the Compensation System that is
as Goldilocks found porridge that was too hot and too cold and
beds that were too soft and too hard, we must find a compensation
system that is “just right” for our needs and objectives!
you are a Provider or an Owner, the subject of “Compensation”
always seems to be at the top of people’s lists of concerns,
and everyone seems to have a different opinion. Is there
a perfect system by which to remunerate Providers, insure Guest/Client
satisfaction and leave a profit for Owners?
me first say that I am a big believer in “Capitalism” and in
its Karmic ability to reward those who play fair and punish
those who get “greedy”. Let me explain with these two
Sleeping Beauty Never Wakes
upon a time there was a Spa Owner (Beauty) who when opening
her business was unwilling to take the “risk” of attracting
customers and decided to only pay Providers when they performed
the first couple of years Beauty’s staff went hungry, they could
not afford to live on the little amount of work that they were
doing. Consequently profits were low and employee turnover
was high. Beauty was no longer able or willing to invest
the proper amount of time into each new employee training in
order to insure consistent Guest/Client satisfaction.
Beauty was only left with a VERY entrepreneurial group of Providers
that performed their own services on their own regular clientele
without regard to the “greater good” of the business.
When would her Prince arrive?
these “survivors” were the only thing holding Beauty’s business
together they were able to negotiate very high commission rates.
Consequently her dream of having a very successful Spa, with
a loyal team of professionals working in harmony, and a brand
built on signature services, where the customer comes first,
was reduced to table scraps of profit at best, and possible
bankruptcy or failure at worst. Beauty remains in a deep
slumber to this day and will never wake to realize her potential.
no “happily ever after” here, but that is the Karmic ability
of Capitalism! Now let’s look at fairytale number two:
Cinderella’s Step Sister Never Learns
long time ago in a Spa far away there was a Provider (Prunella)
who was making a 70% commission, Prunella was able to negotiate
such a high percentage because she had such a large client list
and a loyal following. The other Providers were struggling
to keep busy and many could no longer afford to work for the
few crumbs of work that was left. The Owner (Mother Hubbard)
had to take money from her own private cupboard to make up the
shortfall each month. While Prunella was the Provider
that the beauty and massage and esthetics schools in the area
used as an example to show just how much money a Provider could
make in this industry.
months came and went so did the employees. They could
no longer afford to stay working with such small amount of clients
and also because Prunella treated them as more and more insignificant
each day to the point that they felt like Cinderella doing all
the chores and wearing hand me down clothes.
we skip forward to “Chapter 11”, Mother Hubbard was falling
deeper into debt and Prunella’s unsatisfied appetite for more
money and more clients each month forced Mother Hubbard to make
some tough decisions. Ultimately when her cupboards were
bare she was forced to close her Spa. Suddenly as the
clock struck “times up” Prunella’s coach turned back into a
pumpkin and she found herself out of work! Prunella promised
herself that if a Cinderella opportunity ever returned she would
treat it with respect and never place unreasonable demands again,
“Just give me one more chance”, she sobbed to herself alone
in the garden.
I am sure these two fairytales bare no resemblance to anyone
you know, but they are examples of how Capitalism has laws,
just like gravity has laws, and in a free market left to its
own destiny, greed will implode and hard work is rewarded.
This is how Humpty Dumpty can be sitting high on Wall Street
one day and in the omelet the next, when he forgets the laws
of gravity and Capitalism!
why are these fairytales important to deciding what type of
compensation system is “just right” for you? The lesson
here is that most industries have learned to build their business
practices on these immutable principles of business and Capitalism.
They have learned what works, what doesn’t work, and why.
I am not sure that our industry has learned these lessons yet,
instead many of us copy the mistakes of others because, “That’s
the way it’s always been done”. Consequently many business
Owners and Providers are not realizing their full potential.
years before most of you were born there was a thing called
“piece work”. Factories paid their employees a fee for
each “widget” produced. This was a “no risk” way of paying
employees, right? This was a way for owners to have a
fixed cost for the delivery of each “widget”, right? Using
this logic Owners were proud of themselves for guarantying the
cost of production would not go up. What they failed to
realize was that they also guarantied that the cost of production
could not go down. Soon there were competitors utilizing
better labor contracts, the latest technology, or better production
methods to make widgets for less money and/or of better quality.
As a result Owners were faced with difficult decisions and many
were unequipped with the flexibility to adjust to the law of
business that says you must find more and more efficient ways
of delivering your product or service everyday if you are to
survive. Sounds a lot like one of our earlier fairytales
there ONE right way to compensate? I am tempted to say
yes because I believe that there is only one right way to compensate
in order to accomplish what the goal of most Spas businesses
and Providers should be. However there are some Spas that
do not have ordinary business goals and therefore other methods
will better realize their objectives. Let me see if I
can break it down for you:
your goal is NOT to build a brand but instead have a simple
business model that pays the rent and perhaps a small profit,
then a Booth Rental business model makes sense. These
operations can be simple to operate, and your tenants are competing
against each other for their share of the community’s business.
idea of building a “Brand”, having any consistency in the delivery
of services, or creating an “overall Spa guest experience”,
has no place in this type of operation.
reality of this fairytale system is how little an Owner stands
to make when compared to all other systems. For example,
take the amount you can charge for Booth rental, and divide
it by the gross profit of another system and see how few services
it would take to make far more money even at very high commission
your goal is to eventually take your client list and open your
own practice someday, this is a great way to get started.
