A (2:53)

And welcome back to the Thriving Stylist Podcast. I'm your host, Britt Siva, here to talk about a very scary and I'm sure very controversial topic. When should a salon owner reduce commissions? I know stylists are like, we're coming for her. I know, I totally understand. But please, please note, I'm also the business coach who coaches to uncapped commissions. I don't understand why a salon would be like, well, you can earn up to a 60% commission. Why can't you have an 80% commission? Like, the math doesn't math on that. It's because most salons and the way they're run and are structured are run in a way that fundamentally doesn't allow top performers to continue to grow. Which is why you hear employee stylists say, I wish I could have stayed at my salon. There was nowhere for me to grow. I had reached a glass ceiling. And I talked to these stylists, and I've talked to these stylists for well over a decade. And I'm like, okay, what did growth opportunity look like for you? Did you want to be an educator? Did you want a piece of the ownership? And they were like, no. I just wanted to feel like I wasn't done yet. I'm super driven. I'd be lying if I said I didn't want to make more money. Of course I wanted to make more money, but it was like I was circling the drain. Yeah, it could increase my service revenue, but it would be incremental in how it would impact my family, because I was already at the top commission. So let's unpack all of this. So please just note, yeah, I'm going to talk about salon owners reducing commissions and a good amount of salon owners listening to this. This is for you. You are overpaying your people and it is impacting, yes, certainly your own profit margin, but it's impacting your high performers very negatively. And so I Want to talk about the risks of overcompensation, how to reduce compensation when you are an overcompensator and much, much. I chose this topic because in the last couple of months there have been a few posts and conversations where I've had to kind of broach this topic of you're overpaying people. Usually it comes up when an owner is expressing to me a couple things. One, we have no profit margin. I don't know how to fix it. Two, I have stylists who are refusing to grow or have no interest in growth and I don't understand why. Three, I'm losing my bread and butter. Ride or die stylist who's been with me for 14 years wanted to change. So all of these things come up and for me I always say, like, let's look at your compensation model. It's where I always turn. I don't think that any stylist stays any place just for the money. I don't think any stylist leaves any place just for the money. I think it's always complicated, but at the end of the day we're in this for business, so it comes down to money. Here's one of the messages that I got recently. This owner said at our salon, we're having issues. We opened in 2019 and are still not making a profit. So to the stylists out there who believe that the salon is taking all your money, this is so, so, so common. So this salon is co owned, they opened in 2019, so they're what, six years into it now? No profit, very common. She says we put our artists numbers through the profit of profit calculator, which is the calculator I have in thriving salon leadership. And everything is still very low. So I messaged this owner and I said, when you say everything is still very low, are you saying that the calculator is saying you can only afford very low commissions? And she said yes. And then she went on to say, can someone guide us on what we need to change? We're struggling. Our biggest issue is motivating people who want to make more money. We're just lost. Couple of things. I don't believe owners should be trying to motivate anybody to make more money. I think it's a lost cause. I learned that lesson the hard way myself many years ago. I don't think it's changed. I remember working with, I was being coached by another business coach. This would have been like, I don't know, 2010 or 2010, 11, 12. No, maybe it would have been like, more like 2014. Maybe my son had been born by then, something like that. 2013, 2014, a business coach was telling me, like, listen, you need to get your team hyped up about making money. And up until that point, I had not coached them on being driven by money. I had coached them on being driven by lifestyle. Because I knew for myself, like, yeah, I want to make more money, but because of the lifestyle that we created, not because of the zeros in my bank account. I knew that instinctually. So I'd always chosen to coach my team that way. I never went to my team and was like, let's make that money. Like, that was never the message or the vibe or the energy around it. It was like, okay, what is the life you're building? How do we do that? And I knew that approach worked. And when we, as a salon team, shifted to this, we gotta make that money. We had stylists leave. We had stylists have the worst year of their life. Like, trying to motivate them to make more money was arguably one of the worst business decisions we made because it made them feel, like, very pressured. It made them think that the owner was just about the money and didn't care about them as people. It had, like, the complete opposite effect. And so my big takeaway from that and what I have learned now, too, is that, like, yes, people work somewhere because they want to make money. It's not all about the money. So to these owners, when you're trying to motivate people to want to make more money, forget it. Like, it's a lost cause. That should never be the approach and the angle. This is why I coach to growth paths instead, because growth paths are incredibly customizable, and they can be whatever life anybody in your building is looking to create, it becomes possible. And this