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Commission vs. Rent

By: Michelle Calvarese, PhD
Posted: February 28, 2013, from the March 2013 issue of Skin Inc. magazine.

One of the first decisions a skin care facility owner has to make is how to earn income from staff. Usually that boils down to renting or commission. What’s the difference?

Rent

If team members are renters, they are independent contractors—a business working within a business. Spas typically will ask for a fixed weekly or monthly rent, and the renter provides everything needed to run the business, such as equipment, back bar and supplies ... and clientele. Rent-model spas are more desirable for a busy esthetician who has clientele, which provides opportunities for retail product growth. Some even do their own advertising and keep their own appointment books. Renters also should carry their own business licenses and liability insurance. If they don’t, that can be a potential burden for the owner.

As part of a contract, you may agree to provide certain amenities as part of the rent, such as reception or towel service. The more you provide, the higher the rent should be. Unfortunately, a common issue with renters is late payment.

Remember, you are the spa owner, not the boss. You will have less control over renters and it will be difficult to enforce some standards of operation. The concern is a lack of business cohesiveness. Provide clearly defined criteria that describes the exact relationship between you and the renter. These should be in both a staff manual and rental contract. Ultimately though, independent contractors are on their own.

Pros. The pros of working with renters are: fixed, stable monthly income; lower equipment costs; lower costs for back bar or supplies; opportunities for retail product sales growth; and lower advertising costs.

Cons. The cons of working with renters are: limited growth; late rent or nonpayment; reliability—renters may not be self-motivated; potential liability if renters do not keep licenses or insurance up to date; inability to sever ties with difficult renters out of fear of losing rental income; and lack of business cohesiveness and uniformity, leading to client confusion and dissatisfaction

Commission

Commissioned estheticians are generally employees with salaries based on a negotiated percentage. Typically, skin care facilities will start with a lower percentage and gradually increase it based on performance. As the employer, it is up to you to provide everything needed to perform their job, such as equipment, supplies, back bar, reception, training and advertising and clientele.

Because you are the boss, you have more control and can enforce working hours, dress code, referrals and retail sales quotas. If your employee has a full book, you will make considerably more than with a renter, even if paying a fairly high percentage. You will, however, have additional costs, such as employee taxes, insurance, any benefits and more.

Pros. The pros of working with commission are: quality control; potential for a higher income; a better “team” atmosphere; consistency in services, prices and products; and greater potential for growth.

Cons: The cons of working with commission are: increased cost of providing equipment and supplies; increased cost of employee taxes and benefits; requires more time devoted to bookkeeping and accounting; potentially variable income; and competition includes rent-model spas.

Some skin care facilities end up using a combination of renters and commission employees. This may lead to division among staff, so be careful. Still others blur the line between renter and commission with carefully worded contracts that can get tricky and complicated.

No matter which route you choose, when it comes to contracts and structuring, always seek the service of an attorney and certified public accountant who have experience with spas and are familiar with your local regulations. Although it costs money up front, it will keep you out of trouble and save a lot of stress in the long run.

Michelle Calvarese, PhD, is founder of Truth Skin Care and an associate professor at California State University, Fresno. Her company’s mission is to develop results-driven products based on scientifically proven ingredients versus marketing gimmicks and hype.