Commission vs. Booth Rent: Which Model Makes More Financial Sense?
As a salon owner, one of the biggest decisions you'll face is choosing between a commission-based model or booth rental for your stylists. Both options can work well, but understanding the financial implications of each can help you make the right choice for your business.
Commission Based Model
With a commission model, you're paying your stylists a percentage of the services they perform. Typically, this ranges from 40% to 60% of their service revenue. As the owner, you keep the remaining percentage, which helps cover your overhead costs and (hopefully!) generates a profit.
The financial advantages of commission include:
You maintain more control over pricing and service standards
You get a share of every service performed
Retail sales usually stay with the house
You can build a more unified salon brand
It's easier to implement training programs and standards
The potential downsides:
You're responsible for all overhead costs
You need to provide benefits for employees
There's more paperwork (payroll, taxes, insurance)
You'll need to actively manage your team
Chair Rental Model
With booth rental, stylists essentially run their own mini-business within your space. They pay you a fixed weekly or monthly rent for their station, regardless of how much they earn.
The financial benefits of booth rental:
Guaranteed income from rent payments
Fewer management responsibilities
No payroll taxes or benefits to worry about
Lower insurance costs
More predictable monthly income
The challenges:
Less control over service quality and pricing
No share of service revenue beyond the rental fee
Usually no cut of retail sales
Potentially less unified salon atmosphere
Higher stylist turnover in some cases
Making the Right Choice
Your decision should depend on several factors:
Your Management Style: If you enjoy mentoring and building a team, commission might be better. If you prefer a hands-off approach, booth rental could be your answer.
Your Location: In areas with lots of experienced stylists, booth rental can work well. In areas with newer stylists who need guidance, commission might make more sense.
Your Financial Goals: Commission can potentially generate more revenue when business is booming, but it also comes with more risk during slow periods. Booth rental provides more stable, predictable income but caps your earning potential per station.
Example
Let's say you have a station that generates $5,000 monthly in services:
Under Commission (50%):
Your share: $2,500
Minus overhead costs (products, utilities, etc.)
More management time required
But potential retail profit
Under Booth Rental ($800/month):
Your share: $800
Fewer overhead costs
Less management time
But no additional revenue potential
There’s no one size fits all
The key is to choose the model that matches your management style, financial goals, and local market conditions. You can always change your model as your business evolves. Some salons even successfully mix both models, offering some commission stations and some rental stations to diversify their income and attract different types of stylists.
Take time to crunch numbers that make financial sense for you. If you want assistance with planning different scenarios, book a call with us!
The Glow Standard organizes financial data to help salon owners make better business decisions.
