A gross margin analysis is one of the most reliable and effective ways to determine just how profitable your business really is, regardless of what industry you are in. However, before you can calculate this, you must know exactly what you are paying for labor. Unlike many other industries, there are several options when it comes to compensation in salons or spas.

The following information is designed to help you decide if your business compensation is set up correctly.

Types of Compensations in Spas and Salons

The most common compensation plans include:

  • Independent contractors: In this situation, you contract out a task for the contractor to complete. He or she is responsible for purchasing all products they use, as well as furnishing their own They are typically not offered benefits and do not have any income taxes taken out of their check. At the end of the year, they receive a Form 1099.
  • Booth Rental: While you collect a rental fee from the person each month, they are considered self-employed and are treated as so.
  • Commission: Salon commission rates range from 35 to 60 percent on services rendered [1]. The person is only paid for what they do. You may also pay commission on products sold. Commission rates should be calibrated very carefully to ensure that it is low enough that your business turns a profit, yet high enough to keep an employee from going elsewhere and taking his or her clients with them.
  • Commission plus salary: In addition to receiving a certain amount per hour, the employee will receive a certain percentage (usually between 10 and 25%) of what they do and sell.

Other forms of compensation include paying for ongoing training and education, offering an employee discount program, and providing certain benefits, such as health insurance and paid vacations. Obviously, the type of compensation you would offer will depend on the employee’s status.

Factoring in Incentives and Bonuses

Incentives and bonuses both qualify as forms of compensation, though they do not necessarily come in cash form. Typically, incentives and bonuses focus on improving customer retention rates, meeting profitability, or reaching media recognition targets. For example, you may give out gift cards or pay for the lunch of a salon/ spa employee for bringing 10 new clients into the salon. Another option could be paying for an employee’s gym membership after they have had 20 clients return to the salon/ spa for at least a second treatment. Finally, you could bring in lunch for everyone once the salon/ spa has reached so many likes on Facebook or follows on Instagram. Be creative with what you offer to motivate your staff, while also increasing their loyalty and overall job satisfaction.

Coming up with the Right Setup

Your business compensation plan should be carefully crafted to create a balance between making a healthy profit, keeping your team loyal and motivated, and ensuring you stay competitive in your niche market. Once you have found the right setup, be sure to carefully communicate the incentive and commission-based elements to your staff. You want to be certain they have a complete understanding of how the compensation program works.  Need help getting the right setup?  Contact STAC Bizness Solutions to help you get started.

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