Retaining Stylists In The Hair Industry

A good question was posed by a former client about how to solve a problem in the service industry. It is the revolving door of stylists in the salon industry.

This constant movement of stylists from one salon to another is actually bad business. So how do you, as the owner, prevent or minimize this employee turnover? The answer lies in basic employee desires and needs in comparison to the salon’s needs and priorities. Once you understand the employee’s position you can implement a program and process to fulfill those needs and desires. The following sections explain the employee’s point of view, the salon owner’s situation and a long term solution that you can implement to reduce stylist turnover.

Employee Needs and Desires

It is human nature to have your basic needs met via financial security. All of us desire a decent and fair wage for our services. In addition all workers want security in their position of employ for the extended periods of time. There is nothing more stressful than not knowing what is going to happen. Finally, all employees desire consistently in their job schedule of family commitments and activities.

In the salon industry the ratio of female to male stylists is well over 85%. To further complicate matters the women are usually mothers and have a greater family burden than their spouses.

For you as the owner, focus on the three employee needs as this is the basis for a plan to reduce turnover. The three needs are as follows:

1) Fair and reasonable wage
2) Job security
3) Fixed schedule

Now that we have the employee side of the equation let’s look at the owner’s side of the equation.

Business Characteristics

The salon industry is a customer driven enterprise whereby the primary requirement of the customer is hygiene (haircut) with an emphasis on style. They simply want to look good, great if possible, but good as a minimum.

In addition there is a financial model that exists. There is some liberty in the model but the core model is as follows:

Revenue                                   100%
Labor                               55%          .
Backbar/Supplies             5%          .
Overhead                        30%           .
Total All Costs                          90%
Profit to Owner                         10%

This breakout is inherent in just about every salon out there. If one of the three groups of expenses exceeds its ratio, the profit must decrease by the same amount.

The model begins to generate some economy of scale once the revenue exceeds $600,000 per year. Essentially the overhead begins to decrease as a percentage of the revenue providing some greater liberty for labor. Or the salon owner may allow this value to fall to the bottom line. But the reality for the salon owner is straight forward; maximum labor costs should not exceed 55%.

The key to labor costs is that the costs include all elements of labor. Here is my short list of those costs:

* Gross Compensation to Stylists
* Employer Matching Taxes  – Social Security and Medicare
* Employer Labor Taxes – FUTA and SUTA
* Employer Retirement Contributions
* Employee Benefits Paid by Employer

Other employee costs are generally a function of overhead expenses and include:

* Training
* Worker’s Compensation
* Licensing
* Safety
* Tooling (Equipment, Sharpening and Supplies)
* Laundry including Uniforms

Think of labor costs as the value the employee takes home or accrues to them.

So let’s compute the maximum gross compensation to a stylist. To make this simple I’m going to use 100% as the starting point and using simple multiplication multiply the end result by .55 (55%) to determine the final maximum gross percentage of revenue as gross pay.

Before I begin, let’s make some reasonable assumptions:

1) The business pays 2% via a Section 408(p) retirement plan. No matching just a flat 2% payment.
2) FUTA and SUTA average 1.7% of gross compensation.
3) Employee benefits consist of a health plan contribution from the employer of 4% of gross compensation.
4) Employer matching taxes is 7.65% of gross compensation.

Therefore the total of all four of the above elements is 15.35% of gross compensation. If true, gross plus 15.35% of gross equals 100% of total maximum compensation for labor. The equation is as follows:

G + .1535G            =     100% Maximum Compensation
Therefore 1.1535G =     100%
Therefore G            =     100/1.1535
Therefore G            =    .8676 of Maximum Compensation
Therefore gross compensation cannot exceed 86.76% of the 55% value assigned to all labor costs.
Therefore gross compensation paid to hair stylists should not exceed 47.72% of total revenue (.55 * .8676).

If you wish to learn more about the best compensation model read: Tier Compensation in the Hair Salon Industry

So should everyone get 47.72% of the revenue they generate? You should immediately say ‘NO’! More senior stylists deserve higher compensation and your apprentices deserve lower. This concept tends to reward seniority and entices the younger stylists to stay and obtain seniority.

Now that both sides of the equation have been identified – the needs of the employee and the limitations of the business a plan can be developed.

