Commission-based pay can be an effective compensation model for self-care employees. Keep reading to learn about commission structures, and how you can implement them at your own business. 

Commission-based pay is a way to compensate your employees based on factors like performance or services rendered. While some employees may prefer a standard salary, commission pay can also serve as a high motivator for staff to recruit and retain clients. This article will break down a variety of different commission types, including their pros and cons, as well as the beauty and wellness businesses that can benefit most from this pay structure. 

What is Commission-Based Pay?

Commission-based pay is a pay structure that bases an employee’s income on factors like productivity, performance, and seniority. With commission, employees earn a predetermined percentage of their services bill rather than a fixed salary. While this can be a turnoff for some workers, for others, it’s a highly motivating structure that can result in big payouts. 

How Does Commission Pay Work in a Beauty & Wellness Business?

So how does commission work, exactly? Commission calculations vary between beauty and wellness industries, as well as individual businesses. The percentage rates can typically range from 30% to 70%, meaning if an employee gives a haircut for $100, they would keep between $30 and $70, depending on the agreed upon commission cut. This of course will also depend on the type of commission structure you choose for your business. 

Commission payment frequency is also up to you as the self-care business owner, but payments generally come in either a weekly format, bi-weekly (once every 2 weeks), or once a month. You may also need to check with your local labor laws to determine if there are any regulations regarding commission payment frequency. 

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4 Types of Commission Pay in Beauty & Wellness Businesses

You can use commission a few different ways at your beauty and wellness business. Below, we outline some of the common structures available. 

1. Straight Commission

Straight commission is the most straightforward model, where employees earn a set cut off every provided service. For example, a nail tech earns 60% of every manicure and 60% of every pedicure.  

2. Salary Plus Commission

The salary plus commission model means beauty and wellness employees receive a set base salary, plus a commission for each service rendered. As an example of a salary plus commission structure, your spa employees may make $15/hour, but a 50% commission on top of that for every massage they perform. 

3. Tiered Commission 

Tiered commission rates can increase incrementally based on employee seniority and productivity. For instance, hair stylist associates may start at 45% commission while Level 3+ stylists can earn up to 65% commission. Top producers get further rewarded. These tiers can also follow earning ranges, so employees who provide up to $2,000 of services will earn a 35% commission, whereas employees who provide between $2,001 and $5,000 of services will earn a 45% commission, and so forth. 

4. Bonus Commission

On top of standard commission, you may choose to reward your self-care employees with a bonus commission structure as well. If your beauty and wellness business makes above a certain amount of revenue, you can pay out a bonus commission based on the total income difference. For example, if the monthly revenue goal for your tattoo parlor is $10,000, but the business has made $18,000, you could pay a 20% bonus commission to your staff calculated against the extra $8,000. (So if you have 4 employees, that’s an extra $400 for each one.) 

Pros and Cons of Commission-Based Pay for Beauty & Wellness Businesses

There are a few pros and cons to a commission-based pay structure. Below, we outline what you can expect from implementing a commission format. 

3 Benefits of Commission-Based Pay for Beauty & Wellness Businesses

It’s A High Motivator

Commission pay structures can motivate beauty and wellness employees to increase their productivity and improve their customer interactions. It can incentivize staff to work on their skills and recruit more clients. 

It’s Cost Effective

It can be more cost effective for your beauty and wellness business to only pay commission when you generate revenue. This means you can help keep costs down for employees that don’t perform as well. 

It Boosts Revenue

Commission structures can not only allow your employees to maximize their earning potential, but boost revenue for your business as well. A staff that is motivated to bring in more business will ultimately benefit your bottom line. 

3 Drawbacks of Commission-Based Pay for Beauty & Wellness Businesses

Too Much Variability

Some employees may find commission payments too challenging or demotivating, especially for those looking for a stable income. This structure may alienate valuable employees who are not as aggressive as necessary to thrive in a commission-based environment. 

