Do We Pay? / How Do We Get Paid?
By Skip Williams
Point of View) / (Providers Point of View)
the close of the century upon us, the many changes in the Spa/Salon
industry, as well as the changes in the economy, it seems to me
it is time to reevaluate how we pay our Providers and it is time
to reevaluate how we get paid from our Spa or Salon.
should we care? (Some Background)
my years of financial analysis of the Spa / Salon business I have
found the payroll systems used, to be curious, unique, and usually
less than effective. When I do analysis of a facility I break
it down into "modules" using a "Financial Model"
called "Build-A-Spa " (see article: Are You Planning
to Build-A-Spa, Dermascope June/July 1998). This allows for a
microscopic view of any single treatment or piece of the facility
for a more accurate cost analysis of expenses.
this analysis and the use of other cost accounting methods I find
it effective to break down the "cost elements" into
categories of importance. Because of the labor intensity of this
business, Payroll expense is by far largest and most important
of these categories.
Pareto (1848 - 1923) was an Italian economist who formulated this
well known principle:
any series of elements to be controlled, a selected small fraction
in terms of number of elements almost always accounts for a large
fraction in terms of effect"
name for "Paretos Principle" is the 80/20 rule;
the 80/20 rule is about diminishing returns to effort. Often times,
it takes only 20% of your effort to obtain 80% of your results
and we spend the other 80% of our time chasing the small stuff.
Pareto was to look at this industry, I think he would tell us
that if we did nothing but control Payroll costs we would be doing
at least 80% of our job. This is why this subject has so consumed
me these past 6 years in the Spa / Salon industry. I have known
it had to be controlled, but I was not sure how best to do it
and treat both the Owner and the Provider fairly. In future articles
I hope to discuss other ways of controlling labor costs that do
not affect Payroll Systems, but today let us look at the advantages
and disadvantages of different pay systems.
Found Types of Pay in the Spa / Salon Industry
are three common ways that Providers get paid, Booth Rental, Commissions,
and Salary or Hourly. In the following assessment I have tried
to outline some of the advantages and disadvantages of each. You
may find some of the assessment pertains to you and some does
not. You may have many other points that you would add or delete
from these lists, I would love to hear from you.
Rental comes straight from the salon industry and is not permitted
by law in many states. The concept is easy, an owner provides
a room or a chair that can be rented on a weekly or monthly basis,
and may provide a person to do reservations. The Provider works
as hard as he/she wants to and keeps all they make less the rent.
Point of View)
to a Landlord-Tenant Arrangement
income every month
Easy to Manage
Businesses inside your own
opportunity to increase business
Point of View)
all you make
your own Clientele
Control of Facility hours or rules
inside same Facility
organized growth opportunity
Your Own Sales and Marketing
based pay is probably the most popular form of remuneration in
the industry. Commission rates are usually set by skill level,
length of service, or size of client base. In Resort / Destination
Spas and Salons there is much competition for the prime spots
in the reservations book.
Point of View)
Eager to work
to match pay to service level
to make profit
Agendas under same Roof
Teeth for "In Service"
Evaluations almost Meaningless
Point of View)
Rate of Pay
your own Clientele
opportunity for Growth
time to help others may cut into income
to get to the "head of the book"
/ Hourly with Profit Sharing:
the case study of Salary / Hourly I have added Profit Sharing.
To alleviate any confusion let me explain how that works. Sometimes
these are called team bonuses, but whatever you call them I find
they are just the right mix of teamwork and motivation. They allow
the whole team (usually front desk, housekeeping, everyone but
ownership is included) to split a portion of the net profit, the
larger the profits the larger the bonus.
further point of clarification, we are only talking about pay
systems for services, pay systems for retail sales are not being
Point of View)
Loyalty to Facility Easier to Achieve
control much easier
Providers to wait for Clients
Work to Manage
Point of View)
coworkers, no loss of income
to build overall business rewards self
income throughout the year
to get paid for what you know, not just what you do
of Mindset may be Difficult
opportunities may make it difficult to break into own business
= Rewards (Owners Point of View)
with all businesses Risk = Rewards.
Rental requires less risk (and work) and will yield a fairly static
income for the Owner and a very dynamic income for the provider.
There is no "payroll" to speak of, only the overhead.
Commissions risk is low, and I continually hear from owners that
have spent a lot of time and money, that their profits seem to
be low or nonexistent even as they fill the book. The payroll
expense is a very variable expense, and with this system you will
usually find that the most expensive providers in the facility
are doing MOST of the treatments. With this system we have asked
the Providers to take the risk, why then should we be surprised
when they take the reward also?
