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  • Writer's pictureLindsey Nelson

Differences Between Commission Based & Booth Renting Salons

So you graduated from Cosmetology School, and you have a license...Now What?!


Do you start your career by becoming an employee at a commission-pay-based salon or plunge into being a self-employed, booth-renting Cosmetologist?


Both options have many pros and cons and can be the start of a fabulous career in Cosmetology.


Plenty of hair stylists have successful careers in both commission and booth-renting salons.


Neither option is right or wrong, and you must decide which choice is right for you during your career.


Let's start by doing a little myth-busting...


Myth #1: Booth renters take home 100% of their earnings


There is a big misconception that booth-renting Cosmetologists, Aestheticians, and Massage Therapists take home 100% of the money they make working.


That statement couldn't be further from the truth. First, you have all the expenses that must be paid before you even see a profit.


Expenses for a booth renter hairstylist would be the weekly rent they pay the salon owner, the hair color and lightener used on clients, any money spent on education, materials needed to perform the job, money spent on marketing, credit card processing fees, insurance premiums, etc.


What is left over after all the expenses are paid is the net income or profit.


Self-employed beauty professionals must file their taxes, so staying organized is crucial.


Keeping an accurate record of your expenses is the only way to know how much profit you take home.


Taxes are also not taken out of the payments you receive from customers. You will need to save a percentage of your money for either quarterly or annual taxes.


This is where discipline and a knowledgeable CPA are required so you don't find yourself owing money to the IRS.



Myth #2: Commission salon owners take all of your money.


Most salon owners will tell you that running a commission salon is expensive and they are not swimming in cash. It is rare for a salon owner to hit profit margins over 10%.


With all the tubes of color, back bar supplies needed, and employee perks to being paid, running a successful salon is pricey.


There are huge perks that you are not considering when you see your commission check hit your account. Perks like fully stocked retail, paid-for salon education, and taxes paid for are all things that cost money.


It would help if you also considered the environment that you work in. If you work in a luxury salon, I'd bet the rent on the retail space is high for the owner.


With the rising cost of products and materials, I can assure you that your salon owner is feeling the increase hard.



Benefits of working as a commission stylist.


One benefit of working as a commission employee is that you can build your client base quickly if you are willing to do the work. If your chosen salon is busy, there is so much growth potential. I recommend taking all the clients you can handle and learning as much as possible.


Another benefit is your salon owner typically pays for their teams' education. If you were a booth renter, you must pay for that yourself. Staying on top of industry trends and improving your skills will help you stay relevant and avoid becoming obsolete.


A huge benefit of working as a commission stylist immediately after graduating from Cosmetology school is the owner supplies you with color, materials, and back bar products for you to use on your clients.


If you are fresh out of school and have few clients, paying for these expenses might be challenging.


As a commission hairstylist, if you have a bad week where you are not busy seeing clients, you have the safety net of at least receiving minimum wage in your paycheck.


Working as an employee and learning to work with a team while getting your feet wet is an intelligent path to choose when starting your career in Cosmetology.



Benefits of working as a booth renter stylist.


One obvious benefit of working as a booth renter is that you are now self-employed, which means you are the BOSS! You have the freedom and flexibility to run your business and schedule how you want, but with all that freedom comes responsibility.

You are now responsible for keeping up with the day-to-day tasks of running a beauty business. You will now have to keep up with your color inventory, manage the money the business takes in, and pay any expenses the business has.

Welcome to the wonderful world of being self-employed!

Typically, booth renter stylists do take home more money but not every stylist does. There was a season in my career where my expenses were too high, and my revenue was too low.

I couldn't afford to work as a renter. I needed more butts in my chair to be able to pay my expenses. This led me to a high credit card balance and a low bank account balance which I don't recommend.

Another added benefit of working as a self-employed hairstylist is that you can create your brand and online presence.

When you develop your unique brand, you create an identity for your business that will set you apart and attract the right customers.

Once your brand is established, marketing becomes fun and easy.


Steps to shift from commission to booth renter


Let's say you are ready to switch from employee to self-employed. You should take a look at a few areas to get this plan into action.


A hairstylist must consider the following areas before you boldly jump into a business model that is brand new to you.


1. Productivity


How booked are you? Do you have gaps in your schedule? If you have gaps of time where you are not earning money, it may be hard to afford your expenses.


There will be times when every hairstylist has a slow day or week, but that is why we must look at how often this happens in your business.


2. Expenses


How much does it cost to run your business weekly and monthly? You need to have a good idea of what you will be responsible for if you want to be a booth renter.


You can research how much a tube of color costs as well as your favorite bleach and developers. I suggest you look at how many color clients you see each month and determine the amount of color you would need in a month.


I have included a list of typical expenses for a booth renter hairstylist for you to download. You need to consult a CPA for a more detailed list of expenses and tax guidance.


CGS Booth Renter Expense Sheet
.pdf
Download PDF • 35KB


3. CPA


It would be best to have a good CPA with experience in the beauty industry. This person is a massive help to your business for several reasons.


1). They will help you determine what is a business write-off and what is not.

2). They will help you stay organized with your bookkeeping and file your income taxes.

3). They will help determine the health of your business if you are making money or losing money.


A trusted CPA is an excellent person to have in your corner, especially if you ever have to face the IRS for tax reasons.


4. Rent Rate


What will it cost you to work out of the space you're in? Can you afford this?


Some coaches teach that booth renters should try to hit a 12% rent rate target, which means the hair stylist's rent should be 12% or less of their monthly sales total.


If your rent rate percentage is higher than 12%, you should work hard on marketing yourself to increase your monthly sales or find a salon that has cheaper rent.


Some hairstylists have high revenue and are fine paying a higher percentage of rent. Everyone's business is different.


5. Education


Now that you're self-employed, you must pay for your continued education.


Please don't cut this out.


It would be best to stay current on trends and never stop learning because this helps build confidence and keeps you relevant. Education is for technical skills, business building, and marketing skills.


Every business skill can be learned, and if you have goals to hit in your career, you will need to learn as much as possible. There are plenty of coaches for social media, website building, public speaking, and accounting.


Find a coach or mentor that you admire and can learn from, and go from there.


6. Marketing


How will you attract new business? Will you build a website or post on social media? Will you pay for Ads or use a referral program? Have you considered Google or Yelp? Have you thought about network marketing or local business groups?


It would be best to have a game plan for attracting new clients. Relying on word-of-mouth is excellent, but you need other avenues to help your business grow. Building a solid marketing funnel is crucial for long-term success as a Cosmetologist.


I was not taught anything about marketing while in Cosmetology school, so I had to take classes and ask for advice from my marketing clients. I have learned what works for my business and what doesn't work.


Alright, I'm going to rap things up with this. Renting may sound like the sweet life, but you need more revenue to afford it to avoid finding it very hard to stay afloat.


Please do your due diligence and look at your numbers. Accounting may not sound super sexy or fun, but you cannot ignore it.


Don't just assume you can afford to rent; on the contrary, don't assume you can't either.


Numbers don't lie; you might be surprised when you look closely.



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