A Reasonable Plan

So what is a reasonable plan that meets the needs of employees and can comply with the restrictions of the business dynamics?

The answer lies within the difference between compensation paid to senior stylists and junior stylists. The key being total compensation of all stylists not exceeding 47.72% of revenue.

So let’s walk through all three needs of the employee.

Fair and Reasonable Wage

In my opinion senior stylists should get paid no more than 57% of their sales. Naturally with seniority comes greater responsibility. This means their volume of sales should exceed 1.5 times the volume of an apprentice. In addition they should be able to commit 5 to 10% of their time to training and tutoring the newer stylists.

Your junior stylists compensation should start out at the 35% to 40% range allowing them opportunity to increase their respective percentage as they mature and begin to generate and retain their own clientele.

This model allows you to stay within the industry standard for gross compensation.

Job Security

In the service industry job security means plenty of clientele to generate work. As long as the clientele keep coming back the salon will be successful. As with any industry the retention rate is never going to be 100%. Seriously people die and this by itself lowers the retention rate. So you are always in need of new clients.

One of the costs in overhead is marketing and advertising [link to page – Advertising]. Are you doing enough to bring in new clientele? Are you changing the image of the salon every five years to keep up with what the younger generation wants? How about testing of new styles?

Make sure the staff sees you getting new clientele and constantly marketing. This brings faith that you want to be a successful operation for years to come. This in turn promotes job security to you stylists.

Fixed Schedule

Every one us would love to have a job schedule that mirrors our family schedule. The traditional 8 – 4 or 9 – 5 is the national standard. It most matches family schedules for our children, meals and evening activities.

But the salon industry is different.

Most of the customers work during this time period and require services during the nontraditional time periods, especially Saturdays.

So in this profession Saturdays is a requirement. It is just that simple. Sundays and Mondays are the traditional closed days for business. If you want to be open on Mondays, get the stylists without family obligations to work that day. For the balance of the week, obviously starting at around 10 to noon and working past seven is reasonable. For those stylists with school age children they can send them off to school without an issue. The hard part is the four days in the afternoons that these stylists have to make arrangements for their children’s care.

When hiring a new stylist, explain the limitations related to this industry. It doesn’t matter whether the stylist works at your salon or another salon, the business dynamics demand Saturday work.

There are different options to increase the fixed nature of the schedule and include the following:

  • Have stylists work a four day week instead of five but require longer evening hours as the offset.
  • Usually your more senior staff without family obligations want later times as that is when their clientele desire service. So junior staff can fill the earlier shifts but they need to understand that there is generally less income available for the lower level of activity.
  • Try enticements for customers to come during the slower periods. Use a 15 to 25% discount coupon for those clients showing up before 3 PM. The idea here is to shift the clientele times and not the hair stylist.

As the salon owner it is your job to clearly state the limitations of your industry to your staff. They must realize and accept these standards. You are merely trying to make a schedule for staff that meets peak demand and creates a fixed schedule for each and every stylist.

Summary

To retain stylists in the hair salon industry the shop owner must mesh the needs of the employees with the limitations existing in the hair salon industry. Employees want a fair wage and in general the average gross compensation can not exceed 48% of the stylists sales. You can pay more to senior staff and high volume producers provided you decrease the percentage for junior staff.

Secondly, stylists want job security. This is achieved by a consistent base of new clients to replace those clients that leave or terminate their patronage for other reasons. This is a function of not only your marketing program but the frequency of modernizing the facilities and equipment.

Finally, stylists want a fixed schedule to meet their lifestyle. Saturdays is a must for everyone; it is inherent in this industry. By using other tools you can provide a schedule to staff that will work.

Meet these needs and your salon will eliminate or significantly reduce turnover.  ACT ON KNOWLEDGE.

If you have any comments or questions, e-mail me at dave (insert the usual ‘at’ symbol) businessecon.org.  I would love to hear from you.   If interested in my help as an accountant or consultant, contact me through the ‘My Services’ page in the footer.

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About David J Hoare 427 Articles
I spent 12 Years as a Certified Public Accountant, Over 20 Years of Practice in Accounting and Consulting, Controller in Management of Closely Held Operations, Masters of Science in Accounting, Prepared over 1,000 Business Tax Returns and Hundreds of Individual Returns