/ Hourly risk is high, providers must be paid whether a client
comes through the front door or not. The expense becomes a less
variable expense, a locked in cost of doing business. Benefits
are usually paid and training must be an on going process. If
we are doing our job as Owners or Managers (which is now admittedly,
more challenging) the rewards now become property of the house.
= Rewards (Providers Point of View)
with all jobs Risk = Rewards.
a Provider Booth Rental has the greatest risk, you are the equivalent
of being self-employed. If you are a risk taker and/or eventually
want to open your own practice, Booth Rental makes a lot of sense.
Booth Rental requires a lot of work in the sales and marketing
area, has the most risk and probably the most reward.
you don't mind taking risks, but prefer to let someone else do
all the marketing, organizing, sales, and have all the product
expenses, then Commissions may be your best bet. Commissions downside
may be the up and down income and getting to the "front of
the book". Medium risk with medium reward.
your goal is to make a good wage week in and week out, have the
time to do the best job possible, learn more and help others to
learn more too, then consider the Salary / Hourly concept. Your
wages are secure, with team bonuses you can make more money than
by yourself, by helping others to achieve their best level of
expertise. This choice would also be the most likely to have benefits
and holidays. Salary / Hourly has the most security.
Archaic (Owners Point of View)
you visit a Hospital are the Nurses paid on commission? If you
were an Electrical Contractor would you consider paying Electricians
by commission? Are Grocery Clerks paid a percent of what passes
through their cash register? Of course not! In the real world
workers, technicians even engineers get paid a salary or an hourly
wage. Even "Piece Work" for factory workers is an old
idea. It is primarily "Sales People" that get paid by
commission and Owners get to pay all the bills and keep what's
then do we pay in this archaic fashion? Is it a throwback to the
ye old barber shop days? Is it that we don't have confidence in
ourselves to fill the appointment book? Is the lack of teamwork
worth it? Are we spending good marketing dollars to build up a
Providers clientele, and worried that it might walk out the door
with the Provider? Are we avoiding training because we are afraid
that the Provider might take those skills elsewhere?
Archaic (Providers Point of View)
few businesses and industries that I have examined ask the worker
to share the risk along with the Owner. As Providers it is our
job to do the very best possible for our client, not only so that
he/she comes back but also because we are care givers and that
is our nature. It should be the Owners job to figure out how to
make a profit, and when we become instrumental in the making of
that profit for the Owner, we should be duly recognized, rewarded,
compensated and more secure in our position.
then do we accept being paid in such an archaic way? Are we reaching
for the short term dollar and sacrificing career and security?
Aren't we tired of fighting over just whose client it is anyway?
Where is the teamwork? Are we missing out on training?
decisions we make as Owners in the way we pay will dictate our
Point of View)
we went into this business to become a landlord, then Booth Rental
was made for you.
we went into this business to build a lovely facility for our
Clients, are willing to work but willing to let go of some profit
for the sake a smooth operation then Commissions will do the job.
we went into this business to serve our Clients, make a safe secure
work environment, and maximize efficiency then consider Salary
/ Hourly wages with Profit Sharing.
owners we want to reward Providers for the behavior we desire,
without a loyal employer and the security that most "employees"
enjoy, a client base is all a Provider has and they will use it
as a weapon whenever they feel threatened.
Clients follow Providers?
a Spa or Salon is building its business on the backs of a Providers
Client list, it is just asking for the inevitable blackmail that
will follow. The reason a Client comes through the door should
have more to do with the facility NOT the Provider.
I asked you for what reason the Client originally came to your
Spa or Salon your answers should be (and usually are) our location,
our marketing, community reputation, promotion, and ambiance of
the facility. Why then would you spend all the money on these
things and then call that Client "Susan's" or "Jane's".
That's like the New York Times building a customer list and then
subscribing them to the New York Post, or Pepsi putting Coke in
we hire people because of their Client list why are we so surprised
when someone hires them away from us for the same reason? Instead
we should hire people for their Talent always, for their
Skills often, for their Client list never
Will Paying Differently Make More Money?
reason many Spas and Salons have trouble "maximizing their
book" is because they are asking Providers to compete with
each other for business. Think for a moment of how to get the
following result: "gee Mrs. Smith I'm all booked up for the
next couple of days, but Jane gives a great facial, I had one
from her last week and she is one of the best Estheticians here".
If it will affect Susan's paycheck negatively, then never expect
to hear it; on the other hand if Susan's "Team Bonus"
will go up she will very likely say it. If we ever hope to fill
our capacity we must do it as a team. You would never see a restaurant
stop serving customers simply because Paul's tables are full.
addition, many appointment books are set up to book the most expensive
Providers first, or when we depend on the Provider to bring in
the Clients no doubt the most expensive Providers have the best
Client lists. When Susan gets paid the same each week she's not
upset when Jane gets the new Client, or when Susan starts referring
Clients to Jane, this highest paid scenario starts to change.
