Forbes magazine reported that the traditional commission salon is going the way of the dinosaur. While another type of salon - the booth salon - is gaining more popularity, there are advantages to running a traditional commission-based salon. The type that you choose depends on your desired commitment.
Despite the lagging economy, the beauty market remains a bright spot on the map. According to the Professional Consultants and Resources Website, the salon industry grew by 4.5% in 2010. Nonetheless, the issue of commission-based vs. booth rental structures is relevant to anyone interested in opening or purchasing an existing salon in knowing how to compete in this market.
The traditional commission-based salon takes a cut of stylists’ income but also provides them with benefits such as taxes, worker’s compensation, and liability insurance. The Professional Beauty Association estimates that 19% of all beauty establishments fall into this category, and 40% of all stylists in the US rent chairs. This type of arrangement works best for stylists who have already established a name for themselves and do not need outside help to attract clients or for owners who want a more hands-off approach. It also helps to circumvent the current problem of owners having to pay tax on commissions that they never receive.
The booth salon offers the benefit to employees of perks such as high signing bonuses and discounts on rent. It also provides freedom for the stylist in setting his/her own schedule and managing individual clients. Owners receive the benefit of not having to pay workers’ compensation, federal and state employment taxes, advertising costs, or liability insurance. As a result, if you are an owner who has little experience in the business and would prefer to hire stylists who can attract and manage their own clients, this structure is more favorable. You will perform the duties of a landlord, responsible for keeping up the facility, paying rent, and running the everyday operations, but you will not be obligated to be heavily involved in managing your stylists.
The commission salon provides the owner with the opportunity to take on the challenges and enjoyment of being a true small business owner. In contrast to the booth salon, where you can expect to receive consistent income, with a commission-based salon there are greater opportunities for growth depending on your industry knowledge and business acumen. You have the potential to build a strong brand by providing quality training and education to employees, investing in advertising, and enforcing high quality standards. You will be responsible for managing and providing guidance for your team.
At the same time, as the owner of a commission-based salon, you bear significantly more risks. For example, there is always the chance that after training and educating your stylists, they will be lured away to other higher-paying salons. You are also highly dependent on popular stylists for income. For the business owner who wants to be involved in managing an operating the business, this approach is better, and still has the ability to attract less-experienced stylists who are in need of training and help attracting customers.
At a commission salon, there will be mentorship and educational opportunities, depending on how much the owner wants to invest. The competition will also be less fierce, as everyone will be working to increase the revenue of the salon, since it is paying their salary and benefits. Less experienced stylists can benefit from more steady work compared with the booth system. The only drawback is that one these stylists reach a certain level of expertise they will simply leave, creating a situation where the average experience of the stylists is relatively low.
One advantage that commission-based salons retain is stability. In addition to benefits, employees do not have to worry about bookkeeping, taxes, or advertising, and can take advantage of the salon’s reputation and camaraderie. This is an attractive option for stylists who do not have the business skills to manage themselves. Thus, in order to compete with booth salons, it will be necessary to excel in management, marketing and advertising, and branding. Other ways to enhance the quality of the workplace is to offer top-of-the-line equipment, focus on employee satisfaction, and choose a prime location. These are things that booth salons cannot provide to the same extent.
1) Entrepreneur: “How to Open a Salon or Day Spa”
2) Hairdresser Career Development Systems: “Booth Rental: Is it Right for You”
3) Forbes: “How to Run a Beauty Salon: Threats”