person gets put in the driver's seat of their own destiny. You're simply there to support them in making it happen. So I know that talking about reducing commissions is a scary topic. Why, when this owner reached out to me saying they've not turned profitable, did we look at compensation? And why is it that they're saying they've put their artists through our calculator and their commissions are coming up too low? Couple of reasons. So let's dig in for just a second. Like I mentioned earlier, I think that most people who have been listening to this podcast for a while know that I do not coach to traditional commissions. If you go back and look at previous episodes, I've talked about compensation for Stylists. And I think most traditional business models are unfair to both the owner and the stylist and lead to conflict. I think it's a setup to fail. I think any time you were to go up to a stylist and say, would love to have you work for me, you're going to make 40 and I'm going to make 60, it's a setup for conflict. Like, how is the stylist not going to feel like, why does the owner make more? I'm doing all the work and the owner makes more. Now, from an owner's perspective perspective, this is more the realistic scenario. The owner's not only not making more, they're making nothing. However, logic tells us if the stylist is making 40 and the owner's making 60, this is not fair, which is the F word I can't stand. And I think that most traditional commission systems are just a breeding ground for conflict over compensation. I coaches something called profit of profit, and it's a system where the stylist makes no less than 70% commission on the profit generated from their services while the owner always has a protected margin. So it's a win win for both sides. Sometimes the stylist is making up to 80% of the profit generated in their chair. The lowest it would go would be 70%. Okay, but what's nice about the model is it makes sure that the owner always runs in the black, meaning there's always going to be some profit. Even if it's not a whole lot. It will always be there. You'll always be able to pay your bill and the stylist always makes the lion's share. They're always going to take home more. So it allows for job security and growth potential for all. I was chatting with an owner recently who was saying, brit, I continue to end up in this bind where I grow senior stylists. They stay with me for a while and then they choose to leave. And when they choose to leave, I end up in a financial pitfall. That is a huge sign that your compensation model is broken. Most commission models, like traditional commission models, rely on a heavy hitter or two in the building covering the lower performance of the newer stylist. Sometimes the heavy hitter is an owner. A lot of people don't realize that a lot of times in an employee based salon, the owner is making a lower commission than the rest of the team because so much of the revenue produced behind the owner's chair goes to paying for the salon. And there's not an abundance leftover. So Often the owner is making a smaller split than the rest of the team is, simply as a means to survive. Then, if the owner is able to grow more senior stylists and they are able to get high producers, those high producers end up with capped commissions because the surplus of revenue created by those high producers goes to paying the low performers. It's like this waterfall effect. The reason why I don't like that is because it's a wonderful system for new stylists who are building and growing, and they have this kind of system and setup where there's not a lot of pressure and you can take your time. And we want to motivate them to want to make more money. Money. But if they're not motivated, what are we supposed to do? Which is exactly where this salon owner who reached out to me is, how do we motivate these young people to want to get up and do the work? Well, probably a different model is going to be a part of it for you. But my bigger issue is that that system is terrible for senior stylists. It's absolutely terrible because they should be making more of that surplus for themselves. And when there is a bigger surplus, yes, the salon should win, but the stylist should win, too. And this is where you end up with senior stylists who are resentful, and they're like, I don't understand. I'm continuing to produce more. I've reached the top tier of commission. There's no place else for me to go. They start to run the math themselves. This is when they start questioning, where's all the money at? Because in a lot of ways, it does not make sense. So when the model is that a couple of heavy hitters, maybe sometimes including the owner, need to generate enough surplus to cover the underperformers, that is a very fragile business model. And even probably when I explain it, it's like, well, damn, how do you fix that? That doesn't sound very good. Good. I'm glad you're asking how to fix it, because that's exactly where we're going to go. So here are some of the biggest commission mistakes. One, setting commissions to be aligned with other salons in your area. And I understand why we do it, because we start to say to ourselves, well, if every other salon in the area is paying 50%, how can I offer 40? How can I offer 10% less and still attract the right people? Here's one thing I know for sure. Really great, really amazing, driven stylists would rather work at a dream salon where it checks so many of their other boxes culturally. Growth path support and building clientele, incredible guest experience. It's more comfortable for their clients. A lot of stylists would take a temporary commission cut to work in a better environment where their growth potential is higher than to be stuck at a place where 50% is the end all, be all. They would ask