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Commission Vs. Rental: The great debate

Hey loves! I've been getting a lot of questions lately about whether I suggest rental or commission based salon structures.  The answer is I can't necessarily suggest one over the other.  I think we are fortunate to work in an industry with so many options and it's important to know the pros and cons of each.  I hope this article sparks conversation, but I don't mean to start controversy so, as always, these opinions are my own and I'm certain that other stylists could feel differently.  

Commission Salons

What it is:

Commission salons are generally owned by one or more salon owners who may or may not take clients.  All of the transactions are run through the salons POS system and are tracked by salon management.  Salon ownership takes a portion of the proceeds from the service (usually 50%-65%) and retail dollars (Usually 50%-100% of the proceeds) you produce and the remaining balance is yours to keep.  You generally do not have to purchase your own color, retail, towels, backbar, POS system, etc.

Who they are good for:

Commission salons are without a doubt the most lucrative structure available for hairstylists.  Generally commission salons take care of all of your marketing materials and already have an established online presence which is AMAZING when you are looking to build a clientele.  Because you are paid only when you do services, you won't be out any money if you have a slow day like you would be in a both rental environment.  You are also often supported with an hourly wage if your commission is lower than minimum wage, however this varies from salon to salon and state to state so check your area may be different.  

Once you have a very steady clientele (meaning you are pre-booked 4-6 weeks out and you are double booking), you may be tempted to go to a rental salon.  If you are producing $10,000 a month in services, the commission salon would keep about $5000 of that.  You may think "if I were a renter I could pay my rent, buy color and backbar and still come out ahead".  While this may be true, your missing the key component that makes commission salons so special; assistant support.  An assistant doubles your earning potential as they can be applying a color as you do a haircut.  It's much harder to run a successful assisting program in a rental environment so commission salons tend to have stronger support in that way.

Potential Benefits:

Probably the best part about working in a commission salon is the benefits.  Many commission based salons offer vacation pay, health insurance, retirement savings plans and educational opportunities.  This adds up to thousands of dollars a year in "extra pay" if you take advantage of everything available.  

You will most likely also be a part of a really awesome team! Most commission salons try and hire employees who get along well vs rental salons where often times whoever has the money to pay the rent gets to work there.  

Commission salons also tend to have great marketing and tools available for you.  The salon will have a website, Facebook and other web presence as well as brochures and business cards as well. 

Potential Cons:

You are an employee so whatever the salon owner says goes.  Many stylists became hairstylists to express their creativity and sometimes a commission salon can feel stifling.  You'll need to work the hours and days the salon chooses to have you and you'll have to request time off and it won't always be guaranteed.  You can't always have your own business cards or even add personal touches to your station sometimes.  

Rental Salons

What it is:

In a rental salon, you'll rent a booth or chair in an established salon and owe a predetermined amount of rent to the salon owner at the beginning of each new month.  The owner is often a working stylist.  You generally provide your own hair color, backbar, station products, POS system and marketing materials.

Who it is good for:

Booth rental salons are great for established stylists who prefer to run their own show instead of being a part of a team.  They don't mind spending a few hours a week of their personal time dedicated to running the backend of their business and can manage their appointment book, marketing and accounting on their own .  You'll need to pay your rent each month whether you are busy or not so it is important to have a steady stream of clients before taking the plunge.  Your money will be yours to use however you'd like.  You can budget for color and amenities however you'd like and keep the rest as your personal income once the rent is paid.  There is great income potential for rental stylists if you manage your time, business and income wisely.

Potential benefits:

As a rental stylist you won't get a W-2 at the end of the year since you are a business owner.  You'll need to keep track of your finances and file quarterly taxes.  If you are organized, you can enjoy some great tax write offs as a business owner.

You will also be able to come and go as you please.  Once your rent is paid, the owner doesn't get to say how you spend your time so you can make your own hours that work for you.  Need to take a vacation? No problem! You manage your own schedule completely.

You can design your business anyway you'd like.  The salon owner will have decorated the space (unless you are renting a studio which we'll talk about later) but you can create your own brochure, website, business cards etc to set the tone of your business for your clients.

potential cons:

As a business owner you stand a lot to lose or a lot to gain.  If you are disorganized, you will really struggle and most likely find your way out of the industry as a booth renter.  You'll need to be diligent about marketing and self promotion as well as keeping up on education and staying on top of industry trends.  

It is important to file quarterly taxes and to report all of your income! It is easy as a booth renter to hold on to cash or not claim all of your income, but if you ever hope to buy a house or even a new car, you'll need to look good on paper so declare everything.  

You also pay double employment taxes such as Social Security taxes.  Want to have disability insurance to take a maternity leave at some point? That will cost extra too.

The vast majority of booth rental stylists don't maintain retirement savings accounts either so retirement at 65 becomes much more rare.  Be sure you are setting extra money aside for retirement, health insurance and a little vacation pay slush fund if you go this route.

 

I hope I've ironed out the great debate a little bit! I'd love to know what you think.  Let me know in the comments below.  xoxo Britt

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