Booth Rental Salon Profit Planning: Landlord vs. Commission

It’s an age-old question. As a salon owner, is it better to be a landlord and offer booth rental or have employees who earn commission? As you may know, there are pros and cons to both sides, and there’s no “right” answer. Running a business is never easy, so let’s take a look at the two different business models from a young stylist’s perspective.

A tale of two stylists.

Cate and Nicole are both talented stylists. They’re both young, hardworking, ambitious, and eager to learn. Both took roles as stylists with local hair salons right out of cosmetology school.

Cate started as an hourly paid assistant stylist. She had access to in-house education, and as she passed specific courses, she could take her own clients and gain more experience. She worked hard to please her clients, but the salon took care of everything else. However, circumstances change, and sometimes people have to make hard decisions. For example, if such a job pays minimum wage and the stylist commutes an hour each way, she needs other support at home to make it work if something upends the balance, she may need to make different choices.

One of those choices could be booth rental at a salon closer to home.

After all, the stylists they know who rent a booth have more freedom and flexibility. They can set their own schedules, use whatever products they like, and wear what they want. From Cate and Nicole’s vantage point, the stylists who rent booths keep more of their money too.

But is it all a bed of roses?

Nicole started asking around. She reached out to stylists she knew who made a move to booth rental, and what she learned was eye-opening.

Is it Better to Rent a Booth or Stay a Salaried Stylist?

Nicole appreciated the training opportunities at her salon, but she had always thought she’d go on her own at some point. She saw herself renting her own chair and setting her own hours.

If you’re a salon owner, this is a familiar scenario.

According to Andrea Miller, stylist, salon owner, and Business Development Associate at Daysmart Software, recent cosmetology graduates benefit from taking a commission-based stylist role. She says, “It takes time to build a clientele. Plus, the salon usually offers on-going education opportunities.” In other words, recent graduates receive paid on-the-job training.

Andrea Miller says, “I started as an hourly assistant at a salon with lots of in-house training. We had to pass certain courses to move into working with clients and taking on more responsibility. I was able to learn and attract the right type of clientele for my personality. It had the potential to grow to a six-figure job after many years.”

She also says, “The main things that allow new graduates to be successful in their first year are their drive to work hard, drive to gain exposure through marketing and networking, learn more, and show up for any appointments no matter the time on their books.”

Fortunately, for employee-based salon owners who want to attract new talent, there’s good news. Today’s cosmetology students recognize the advantages of working in an established salon.

The 2020 Beauty Industry Workforce Report published by Talentmatch.biz found “69% of students want to work for a salon right after graduation.” However, keeping those stylists is a problem within the industry. The report also found, “71% of the survey respondents want to rent a booth after working in a salon.”

Stefanie Fox Jackson, the owner of Talentmatch.biz, who published the Workforce report, says, “94% of salon owners say they struggle to find and retain talented stylists.”

So, where is the disconnect? Why do 69% want to start in a salon but plan to move to booth rental later? And they have this plan while still in school, so why does booth rental look so appealing without any experience?

Let’s return to our fictional stylists Cate and Nicole. These women have both built up a good clientele, and they’re starting to consider other options.

Nicole is frustrated by her salon. She has little control over her schedule and spends most of her nights and weekends there. This schedule leaves her little time for family and friends. Plus, she’s thinking of starting a family, so flexibility is essential. Besides that, she doesn’t receive as much commission on the services she sells as she was initially promised. Overall, she feels underpaid and unappreciated.

As a result, she starts researching what’s involved with booth rentals.

One of her colleagues tells her she needs a loyal clientele who’ll move with her to her new location. If she stays close geographically speaking, it’ll be easier for them to follow her to her new location.

She also learned that she needs to set up basic business entities. She’ll need a business license, insurance to buy her own products, pay for her own training and marketing materials.

But Nicole’s not daunted by any of this because she’s sure she’ll make a lot more money independently. She learns she’ll probably keep about 50% of what she makes. So if her haircut is $60, she can expect to save $30 after paying for her booth rental and other expenses. Like a salaried stylist, her most profitable services will likely be color or commissioned to sell retail products. Of course, she’s reminded she’ll have to buy her inventory on all of those products.