around, but it would have to be the right opportunity. So then we realize the conversation is not so much about the commission split, but the right opportunity. It's all about opportunity. Okay, so this whole idea of like, we need to pay this commission to stay competitive. No, you need to offer opportunity to stay competitive. It's not necessarily about the commission. Another thing that can be a really huge Achilles heel when it comes to setting commissions is commissions that start at 40% or higher. The average new stylist is not going to be able to make a 40% commission. And as you're paying them that 40% commission, the only way you're pulling it off is when you're pulling revenue from your high performers to make that happen. And I just don't logically believe that a high performer should be funding a new person's growth when the thing that makes sense is to compensate the newer person properly with an aggressive growth plan, to get them to 40%, to have them earn that 40% and 50% and 60% and beyond as soon as possible. But to expect a young person to be comfortable so that the more senior person suffers, that. That part I just can't get down with. Often when you look at salons who are doing this in a way where everybody's winning, commissions sometimes start at 30%, but because there is such a strong plan for growth and there's proven growth, and they know that, they can say, listen, you're going to grow with me. You're going to start off hourly. Then when you start a commission, it's going to be 30%, but within six months we're going to get you to 35. Within a year we're going to get you to 40, and within two years you'll probably be at 50. People are like, game on. But there has to be that growth path and plan and track record and then you can pull it off. The biggest thing I think is a mistake, and I've said it several times, is capping commissions. You don't have to have a commission cap when you are running a really smart compensation model. The only reason you have to cap commissions is because you end up in this cycle of there's not enough profit there's not enough surplus. So I have to kind of rob from the rich and give to the poor, like or the Robin Hood compensation model because it's the only way the business survives. So the way I look at compensation, most traditional commission structures look at a stylist like a human being as a profit center. I don't look at the stylists as the profit centers. I look at each chair as a profit center. Each chair in my building is potential. That's all it is. There's no name on it, there's no face on it. There's no client in the chair. Every chair in the building is a profit center with X amount of potential. That's how traditional business looks at things. So in thriving Leadership method, we have a set of calculators that will help you to dial this into a science. But if you're not in the model, Quick, easy math, you would take a look at the break even for each chair in your salon. So look at the overall salon expenses. Overall, overall, overall. Find the break even for each chair in your building. Rough math. This is not a steadfast calculation. The steadfast calculation is in the thriving leadership calculators. If you're not in thriving leadership and you want something down and dirty, the quick math is that a stylist needs to be producing at least twice as much as the break even of that chair to make 40% commission. So if they are not doing twice as much as the break even point of that profit center, you cannot afford 40%. It's not possible. And a lot of salon owners get into leadership, run the calculator, and realize, oh my gosh, now I understand why I'm not making any money. This business is not set up to generate any revenue. Okay, so let's say that you do all of this and you hear this podcast and you're like, dang, I think there's a real chance I'm overcompensating the wrong people and undercompensating the right ones. Awesome. Like, great on you for getting curious. When should you consider cutting commissions? There's a few rules about this, so nobody should go off making drastic decisions. Number one, I do not coach to reducing commissions on existing team members unless they have a qualifying event. So if I as the owner have set up a bad compensation model, that's on me. And as soon as I choose to make a choice and pivot and head a different direction, that's fine. And for everybody else who comes along after they're part of this new model, you know Business grows, business changes. This is just the way things go. But if I have set up an unsustainable compensation model for myself, I have two choices. Sustain the model until I can build from the bottom up and get people in the new model and then start generating profit, or start doing layoffs until I can afford people. Those are your only two choice. I don't see a way that you would go to an existing long term team member and be like, hi, I've made a mistake and in turn you're going to have to pay for it. That's a tough sell. I don't imagine that would go well. I would never coach to that. So we do not reduce the commissions of existing team members unless they have a qualifying event, which I'm going to talk about the qualifying events in a minute. Rule number two, whenever we make radical changes to our structure, it should impact the new hires. I already touched on that. So we're not changing anything for our existing staff, but for anybody new, they are in a new model, a new system, a new era. Number three, what would be the qualifying events that I'm speaking to? Okay, take a breath because not all of these are favorable. But I want you to understand you can't have uncapped commissions without having these qualifying events. You can't have one without the other. They do go together. And this is where things get crunchy. Number