Rent vs. Commission: What’s Better for Your Revenue?

Rent vs. commission is one of those industry topics that can get people heated real fast. Depending on your experience coming up in the industry, you’ve probably got strong feelings about which one is better.

Let’s put feelings aside and look at the issue through the lens of cold, hard cash. Today we’re going to look at the impact of operating a booth rental model on your current–and future–revenue as a shop owner.

Rent is stable income–for better or worse

When you rent out booths to barbers, you know exactly what you’re going to make from that part of your business. If you have 5 chairs renting at $225 per week, that’s $1,225 each week overall, or $5,000 per month. 

The rent provides you, the shop owner, stable income to cover the business’ expenses and your own needs. But that rent is ultimately capped. It doesn’t matter if your costs go up.

Unless you raise the cost of the booth for your barbers. But that’s a risk, too, because barbers might leave due to the rising rent. Without renting out all your booths, you might be making less than you were before. 

Building your brand is still key

Branding is critical in any business. Whether you run a commission shop or a rental shop, the owner is the one putting their reputation behind the brand. No matter how they're paid, the barbers you bring in impact your brand. It should be a mutually beneficial relationship, where the barbers and the owners elevate each other's work.

That's right: even shop owners who simply rent out chairs to barbers have a stake in building a good brand. You invest in the location, the equipment, and atmosphere. And you invest in the barbers you bring into the shop. When you put it all together, that's a big part of the client's brand experience.

As your brand’s reputation increases and it becomes trusted by clients, that’s good for both owners and barbers alike.

Rent is not tied to performance–but performance is tied to your brand

As a rental shop owner, the other barbers in the shop essentially run their own business within yours. When they raise prices or increase their bookings, that has little impact on your income.

On its face, this can seem fair. But when you look at it from the other perspective–when a renting barber performs poorly or delivers bad customer service, it is your business’ reputation that’s impacted, too. It’s your brand that’s on the door. The risk and impact of negative reviews and word of mouth can have a greater impact on the shop owner in this case, as the barber can pick up and leave to a new location.

Is rent crushing your revenue?

There’s a lot to like about running a rental shop. Beyond income stability, a lot of the pressures of running a business with employees are taken off your plate. No payroll, no W2s, no figuring out healthcare and HR stuff.

That all can feel overwhelming. But is your fear or discomfort with running a business keeping you from making more in the future with a commission shop?

In our hypothetical 5-chair shop, you’re bringing in $60,000 per year when all your booths are fully rented out. That’s it. 

With a commission model, however, you can make more as your business grows and your barbers become more successful. If those five barbers bring in $500,000 in revenue a year all together, a 70/30 commission leaves you with $150,000–not $60,000.

Some of that extra money will get put back into the business–to improve the shop, provide benefits, invest in tools and technology. But that wouldn’t be as easy to do in a rental shop where your revenue is capped.

Moving away from the rental model unlocks faster future revenue growth.

It also changes the dynamic between you and the barbers: rather than running separate businesses, you’re all working together to build a brand together.

For some shop owners, the challenge of running a business keeps them from moving away from rental models, and that’s fine. But for shop owners looking to build a brand and ramp up their revenue faster than you can raise rent, overcoming the fear of running a full-fledged business is the first step. 

So, as you consider opening your first shop, ask yourself the following questions:

  • What’s motivating you to run a shop–financial stability or financial opportunities?
  • How much would you expect to earn in rent over 5 or 10 years compared to 5 or 10 years of running a commission shop?
  • Is the difference between the two numbers enough to change your mind?

The answer to those questions can help you decide whether rent or commission is right for you. Whatever you choose, you can make your life easier than ever with SQUIRE helping run your business. Sign up for a demo today.

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