Now the Susan's of the shop can help you raise the quality throughout
the Spa or Salon and not just worry about how many facials that
she has given today.
we pay in the form of Commissions, maximizing the appointment
book doesn't add that much to our bottom line, however, when our
payroll is already paid, the total cost of treatment (less product
cost) drops straight to the bottom line.
decisions we make as Providers in the way we get paid will dictate
Point of View)
we went into this business to eventually have our own business,
Client loyalty is imperative and Booth Rental is the best way
to accomplish this.
we might someday want to open our own business (or Booth
Rental is illegal in your area), Commissions might be a good option.
These facilities are often a more pleasant place to work than
a Booth Rental facility, we must remember however that Clients
do belong to the house and while a "non-compete" may
or may not be enforceable, opening up across the street is not
looked upon favorably.
we want a safe secure work environment, often with benefits -
holidays and opportunity to make a long-term career within a solid
operation, then Salary / Hourly with Profit Sharing is made for
Providers we all want to be rewarded for our efforts. Respect,
status, security, enterprise, has different levels of importance
to us depending who we are and what we want out of life. Some
of us have experienced just how cut throat this business can be
and suddenly the priority of the Health and Beauty of our Clients
may have taken second place to survival. Some of us enjoy the
survival part of the business and some play it because they think
they have no choice. Owners have a lot more invested than simply
their job, and profit is usually why they got into business in
the first place, if they aren't getting that profit or they could
have made more in the stock market we should NOT be surprised
when their survival instincts take over. The Owner - Provider
relationship doesn't have to be a win - lose, in fact more can
be made when both sides of the fence win.
you don't think you will be happy building a career within someone
else's operation then don't take the Salary / Hourly route. Remember,
however, that when you open your shop you don't want people like
yourself working for you, you will want the type that wants to
work within your operation. So pay according to the behavior you
want, not as you would like to be paid.
however, you are the care giver type and you want to make a great
living, security and benefits are important, but you don't want
to deal with marketing, finance, managing or bureaucracy then
you must have a win - win situation for both you and your employer.
Career opportunities are often available at these facilities for
the long-term growth minded. Look for places that respect your
talents and offer you real employment instead of getting paid
for each Client and then nothing when you are waiting for Clients.
It is not your fault when the book is not full, that is sales
and marketing's job, it's not your fault when Mrs. Smith was not
treated right by someone else at the Spa or Salon. It is the Owners
job to take the risk, why then should you have to pay? .
can I Build a Career in this industry and make more Money?
from Commission based pay to a Salary or Hourly rate should not
affect your weekly pay by much, it should just level it out and
make you eligible for performance reviews and raises. Add to that
Tips and Retail Commission and again nothing much has changed
but a fine career can be made this way.
Profit Sharing or Team Bonus is added to the mix however, it's
like gasoline on the fire. Now every time the Spa or Salon is
busier, you get a higher bonus, everyone does! It gets busier
by working as a team, referring clients to other Providers makes
the whole operation busier. Better yet, by referring Clients to
the newer (less expensive) help, the shop makes more and the bonus
gets bigger. Everyone shares in the bonus; the Receptionist now
has an incentive to treat the client as nicely as you do. We all
start looking for ways to do things more efficiently, and not
just in our own job, we are all looking throughout the whole operation
and making suggestions. The team experience makes the Spa / Salon
a very nice environment to work in and a very nice environment
for our Clients also.
(My Point of View)
I am asked to perform a business analysis of new or existing Spas
and Salons in order to help Owners maximize profitability. I have
found that unconventional thinking or thinking "outside the
box", as I have tried to do in this article, to be important.
You may agree and disagree with my conclusions, but it is important
to look at your operation from many different angles (not just
your own), justifying the way you have always done things or changing
to new completely unconventional methods. I believe this exercise
will help you accomplish your objectives and keep you on the cutting
edge of your profession.
of all when it comes to payroll
Point of View)
Pay System that produces the Behavior you are looking for.
of overall payroll costs = Survival
Point of View)
a Spa or Salon that Pay Type matches your Goals
Long Term Employer / Employee relationships both must win.
that we have discussed why we should evaluate our pay system,
the question may be "How do we go about changing to a new
system?" I have a million ideas on that subject but let us
save that for another day.
it time to reevaluate the way we pay and the way we get paid in
the Spa and Salon Business? I would love to hear what you think.
I would also love to hear from you if you have made the transition
from one pay system to another, what was the experience like,
are you glad you did it, would you do it again?