one, when a stylist takes a leave for any reason, returns and their demand has shifted downward. Number two, a stylist chooses to go part time and their monthly revenue produced decreases. And number three, when a stylist demand stays declined for six consecutive months with no signs of improvement or any efforts to improve. This is where it can be hard to swallow as a stylist if your production starts to decrease much as your owner respects you. I don't like to use the word love because I think it can make things really messy and complicated. And it's how we get into these situations where owners lose their livelihood. When you work for an owner who is truly a leader and is respectful and cares for you and cares for your family and as a person like truly wants the best for you, trust me when I say it never feels good to have to tell somebody, I'm so happy that you've decided to go part time. I love that you're only in the salon three days a week and you have four days a week with your beautiful family. I'm so happy you've gotten to this place. That being said, my business cannot afford to pay you 62% commission anymore. I know that sucks. And I don't expect the stylist who's receiving that message to be like, oh my gosh, that's great. I would love to slide backwards to 55%. They won't. That sucks, man. But when you set this up and you're more transparent from the start and you say, this is how our model looks, it's based on production and productivity and every chair in the salon has unlimited potential, you can make as much money as you want to. Your commissions are not capped. I would love nothing more than to start paying 80% commissions around here. That would make me super happy. That being said, if production changes, there's these qualifying events. There's a chance your commission is going to go down, but there's always the opportunity to bring it back up. This is about creating opportunity, not creating guilt based major hand holding, not holding stylists accountable. Like we just, we've tried that, we've tried that for decades and unfortunately it doesn't work. And if you look at any other business, if an employee's production declines, if they go part time and they're not working as much and they're not producing as much, the business does not sustain their compensation like they don't now the flip side of that, and I'm waiting for somebody to tell me that and listen, I've done this. If you work for me, this is how I roll too. If you reduce your hours but your production stays exactly the same, why would I reduce your pay? If you're smarter and you're able to get things done more efficiently. Amen to that. No worries. But this is where it comes down to having these guidelines is what I know through coaching Thriver society, when you look at. So we have something called X Club in Thrivers. If you head to thriving stylists. Actually, let me give you the URL. Yeah, perfect. If you head to thrivingstylist.comxclub you can read some of these stories, but we have a few hundred stylists who have reduced their schedule by 20% or more and sustained or increased their income. Some of them have doubled their income by cutting their schedule back. So even with this model, it says if you go part time, but your production stays the same, your commission stays the same, we got no issue. If you go part time and you're producing 30% less revenue, I cannot continue to just pay you like I was before. And I understand it's all relative because it's a percentage, it's not a whole dollar value. I know all that. But when you look at the cost to run a salon and you look at each chair as a profit center, the only way to pay uncapped commissions is to have a counterbalance of if production declines, pay declines. If production increases, pay increases. It is the most appropriate way to run a salon profitably, from what I can discern. Here's what I like about all about this. Life in our industry is all about choices. When someone's in a studio suite and they go part time, they'll make less profit if they don't find a way to sustain their income while going part time. Right? That's just the reality. So that's the reality anywhere, no matter where you work or how you work, that's how it goes. And a lot of stylists will say like, well then why would I bother working in a salon? I would just go to a studio suite, talk to anybody who's gone from a salon to a studio suite. It's so much more work. And the idea that the only reason you stay at your salon is because of the paycheck. There's so much more that goes into shifting out of a team based salon and going into a booth rental environment or studio suite environment. Yeah, the money changes, but the workload changes too. And the tax filings, I mean everything changes. It's just not so simple as that. So the reality is when somebody has one of those qualifying life events, no matter where they work or how they work, that is the natural evolution of business. And it's okay, but we need to his owners adapt to looking at compensation from this method. So how would you get this started? Like I said, everybody who's in your building is in your building. They sign up to work for you with the terms that you have. I would encourage you to get curious, to know your numbers, to run the math, to look at some of the hard truths. We do have tools that can help you, of course, but really asking yourself, am I doing right by my senior people? Does my model make sense for my mid range stylists, my junior people, is this business sustainable for me? And if not, what are some of the things I might need to change? So I expect this to spark conversation. If you have any questions, comments or feedback, as always, leave me a rating or review and as I always say, so much love happy business building and I'll see you on the next one.