Proper Salon Spa Compensation Plan

Compensation Must-Do
Christopher Brazy

You KNOW you should stop overpaying your staff. You know you NEED to if you ever hope of making a penny for yourself. Now when times are tough is the best time to make the dreaded switch-over with your staff. Do it and thrive. Fail to do so and go under with the other spas that pay out more than they bring in.

Get Ready
First off, if you happen to be on a high percentage, you will lose your staff, BUT THAT’S OK. Really, it is. It really, really is. It’s a shame, but it necessary. THAT PAY IS PUTTING YOU OUT OF BUSINESS. And changing pay will worry staff and they will leave (even if it’s just a different way of doing basically the same thing). Please, realize your worth, realize your situation, and realize you HAVE to make a change.

Bringing new staff in, or having them ready in case everyone “jumps ship” wouldn’t be a bad idea. Again, you need to watch for staff talking, old ones that are against the idea and plan on leaving will spoil the new ones in about 1 minute.

Common Sense
You would think that someone should be concerned with how much their paycheck IS. In our industry they’re concerned with how much of the pie they’re getting (what %). I try to educate people and be very straightforward with them. With new hires, people tell me they made 60% …I ask “how much was your paycheck?” They say $280 per 40 hour week (tips included). I show them that they were working for $7/hour ($280 divided by 40). So this setup (hourly, fee per service, whatever) is more. They ALWAYS get stuck on the percentage (they’ll even figure out the percentage if you’re on a fee/service setup). YOU need to keep educating them and showing them what they are making HOURLY (on average), tips and retail commission included.

Attitude is KEY
You must have confidence and believe in your compensation plan. If you don’t buy it they won’t. They will SMELL your fear, your uncertainty, your desperation. That’s why we spoke on the philosophy of it for a bit in “stop being the lowest paid person in your spa,” to get your mindset in the proper place. But if you’re an owner in todays economy that shouldn’t be too hard to accomplish.

Don’t get too technical
We initially moved from a % to a fee/service and explained all the benefits. Instead of figuring out the money that came in, deducting coupons, deducting package discounts, etc. we figured staff was really making about $20/hour, so we setup a fee/service plan based on that and now they don’t have to worry about who has a discount or who is in a package, it’s always the same pay. Some staff stayed, some quit (we went into too much detail and it looked like we were defending our position), then the ones that stayed quit. However anyone new that came on, and wasn’t aware of the previous setup they had no problem with it at all.

When new hires ask about pay, just say this is our compensation plan and we’re very happy with it. Don’t be too defensive or explain too much, it’ll make you look desperate and make them think something is fishy. Like accepting tips (you should say “thank you” and that’s it), just say “here it is and we feel it’s very fair.” That’s it.

Baby Steps
IF you feel you can’t accomplish this move but need to do something, try this for a baby step in the right direction.
The least you can do if you’re on a percentage deal is to deduct any discounts/promotions before figuring out their cut.
Or you can keep your staffs pay but instead of figuring it out as a percentage, set it up as a fixed fee. So instead of 50% for an $80 massage, just pay $40/massage. Now you can do a few things. First, raise your prices. Since your staff isn’t tied to the price via a % this is pure additional income for you.
You can also associate fees to be deducted from their pay. Let’s say a linen fee (it costs us $1/sheet to clean them) or a product/backbar fee. You could subtract the merchant transaction fee from the service and/or tips.
Years ago when we first moved from the % setup to a fee/service we figured all those expenses and discount coupons in and lowered it from $30 (half) to $20 and told them “whenever there’s a discount you don’t have to worry about it, it’s already figured in.”

Probably the best answer is an hourly setup (with a tight watch on how you schedule!). So instead of arguing about coupons and charges, say this:
“We’re going to help you out during these tough times by giving you a steady income you can rely on, an hourly setup of $10/hour (or whatever) PLUS tips AND retail commission” (up their retail pay for goals met) …so they should still be making $20/hour. Put that way, who would turn down $20/hour?

