living in a time where there’s a huge narrative in the industry where clients are pushing back even against the anticipated cost, right?
The priced perfectly for our market, this makes sense, this is good for us, clients are pushing back against that. So not only are we trying to garner demand for our anticipated costs, but some people have also lumped subjective into that. It’s like a double whammy, and that’s where I believe it’s coming to a head is for those who eliminated gratuity, raise their prices to compensate for it, and now they’re feeling like they cannot grow as quickly as they would like to be, or they’re in a bit of a bind. So I want to share the story I got from a salon owner and then I’m going to talk about how to work it back. So when I asked this particular owner, why did you choose to go the direction of not accepting gratuity? She said, “Ease of use, understanding, and transparency, we as a team have all really liked. I also find it’s completely eliminated discounting or forgetting by going hourly.”
If any of you have done a la carte, I remember this in the salon all the time, client would come in and add on a mini highlight or choose to opt into an in-salon conditioning treatment and you would just forget to add it to the dang ticket and then the client wouldn’t pay. That sucks. That happens all the time, right? It stinks. We get bummed out about it. Versus when you do something where it is what it is, you don’t forget stuff like that. And so there is a ease of use component on both sides. I understand that ease of use component and that is the part that to this owner was really appealing. Here’s what was interesting.
She said, “Something that’s been a challenge is sometimes my juniors, and that’s in quotes, so I’m going to assume junior stylists or newer stylists, take a lot longer. So the price actually creeps up close to what a top stylist would be charging because that top stylist is more efficient.” That can be one of the problems. And then she was expressing that her stylists are having a demand issue. They’re not growing as quickly as they’d like to be in both service revenue and client requests. And she said, “I’m not sure if our prices are too high for the market and that’s the problem, or maybe it’s perceived value. We do seem to be a busy salon, but most of my stylists only fill up one or two days before.” That is a demand issue pretty much on any business standard. So, by the way, my advice to that salon owner wasn’t you got to shift back to a la carte and you got to get rid of the gratuity-free. That wasn’t my advice.
I said, ;et’s just continue to dig in and try and figure out the pieces of what you’re doing and how you’re doing and what is working and what your clients are really responding well to and what they’re not responding well to, which is how I always coached pricing, and that’s where we ended up. But one of the things that she’s pretty certain on, and this other stylist is very openly asking is I want to start accepting gratuity again. I want to work back the gratuity free thing. How do I do that?
So I have four different steps. Step number one, you’re always going to run yourself through some kind of pricing model. I coach to what we call the Thriving Stylist Pricing Method. So we are the industry’s only professionally engineered calculator. We brought in like an actual engineer to build it for us. And what happens is a multi-dimensional calculator, you enter a bunch of data and reality about the truth of your business, how many clients you see, the schedule that you work, your cost of goods, the area you live in, seven different factors, plus your timing is factor number eight.
You enter all these things. And the reason why we call it dynamic is because every time you change one thing, there are formulas built into the back end of the calculator that will continue to perfectly price you in your market. So that’s why I say there’s seven factors of pricing plus eight being your timing, and they all rely on each other. This is why cost of goods increases became so problematic and why a lot of stylists are paying the price for them now is because yes, that was one of the factors, but you didn’t weigh it out against the other six factors and some people inadvertently screwed themselves. Some did not, but some did. And that’s why there is a little bit of a lull in demand for some stylists today, which by the way, not all stylists and salons are having a lull right now.
Some are having a heyday, but that’s because of multiple factors we can’t unpack right now. So step number one, run yourself through some kind of pricing model. I like of course, our Thriving Stylist pricing calculator. If you have another business coach, another coaching system, and they have some kind of method you can use to price yourself for your market and historically it’s worked well for you, do that. Just get a pulse on where mathematically and data-based these tools say you should be priced. Now, it might put you into your feels, but just do it as a step one. It gives you a good baseline.