However, there are other considerations. What if a snowstorm keeps Nicole closed for three days that she didn’t expect? What if she’s sick and there’s no one to cover for her? How will she handle her vacation time? Nicole thinks about her salaried stylist position and recognizes that she gets paid even if a client misses their appointment. She receives ongoing education on new products and techniques. She even gets paid time off.

She learns the average hair salon makes anywhere from 0- 9% profit, which is a big swing. Thanks to her investigation skills, she now recognizes some of the overhead that the salon owner invests in the salon. As a result, she starts looking at her reasons for wanting to go out on her own. Sure, she wants more autonomy, but at the same time, she likes most of her colleagues. She wants to work in a place where she feels the staff cares about one another and has a helpful attitude. In other words, she says, she wants to work with people who feel like a family.

“36% of respondents to the 2020 Beauty Industry Report said they want to work with “a team that feels like a family.”

However, she also wants flexibility. Andrea Miller says, “The biggest reason I believe people choose booth rental is for flexibility. They can have the option not to work certain evenings and maybe even eliminate weekends. That’s not an option as an employee.”

When you combine that desire for flexibility with sometimes a disappointing first year’s earnings, booth rental can look very appealing.

The Salon Owner’s Perspective

As a salon owner, you might consider the two business models yourself. Is it better to be a landlord and rent booths to promising stylists, or do you want to build a brand and grow a talented team?

With the booth rental model, you’re a specialty landlord. The stylists are free agents who pay rent and manage their own clientele. Your profit is based on how many chairs you have and the market rate for hair care in your area. If you have business-minded stylists who bring in a steady stream of clients and pay their rent on time, it can work for everyone.

However, the downside is there’s no shared culture or standards. Stylists wear what they want, use the products they want, and if they don’t keep their skills up-to-date, that’s on them. Yet, customers still see you as the “boss,” and you’re the brunt of complaints from unhappy customers and stylists.

Furthermore, every stylist is self-employed. There’s little continuity from one booth to the next. The stylists can treat their clientele the way they want and choose any conversation topics, including contentious topics like politics or religion. The stylists themselves have no control over who they’re next to, so if they find themselves with an off-putting neighbor, there’s not much they can do about it.

Besides the lack of shared culture, there’s an incentive to keep the booth rental low, so you retain stylists. At times, some of the stylists can form cliques and threaten to leave if you don’t meet certain conditions. However, with the employee salon approach, you’re in charge from soup to nuts. This is a good thing when you want to create your own culture and lead a team. You can require your stylists to have specific training, dress a certain way, and uphold protocols. There’s an intention behind everything you do.

Running an employee-based salon can be rewarding. It also has the most profit potential.

Of course, the employee-based salon also comes with all the responsibilities of leasing or buying a salon space, outfitting it, attracting, training, and retaining talented stylists, maintaining inventory, providing training, marketing, and all the other associated costs with running a salon. This brings us back to the salon owner’s complaint that it’s hard to find and retain talent. However, when you think about what your stylists want, it’s easier to think of ways to make the employee model a good fit for everyone.

The 2020 Beauty Industry Report says, “89% of stylists would stay at the salon they work at instead of renting if they felt the salon could meet all of their needs.”

You’ve already seen that flexibility is a big part of why they leave. Stylists also want to work in a place where they feel trusted and appreciated. They also want to have the opportunity to grow. Andrea Miller says, “stylists will sacrifice things to be at the right place for them. It is really important for salon owners to define their image, stick to it and follow through so that their staff remains loyal.”

When the salon owner has a vision and understands how to lead and inspire a team, they can create a place of business that attracts and retains top talent. Another part of today’s leadership is transparency and clear communication. From communicating expectations to compensation, the more open your leadership is, the more your staff will feel comfortable.

There’s no one-size-fits-all solution for anyone, and at different points in your career, you may find owning a booth rental salon is a better fit at that time than an employee model. Only you can decide.

No matter which salon model you choose, you still need to market, take payments, and manage inventory. Our software can help you manage the business side of your salon. Try it free for 14 days.