Hard To Track And Calculate

Accurately keeping track and calculating commission rates for each employee can be time consuming and prone to error. This can lead to disputes or awkward interactions with your staff, which can also affect their trust and loyalty to your business. 

Labor Laws May Restrict Commission Pay

It’s important to look up your state/county laws regarding commission pay, as there may be certain requirements your business must follow. For instance, in California as of 2019, it is illegal to pay anyone outside of a sales role on a commission-only model, which means all spa/wellness/salon staff must be compensated with a base salary in addition to their commission percentage.

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3 Tips For Beauty & Wellness Business Owners That Offer Commission Payments

If you think the commission-based pay structure is the best one for your business, we’ve compiled a list of tips below to help set you up for success. 

1. Establish Transparent Commission Structures

However you decide to establish your commission structures, make sure you set them up well beforehand—and put them in writing! Provide transparency so that your employees are 100% clear on the rules and guidelines of earning commission at your beauty and wellness business. This can help to avoid encountering misunderstandings, confusion, or even legal disputes later. 

2. Utilize Tracking Software 

Some beauty and wellness software offers features to accurately track and adjust commissions for your self-care employees. (Let’s face it, what beauty and wellness business owner wants to waste time solving math problems all day?) With the right software, you can reduce calculating errors, saving you loads of frustration and time, and allowing you to focus on the more important aspects of your business. 

Streamline your employee pay management by taking advantage of GlossGenius’ Payroll feature. With GlossGenius, you can customize commissions, tips, pay rates, and more.

3. Periodically Review And Adjust Rates 

The beauty of commission rates is that they can be flexible. In order to compensate employees fairly, you should periodically review and adjust your rates. These adjustments can be based on location, industry trends (i.e., employees that utilize more new and complicated technology get compensated more), demand changes, or even the financial health of your beauty and wellness business. 

4 Beauty & Wellness Businesses That Use Commission-Based Pay

Commission pay isn’t just for retail sales—they can work well in a number of wellness and beauty industries. Keep reading for some examples of different business types that can have a commission-based structure.

1. Salons & Barbershops

Commission-based structures are often found in hair salons, nail salons, and barbershops by giving employees a percentage of every head they service (or which services they provide). For example, employees might receive between 30% and 50% of every service charge. That means for every $40 beard trim, your employee can make between $12 and $20. Or for every $400 cut and color, your employee can make between $120 and $200. 

2. Spas

Spa commission structures are also common and can be an effective way to get your staff motivated and clients through the door. With a spa commission structure, employees will make a set percentage of every massage, spa treatment, or facial they provide (on average between 40% and 60%). You can structure these payouts the same, or adjust based on required skills. For example, staff members who can perform laser facials may earn a higher commission rate than those who only perform facial massages. 

3. Gyms

If you run a gym with personal trainers, you can consider a commission pay system as well. Commissions can vary based on the complexity of training sessions or how many clients a trainer brings in. Flat rates or tiered commission structures often work well for gyms, but some businesses can even allow trainers to set their own commission rates based on their expertise and the value they bring to the business. 

4. Tattoo shops

Tattoo shops can also benefit from a commission-based structure, especially if you increase commission rates for more complex tattoos. You can also rent out chairs to contract employees, which may allow them to keep a higher percentage of commission but in exchange, they must supply their own materials, supplies, and tools (helping you save money on inventory). 

Simplify Your Payroll Process with GlossGenius

Commission-based pay structures have the potential to increase performance and drive growth at your beauty and wellness business. While commission structures won’t be the best fit for every self-care business, they can significantly boost revenue and maximize earning potential with the right staff and leadership. 

GlossGenius can help you optimize your operations, providing features to help you simplify Finance tracking, make Payments, and view critical analytics and Reporting data to fine-tune your daily operations. GlossGenius software also provides commission reporting, making it easier for business owners to track and implement this pay structure and ensure your employees are compensated fairly and on time.