Ged 695
Robin Jarnagin
April 23, 2015
Commission Arrangements
An industry trade magazine article spoke of an individual who made a decision to enter
the cosmetology industry. He became an entrepreneur of hairstyling and eventually become a
salon owner. He worked in the industry for a number of years as a booth rental stylist. While
doing so he successfully evolved a large loyal cliental of approximately 300 customers.
Challenges prevailed and the time arrived when he was able to open the doors of his long
awaited salon. The location was Arnold, Missouri.
He recruited a small staff, chose a compensation arrangement and proposed a
commission system to his stylists. Wanting his staff to be satisfied, he started them on a high
percentage, with the hopes of retaining loyal and long term stylists. His payment structure began
at 50 percent, with a progression to a range of 65 percent, as stylists grossed more income. A
long range incentive was for a few stylists to rent their stations for $75.00 per week.
Three industry experts critiqued and commented on the business decisions and efforts of
this individual. Salon Development Corp. founder, Michael Cole expressed that the commission
percentages were too high. The suggestion was made to tie a commission increase to a stylists
repeat business rather than to customer volume. The importance of this is that residual income is
created when a stylist converts a new client into a repeat customer, rather than a one-time never
seen again customer. There was a contrast between a repeat client and a new client which has an
effect on the advertising cost. Conversion of a new client into a repeat client results in residual
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3 Finegan, Jay. “Anatomy of a Start-Up, The Cutting Edge,” Inc,. V.13, November 1991: 112-123.
4 Barratt, K. (1998). An Analysis of Compensation Practices in the Cosmetology Industry, (Unpublished Master’s Thesis).: Cal Poly University,
Pomona, CA.
income. Thus, the business works itself eliminating marketing and advertising costs. This
justifies giving back to the stylist in the form of partial savings. It was also suggested to
implement a commission incentive for stylists. For example, begin with a 55 percent commission
for repeat customers and 35 percent for new clients. The idea is for the stylist to encourage return
appointments. The concluding suggestion was to establish a multi-level pricing. When a stylist
evolves a full clientele there is only one way to increase their potential. This is to promote them
to a master stylist.
Robbie Olson is the owner of Hair-Em-in Florissant, Missouri, indicated that a salon
owners’ principle responsibility is staff development. Some salon owners spend a tremendous
amount of time and energy on catering to their individual clientele. A wiser decision would be to
invest more time and energy on promotion. Leadership is what people are looking for, plus
vision and the ability to see the big picture.
The president of Professional Salon Concepts, Steve Cowan, saw a different angle. The
total gross revenue nationally averages are about 60 percent for compensation costs. This
includes taxes and fringe benefits. It is not uncommon for general and administrative costs to
average 32 percent, with approximately eight percent remaining for profit. In his opinion the
commission structure was too high. (3)
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3 Finegan, Jay. “Anatomy of a Start-Up, The Cutting Edge,” Inc,. V.13, November 1991: 112-123.
4 Barratt, K. (1998). An Analysis of Compensation Practices in the Cosmetology Industry, (Unpublished Master’s Thesis).: Cal Poly University,
Pomona, CA.