How to Make Your Salon Spa MORE Profitable

Stop the LEAKS (and keep your $$$)
Christopher Brazy

Feel like you’re on a sinking ship? Doing alright but would like more profit? I know of a spa that does over $800,000/year and ONLY takes home any money at all because she does services herself all day.

We’re so busy trying to get new clients we don’t even know if they’re helping us stay afloat. A bigger boat with more people/clients on it will still be sinking if it’s got leaks. What we should be focusing on is stopping the leaks. Streamline your business and make it as profitable as possible BEFORE you try to get one more client through the door. Don’t fixate on expanding your client base until you maximize your profitability. Below we’ve give you some ideas on proper mindset and how to start.

So what’s the best way to keep your profit? It’s not by making more sales. If you’re working for free or worst yet, LOSING 5% on each sale, more sales would be more loss! START by minimizing your expenses. If you’re only making 5% per dollar imagine how much easier and nicer it would be to make 25% per dollar. Every sale would go 5 times further since you’re keeping 5 times as much.

Fixed expenses you can look at, but there’s often little you can do with them. Perhaps you could renegotiate your rent, or try for a smaller lease payment, but that should be done after you’ve revamped your major expenses, which are most likely variable expenses. Start with this, create a list of your expenses and prioritize them from highest to lowest. Then get to work on the highest expenses.

In our industry, payroll will most likely be your highest expense. Others (including myself) have been blazing the way for you to be able to lower your staffs pay. The “salon model” of 50% is long gone. 50% AFTER expenses would be fine, but that’ be closer to 5% and quite a paycut! There’s other models to follow. There’s hourly, like the rest of the nation. Offer your staff $12+/-/hour and you’ll have no problem filling the positions. If you stay on commission, then try something that works out to around $12/hour (20-30%? it depends on how busy you are). After tips and retail commissions they should still be around $20/hour which is more than fair. There’s a related article link below on how to switch staff pay over if that’s where you choose to start.

Go through your list of expenses, high to low, and see what you can trim. Do you need 2 locations? Do you need to be open 7 days a week, 12 hours/day? Can your staff help out with cleaning and clerical duties? We’re all in this together, if you can’t make it they won’t have a place to work. There’s also other ways to keep more money aside from cutting your expenses. Rescheduling is key (that’s why membership plans are so nice). Retail is crucial. Motivating staff via monthly meetings, quarterly trainings and sales contests make a difference. Making sure the front desk is never saying “no” and always getting people in, or getting their information so you can build your list. Whoever answers your phone can literally make or break you.

Now hopefully you’ve got a better mindset. Get a pen, find some alone time and make your expense list. Pick out the top item and decide what you’re going to do about it. It’s up to YOU to start and WE can do it together.

How 1 Bad Apple can RUIN Your Salon Spa

The EFFECT of Bad Apples
Christopher Brazy

The EFFECT of Bad Apples We all heard that “one bad apple can ruin the bunch” but how does that really affect us? Are you on the watch for them? Here’s how they’ve affected us in our own spa.

Client Effect
We had a talented massage therapist, came from one of those elite national resort spas, who’d been around for about a year or so, let’s call her “Mindy.” Mindy was at a new point in her life, she was getting married! This was a big step for her (as it always is). She was stressed about the planning, stressed about the relationship, stressed about the decision. So in the treatment room, instead of listening to the client, she did all the yapping. Went on about her life, which led to complaining about it, then about her job, she began losing focus on the client and the end result? A horrible massage. People were leaving MORE stressed than before they arrived! And to our (eventual) horror, no one told us! Some good friends of ours just quit coming and then months later eventually let us know why they had been gone.

If you aren’t keeping your clients, after going through all the expense of getting them, and are allowing another spa to step up to the plate and take them off your hands, you’re in a situation that’s worse than financial. You’re reputation is at stake, and that’s vital.

