PRICE OR COMMISSION…Which is more important?

“Commission % Is important. But so is their pricing.”

Nina Tulio

BOTH are important! We have to get it right on both sides. When it comes to running a successful salon, two critical factors often dominate the conversation: the price of services and the commission percentage offered to your stylists. While both are essential components of your business model, striking the right balance between them is key to ensuring profitability and long-term success.

The Importance of Service Pricing

The price you set for your services is the foundation of your salon's financial health. Pricing drives sales, profit, and how often you and your team have to work each week to reach desired goals. It also determines how much you can afford to pay your stylists. If your prices are too low, you may struggle to cover your costs, let alone offer competitive commissions. On the other hand, if your prices are too high without delivering next level value, you risk losing clients to competitors.

Key Factors for Pricing:

1. Cost of PRODUCT: Ensure your pricing covers the cost of products and that your product cost PER SERVICE is 15% or less of the price of the service.

2. Time: The Time it takes to complete a service is essential when pricing services. Be sure to use proper techniques and the right products to allow you to work more efficiently and help increase revenue. 

3. Target Profit: In order to price services properly. We must be sure to price for profit and ensure all services throw enough profit.

4. Total Business Expenses: ALL business expenses must be a factor when pricing services.

5. Market Positioning: Your pricing should reflect the quality of service and the experience you provide, aligning with your target market’s expectations.

6. Competitor Analysis: Keep an eye on what similar salons in your area charge to ensure you remain competitive. YES! You should absolutely be aware of what others are charging. However we DO NOT price services based on other salons.
   
   

   *Pricing is made simple with my budget/pricing calculators in my courses and coaching. We take out the guesswork and price your service based on facts and data from YOUR business so the stylists and salon can make more money with confidence. 

The Role of Commission in TOTAL Compensation

Commission is a significant part of your stylists' compensation and directly impacts their motivation and retention. Keep in mind the commission % is just 1 part of the total compensation package. We have to consider things like education allowance, paid time off, retail commissions, growth plans, bonus programs and how the team will make more money. However, if the commission percentage is too high without corresponding service prices, it can eat into your profits and make your business unsustainable. Conversely, a commission % that is too low might result in high staff turnover and decreased morale.

Balancing Act:

• Align Commission with Pricing: Your commission structure should be directly tied to your service pricing. Creating a clear growth plan with a clear outline on increase in commission % and increase in price is essential based on performance.

• Regular Reviews: Periodically review both service prices and commission percentages to ensure they align with your business goals and market conditions. These reviews would typically happen every 3- 6 months when a stylist is ready to move into the next tier or benchmark based on performance goals.

• Create a growth plan with a TOTAL compensation package laid out in detail. The growth plan has goals and detailed information on how each stylists can increase commission and pricing. EX: Commission % + retail commission % + PTO in dollar amount + Education allowance + paid training bonuses 401K match( if you offer it) Add this all together to create a TOTAL, yearly compensation package for the year so the stylist can see what they are going to make.
  
  **Please keep in mind. Salon owners DO NOT keep all of the % of commission split. EX: Let's just say we have a stylist at 50% commission. After all is said and done and all business expenses are paid out for the month. The salon owner is lucky to make an 8-8.5% net profit. That is the current profit margin for salon owners in the US. I coach to a 20% profit margin using my signature budgeting system.

Why Both Matter Equally

STYLIST A EX:  $65 service at 48% = $31.20 in commission
STYLIST B EX:  $95 service at 44% = $41.80 in commission

A HIGHER percentage isn’t always better if the pricing isn’t right. Let’s run another example for the year in sales

STYLIST A- Hasn’t had a price increase in 2 years and brings in $100K for the year in sales at 48% commission working 32 hours a week= $48K per year  

STYLIST B- Has regular price increases based on demand and because of that they brings in $120K in sales. At 44% commission working 32 hours a week seeing the same amount of clients per week as stylist A = $52,800 per year

Which would you rather?

Ultimately, the price of your services and the commission percentage you offer are two sides of the same coin. They both affect your stylist's paycheck, the salon's bottom line, your ability to attract and retain talent, and your competitive position in the market. By carefully calibrating both, you can create a sustainable business model that benefits both your salon and your stylists.

Remember, the numbers always tell the story of your business. And a successful salon is one where the financials make sense, allowing you to invest in your team, deliver exceptional client experience, and continue growing your business.

** All employees must be paid at least minimum wage or commission on gross sales whichever is higher during each pay period. The hourly wage must be compared to the commission wage to determine which is higher. Whichever is higher during each pay period is what would be then paid to the W2 employee.

Looking to learn more from Nina? Check out Make That Money course for suite owners/renters. And in my Synergy course for commission owners.

Psst! MORE Free resources are a click away!

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