Next, if you did do the thing where to go gratuity free, you raised your prices by 20%, you are going to have to now reduce your prices by 15 to 20%. I firmly believe that even if the pricing model says, “Oh, you only have to raise by 10% and you’ll be fine.” I think to undo this and to have it land well in the eyes of the client and to do the positioning that I’m going to share with you here on this episode, you’re going to have to reduce by 15% or more.
I’m going to suggest the full 20. If you raised by 20, I’m going to suggest you reduce by 20. But if you’re like, “My demand is increased a little bit and I should be charging a little bit more than I was before.” 15% is basically the lowest I go, I think you to make a pretty significant… You made a pretty significant increase, and so you kind of have to match that energy and make a pretty significant decrease to work this backwards. I’m going to explain where we’re going to go from here. Number three, you’re going to update in your website and your booking system. Number four, you’re going to let clients know, and you’re going to do this verbally, you’re not going to do this on social media. You’re not going to send out an email. You’re going to have face-to-face conversations with people, and you’re going to say, in your own words, “I’ve chosen to reduce my prices to meet the market.”
To meet the market, I think that’s a really key part of this. Don’t say because of the economy, don’t say that. I’ve chosen to reduce my prices to meet the market, and I do hope that you see a benefit in this as well. When you start saying things like, “The economy’s tough, we’re all going through a hard time.” You’re feeding into this fear-based spending narrative that could very actively work against you. So we don’t want to do that. So the word is, “I’ve chosen to reduce my prices to meet the market, and I hope that this serves you as well.” And then you say with that, “I am open to taking gratuity if that feels aligned for you, but it’s in no way required as a part of my business and I look forward to continue working together.” So you take it from a positive spin of I’ve reduced my prices to meet the market where it’s at.
You are in no way required to leave a gratuity. However, I’m reopening that door. If it feels aligned for you, amazing. If it’s something that doesn’t fit in this season, I completely understand as well. My main priority is I want to continue working together. That is going to be the position. Now, this does not come fault-free. There are two potential downfalls. One, you could lose money, but you put yourself in a little bit of an interesting position that most industries don’t choose to do and that our industry historically hasn’t done at scale before, you could potentially lose money. And I don’t want to say that I think if you do this, you’ll certainly come out ahead. Because I can’t say that with certainty. However, when you’re playing a long game, I do say the phrase quite a bit, sometimes there is a short-term sacrifice for a long-term gain, and I do think for those of you who are struggling with gratuity-free, if you do want to work it backwards, this is the way to do it, planning for the best possible long-term success.
And potential downfall number two is clients could choose not to tip you. You made a stance on I don’t accept gratuity. You built at least some kind of clientele on that, I’m thinking. So there’s a chance that those people were like, “You said this is not what you do, so we don’t do it here.” You tried this. Here is what it is, right? It’s like if somebody made a decision to, I’m going to just eat candy and ice cream all day long, and then you gain 10 pounds, and then you decide, okay, that didn’t work out so great for me. Okay, well, there’s a price to pay for that. You can lose the 10 pounds and you can start reincorporating proteins and vegetables and all those things into your diet, but there is going to be a bit of time where you’re still carrying the 10 pounds. Now you’re not eating the ice cream and the candy and it doesn’t feel so great. You may be in that mode for a little bit.
However, you can get back to a place where all is well. It’s just simply going to take time. And I think that for those who are in the position of thinking, “I don’t know if gratuity free is working for me.” There’s probably already some kind of pain that’s happening for you. Otherwise, you wouldn’t be considering the decision because like I said at the beginning of the episode, if it’s working for you, why would you change it? This is only if it’s not working for you. So there’s already some kind of pain happening. Sometimes we do have to walk through a little bit more pain to get to the relief, right? If you are having a demand issue, if you feel like you’re priced above your market, you are getting yourself into a bind, clients are pushing back, you’re having a retention issue, and you’ve chosen to increase your prices while incorporating gratuity free. I just want to explain how, if you do want to work that backwards, this is how I would advise you to do so.
Would love to continue this conversation. Feel free to leave me a rating or review on iTunes and in the comments, let me know any questions you have. Would love to serve you up deeper. So much love, happy business building, and I’ll see you on the next one.