Spa Effect
Just recently we had one of those huge health club spas open up. One of our caregivers (Cinderella) applied there and was excited to be making a change (the “grass is greener” syndrome). Unfortunately she let this exciting news spread to the other staff. Now what do we have? Mutiny (ha!). Even the seasoned, long-term staff have fallen prey to Cinderella’s dream. Now not only do we have staff that is down in the dumps about being here, but they ALL are contemplating leaving. Never mind that the “dream pay” club-spa has gone from $10/hour plus 50% down to $9/hour and 20%, it’s still the greener pasture that they’re all heading to. And those that will stay on, insteaf of focusing on other perks and benefits, now have a feeling of being underpaid.

Another time we had someone who started their own business and was whining daily about the cost of advertising, not being able to afford his rent, how slow it was (welcome to the owners shoes), whine, whine, whine. The staff HATED coming into work if he was going to be there. No one wanted to be around him since he was such a downer.

We’ve even known of a single stylist stealing an entire salons staff (and client list!).

ALWAYS be on the lookout for staff that is unhappy. Speak with them immediately and identify if this is just a bad week or a serious issue. If they’re affecting the other staff, remove them instantly. Don’t worry about what you’ll do without them, worry about what will happen with them.

Bottom Line Effect
When we were located in the mall and open 80 hours/week, we were always under pressure to have staff available to take clients. The problem was (as always) there wasn’t enough business to keep the staff happy to hang around for it. So we would end up hiring not necessarily the best match for us. This was a double whammy. They’d have a bad effect on clients, and have a bad effect on staff. These explosive time bombs are just waiting to tear down all you’ve built up. Lesson learned?

“Never hire just anyone to try to cover your books. It’s better to go without and turn away business than to bring in the wrong people who will single handedly destroy your business.”

The cost of losing a client is horrendous. While it takes hundreds and hundreds of dollars to get just one new client if we’re not keeping them and turning them into regulars, we’re on a sinking ship.

The cost of losing employees is equally devastating, if not more so. Recruiting and training is expensive. Caregivers typically turnover every 6 months anyway, which is too often in the clients eyes. Having them leave sooner (either their or our choice), and possibly take people with them or damaging the spa in other ways takes considerable time and resources to rebuild.

So to sum up, watch out! We put these actions and consequences into our contracts and have “insider” long-term staff to keep us informed (they hate to tell on each other) and up to date. We also train our managers to stay in daily contact with them to make sure they’re performing as they should. Secret shopping is another way to find out what’s going on behind closed doors to keep you informed. Find ways to stay in constant contact with your staff. Once a problem is identified, immediately either fix it or let them go. The effect of keeping them on, to your reputation, clients, staff and bottom line is huge if you don’t.

Salon Spa Compensation Models

4 compensation plans that can make or break you
Christopher Brazy

How do I pay my staff!!!???
Compensation is a HUGE concern for owners and staff alike. Choosing the wrong one can literally put you out of business in no time. With so many different systems out there and payroll often being your number one expense, how do you find the one right for you? These 4 types below should give you a clear picture on which one you should use to get profitable.

Hourly Pay
This, as well as salaried, is how most of the nation is paid. If someone is at work they get paid for it. The benefit is your staff will always know what to expect, as well as yourself. By offering an hourly pay you’re offering security (people work for more than just money). You can keep your pay rate lower than a typical commission scenario since it’s guaranteed. Just make sure you have enough clients so that you aren’t paying your staff to sit around all day. This not only is a very successful model for spas that are very established and busy (many resort spas pay hourly since they don’t rely on their staff to get their business) but is common in many hair franchises as well.

Additional benefits of hourly pay are that you can focus (and afford) on other types of benefits/compensation as well. Insurance, perks, training, bonuses, paid vacation, sick days, etc. are now all within the realm of something affordable. Items such as these offer better employee satisfaction. Take away all these other benefits of compensation and all your staff is left with is money. Supply these benefits (as well as praise, education, etc.) and money becomes less and less of an issue.