You should feel no guilt of conscience taking your client list
and “moving on”. Your Clients will never enjoy the
full “Spa Experience” in an operation like this, but you can
certainly build a reputation for the results you provide and
a loyal following.
sure that you are just as great at marketing and sales as you
are at professionally providing your services.
Commission Based Pay:
you owned a small hotel or inn with only 1-2 massage rooms,
and the “Spa” was only an “amenity” for your guests, and you
were not worried about making profit in the Spa because the
hotel was where you made your money, then this might be a pay
system that will work for you.
system has many limitations which may include lack of team work,
lack of profit, difficulty building consistency into the delivery
of services, and competition within the facility.
if you have a “serious” Spa then the lack of control and profit
will work against your objective. Based on a recent compensation
study done for our industry we discovered that ALL associated
labor costs including Providers, Administration, Management,
and Support staff AND employer’s share of taxes, benefits, and
workers compensation CAN NOT exceed 60% of revenue if you have
any hope of turning a profit. With Provider commissions
now often exceeding 40% or even 50% controlling the total labor
cost under the 60% level becomes impossible.
only want some occasional work, have plenty of flexibility,
and want a high rate of pay for the few hours you work, then
this pay system may work for you.
on the other hand you wish to build a career in this industry
and/or excel at what you do, then pick another system.
If you want to be an entrepreneur then go back to the Booth
Rental. If you want to be part of something larger than
yourself and devote your creativity toward making a wonderful
environment for not only the Client/Guest, but also yourself
and your fellow employees then you need something with far more
security than either Booth Rental or Commission Based Pay.
Flat Rate Pay
an Owner or as a Provider:
same incentives and disincentives as Commission Based Pay apply
to “Flat Rate Pay”.
only difference is that instead of a percentage of the revenue,
the Provider is paid a “flat rate” for each hour of service
provided regardless of price. This is good for Owners
because if the price of service goes up then you decide how
much, if any, the Providers pay is adjusted. It is also
good for the Provider because, if the Owner decided to comp
or discount a service then your rate is not affected.
Straight Based Pay
an employee for every hour they are at work regardless of how
many services performed is the way almost every other business
in the world operates! We don’t see grocery clerks, nurses,
or mechanics expected to “build their own client lists”, nor
do we pay them a percentage of what the customers spend.
Why then do we believe that somehow “the Spa business is different”?
This type of thinking we’re different or that normal business
rules don’t apply will get us in trouble every time.
submit to you that “The way we pay people is at the root of
almost every problem (or success) that you may encounter as
a business person”. Lack of team work, back-stabbing,
dissatisfied customers, minimal profits to name only a few.
(Notice that I did not say “how much we pay people” I
said the WAY we pay people, this is important for reasons that
should become obvious as you design your pay system.)
system of “Straight Hourly Based Pay” allows us to accomplish
the typical business goals of profit, team work, superior Guest
experience, etc. This is the system that provides a “Win
– Win” for both you and the Provider (and the Customer as well).
If you have typical business goals for your Spa business this
is the “Just Right” way to pay. This system allows for
building a more efficient and higher quality operation on an
on going basis. It also allows you to adjust to changing
market demands and competition. Most importantly, as you
begin to fill the capacity of your facility, it allows you to
bring the associated costs of labor well below the 60% level
as previously discussed.
you looking for a place to learn and grow? A creative
outlet that contributes to a sanctuary or peace for your Clients/Guests?
Security and a safe place to build a career? A place you
can afford to help others and get to know your fellow employees?
Perhaps you are right out of school and want to start making
a living in this industry. Then this form of remuneration
is a winner for you because in this environment you can work
hard on being the best possible Provider, instead of worrying
how you will feed your kids next week. This is an environment
of more structure than many Spas, but one that your contributions
have a much better chance of meaning something. All things
considered, the pay is good, you still receive gratuities and
retail commissions and have a healthy working environment in
which to flourish, how can you loose?
part of a business that IS profitable has other benefits as
well. Many of the Spas with this type of pay system are
able to afford benefits such as Health Insurance, 401k plans,
or Profits Sharing. So besides the security of working
for a profitable business that has is more likely to be around
for a long time, you can get regular raises and performance
reviews, grow your income and benefits as your company grows,
and even have a career path that leads to greater pay and more
Hourly Plus Commission
people think this “hybrid system” is the best of both worlds,
in my opinion it is the worst of both. With this system
you now have a fixed payroll cost PLUS a high fixed cost of
service delivery. Instead of low risk or high rewards,
you have high risk AND low rewards! The only reason to
utilize this form of pay is if your Spa is an amenity and Spa
profit is not a concern (as in the commission example) AND you
are having trouble getting employees to show up during slow
may be a step in the right direction for you if you are looking
for a bit of security, especially when first starting out in
your Spa career. But you should quickly decide which is
more important for you; the career security or becoming an entrepreneur
and pick the system that best propels you toward those goals.
could go into more of the advantages and disadvantages of these
pay systems as I did in my book “The Reluctant Spa Director
and the Mission Dream”, but space constrains me. So remember
just a few “laws” of business:
should incorporate a Compensation System that produces the
behavior that matches your goals.
should look for a Compensation System that allows you to
accomplish your personal goals.
the Karma of Capitalism and how violating laws of business
can end up in disaster.
must find more efficient, higher quality ways of delivering
your product or service through continuous improvement everyday
in order to compete in a free market.
is a saying in business: “You can make money in a ‘Bull
Market’, you can make money in a “Bear Market”, but Pigs
always go to slaughter!
because everyone else pays that way does not make it the
right system for you.
Wishes & Healthy Profits