Today, let’s talk about what it looks like financially as a booth renter or salon owner. We’re going to get way into the numbers so you can know if you’re budgeting correctly.
Now the trouble is that we often underestimate what things will cost, like moving into a suite that costs $1500 more than you budgeted or paying more taxes as a booth renter than you did as a commissioned stylist. Or when the water heater goes out, you as the salon owner have to pay thousands of dollars to get it repaired.
People usually don’t realize the financial commitment they’re making until it’s already done and they have to work their way out. Here are some hard numbers to compare your business to so you can see if you’re on the right track.
Booth Renter’s Budget Breakdown
Lots of stylists go from commission to booth rent because they want to keep more of their money. But even today’s top booth renters — the ones who run it really lean — are making 50% of their gross income.
Here’s how you should split your income as a booth renter if you want your take-home pay to be about 50%:
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Booth rent – 15%
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Back bar and professional supplies – 14%
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Marketing and advertising – 3%
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Client amenities – 1%
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Phone, internet, or hot spot – 2%
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Education expenses – 2%
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Software (like an online booking system) – 2%
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Bank charges and credit card interest – 2%
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Professional savings – 2%
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Licenses and permits – 1%
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Liability insurance – 1%
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Retail is a little bit of a separate calculation. It’s not a huge expense. For some of you who see a surplus in your take-home pay, it’s probably because some of that should be invested in retail.
If you stay on the above budget, all you’ve done is pay to run your business; you haven’t even paid your taxes yet. Your pre-tax take-home pay is 51% of your gross income. The cost to rent your booth, maintain your professional supplies and back bar, your marketing, your phone, your software, your bank charges, interest, your insurance… All of that is 49% of your gross earnings if you are running a lean business. Your take-home would be 51% of gross on this budget, and then taxes are deducted.
More often than not, the cost to rent a booth is closer to 20 – 30% of gross earnings, meaning you’re not making enough money because the price of your booth is too high. That doesn’t mean you need to move salons; it means you need to find a way to increase your income to get these ratios where they should be: by charging more or getting more butts in your chair.
Booth Rental Budget: Real Numbers
Let’s say you made gross $100,000 working behind your chair this year. That means enough balayage and root touch-ups to equal $100,000. If you stayed on budget, you could take out all of those expenses — the booth rent, back bar, software charges, marketing, that kind of stuff — and you’d be left with $51,000.
Does that mean you made $51,000 this year? Nope. Because now you have to take out taxes.
Once you take out taxes of your business’ $100,000 gross income (it will vary a little bit state to state), your take-home money is $34,000 a year/just under $3,000 a month.
For most stylists, you’re hoping to keep at least 51% and then take taxes out. If you’re not even keeping 51%, look at the way you spend your money, and market your booty off to get more clients in your chair or raise your prices. These are your only two options if you want to be more profitable.
Commission Salon Owner’s Budget Breakdown
Let’s talk about the commission salon owner’s budget. Open your ears, because it will shock you when you hear how expensive it is to run a commission based salon.
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Price of property per month – 10%
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Back bar and professional supplies – 10%
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Stylist commission – 40%
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Support staff – 5%
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Payroll taxes – 8% of payroll (this varies but 8% is a good number to judge by)
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Utilities – 3%
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Benefits – 3%
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Maintenance and repairs – 1%
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Marketing and advertising – 2%
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Phone and internet – 0.5%
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Software – 0.5%
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Bank charges and credit card interest – 2%
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Professional savings – 2%
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Licenses and permits – 1%
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Education expense – 1%
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Businesses insurances – 1%
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Other expenses – 1%
If you are a commission salon owner and stick to this budget, your annual salary is 9% of gross sales. If you still work behind the chair, then 9% will be surplus above and beyond your commission, assuming it’s 40% of your service dollars.
A lot of commission stylists think their salon owners are swimming in the Scrooge McDuck pool of coins at the end of the night. That ain’t happening.
If the salon is doing one million dollars in services a year — that’s at the elite 3% of salons — and the salon owner can stick to a budget, that owner will make 90 grand pre-tax. That’s about 9% of gross if they’re staying on budget.
Where’s the Booth Renter Salon Owner’s Budget?
It’s hard to make a rental salon owner’s budget because there are so many ways to slice it. It depends on your area, how many booths you have, and if your salon can charge top dollar. Generally speaking, there isn’t a ton of profit in the booth rental salon unless you’re a cut above the rest. You have to be so in demand that people are dying to work for you and willing to pay a price to do it. If you can charge premium rent in your salon, you can absolutely create a profit margin.
Take a step back and look at how much you’re bringing in and how much you’re spending monthly. Money is important and you need to know where it’s going, where you should spend more, and where you should spend less.
It’s the most important thing you could do in your business this year. If you’re not doing it, you’re running your business blind.
Keep your books monthly. Stick to a budget. Have a plan to make it happen, and be willing to sacrifice now for the long-term gain. If your budget is off, don’t panic. Market yourself. Crank up the volume on your marketing efforts, and fill your chair.
Want to hear more about this topic? Click here to tune in and listen to Britt break it down!