Salesmen are often commission based. It can be a percentage OR a flat fee per service, but the point is that you only pay your staff when they are actually performing a service. We’ve found many salons work this way. Since a stylist often has their own client list and following, they can demand a higher amount. The typical salon percentage was 50% for years. Many spas took this example and implemented it into their spa. That may not have been the best idea. With spa staff, they often do NOT have a following. They are relying on you to supply the clients. So if you’re paying a high commission AND have to do all the advertising to get clients, you’ll find yourself in hot water quick! Expenses alone are often well beyond 60% in a spa BEFORE staff, so anything near 40% leaves you with practically nothing as an owner. Copying the salon model in a spa is where most spa owners doom themselves before they even open their doors.

If you’re paying a smaller percentage (20-30%) or flat fee/service (an even better setup for commissions since price increases don’t automatically create pay raises) it’s will keep you much more liquid. However, your staff will be very nervous when the books are slim. They’ll want to be on call (this has never worked out well for us), show up late and leave early. They feel that they aren’t being compensated for their down time. You can try to negate this feeling with paying min. wage OR commission, WHICHEVER IS GREATER, but they don’t relate too well to that either. Since they’re used to $X/service, the idea of making that OR minimum wage isn’t appealing to them.

Commission PLUS hourly, your staffs dream
A commission for each service AND an hourly rate for the down time is what every employee dreams of. It would most likely be your worst nightmare though. They get the best of both worlds, a high salon style percentage and hourly down time pay. For an owner, you are not only offering a decent pay hourly for nothing, but also higher commission pay when they’re busy. Some med-spas have taken this but reversed the typical roles of it. Instead of a higher commission and lower hourly, they offer a very small commission (let’s say 5%) and a higher hourly (let’s say $15/hour). So in this case the commission is more of a sales-bonus. Med-spas are a new and different breed though and their model is yet to stand the test of time.

Booth Rental
This is a very popular salon model. Renting space is the cosmo’s end dream. Just out of school when they have no clients, they want paid hourly. Once they get busier they’ll want to be paid commission. Once your split of the commission is the same as booth rent, they’ll want to switch to that. Simply put, that’s all renters should be doing, renting space. They should get a key and that’s it. However there’s a lot of grey area. Mainly with who’s the boss? If someone is renting from you they should be running their own business. All phone lines, credit card transactions, business cards, signage, booking, ringing up, advertising, etc. should all be the renter’s obligation. As a landlord your obligation is to give them a key and collect rent. But the lines have been blurred here and the owner is supplying EVERYTHING the renter should be and are still getting very little for their efforts, just a meager rent check.

There’s also the issue of creating your dream spa experience. When someone else is the boss of themselves (they are just renting after all) they can perform and act however they like. For you to be in charge of your place, you can’t let someone else open up shop within it.

So what’s best?
Naturally, it depends on your situation. Do you want to create a dream spa experience and need everyone to follow your rules as an employee? If so, booth rental is out. Here’s what we’ve observed:

Many new spas start out commission based, since they can only afford to pay out when there’s money coming in. This is why many fail, they forgot to build in working capital and end up with not enough operational funds, or money for themselves. So you’ll see spas offering a higher and higher percentage commission to lure in staff that has a following. What it means for staff is a higher pay/service but fewer clients.

Hourly we see at spas that are packed with clients and don’t rely upon their staff to supply them. Since they have the clients coming in to cover expenses, they can guarantee an hourly rate that would translate to a very small commission. But since they’re paying less, they can offer security along with other benefits that staff find attractive.

Commission plus hourly would get very expensive unless you reverse the typical roles and go the med-spa way of a higher hourly with a smaller bonus commission, but then that is similar to hourly with a commission benefit. Booth rental will provide very little income and we feel is still best when offering a small space to someone with a large following, which means pretty much salons only.

Here’s a funny side-note we observed. Regardless of the pay, a higher commission salon with few clients, or lower commission fee/service with a more clients, or a decent hourly with many clients it all comes out to about the same HOURLY pay. When you factor in all of your staffs types of pay, the service/hourly pay, their retail sales and tips, most average about $20-$30 something per hour. And that’s what it’s all really about for them anyway. Try to get them beyond the “setup” of pay and into the reality of “this is what your paycheck is going to be.” More on that in another article though…