The Esthetician Podcast

Your Pay Structure Is Keeping You Broke, and Here's How to Fix It

• Kari Jo

Share episode

Send us a text

Money conversations in the esthetics industry are often shrouded in secrecy, leaving spa owners struggling with unsustainable pay structures that keep them perpetually broke. Drawing from painful personal experience, this raw and honest episode exposes the harsh reality many esthetician business owners face: working tirelessly while being unable to pay themselves.

Remember the sinking feeling when payday arrives and your employee takes home a hefty check while you haven't paid yourself in months? That was my reality. After copying the "standard" 65% commission model used by others in my town, I found myself trapped in a financial nightmare. While covering rent, utilities, insurance, marketing, and all other business expenses, there was simply nothing left for me – the person who took all the risks and built the business from scratch.

Beyond commission pitfalls, we dive into the dangerous misconception around 1099 workers in our industry. Unless your estheticians are truly working at multiple locations independently, they're legally W-2 employees – and misclassification can lead to serious consequences. Many spa owners unwittingly set themselves up for failure before they've even begun.

The transformation came when I completely restructured my compensation system, capping commission rates, implementing performance bonuses, and ensuring business profitability came first. The results were astounding – my business thrived, my estheticians earned exceptional income (some making six figures working reasonable hours), and I finally paid myself appropriately for my role.

Ready to break free from the broken pay structures keeping you trapped? Access my free training "Three Steps to Fixing Your Pay Structure" through the link below, and discover how to create a sustainable business model where everyone – including you – can genuinely prosper. Because you didn't start your business to work for free.

To learn more about coaching please visit: https://www.karijopatterson.com

Connect with me on your fav social platform:

Instagram: https://www.instagram.com/kari.jo.patterson
Facebook: https://www.facebook.com/karijopattersonestheticiancoach
TikTok: https://www.tiktok.com/@karijopatterson
Threads: https://www.threads.net/@kari.jo.patterson

Links You May Want to Check out:

Join the Client Building for Estheticians group to go deep in learning all the latest tips and strategies https://www.facebook.com/groups/clientbuildingforestheticians
Check out Kari Jo’s courses here https://esthelaunchacademy.com

Announcer:

Welcome to the Esthetician Podcast, where passion meets prosperity. Your host, Kari Jo Patterson, transformed from a solo esthetician into a successful business owner, achieving ultimate time and financial freedom by the age of 38. Kari is the author of Fearless Prosperity, empowering estheticians to build their empire and achieve financial freedom, and the creator of the Empire Growth System for Aestheticians. Get ready for some empire-building wisdom Now. Welcome your host, Kari Jo Patterson.

Kari Jo Patterson:

If you're running an aesthetics business and you feel like you are constantly working, you are constantly grinding, but somehow, someway, you're still struggling to pay yourself, well then this episode is for you.

Kari Jo Patterson:

You guys, I have been exactly where you are and I have made every mistake in the book when it comes to paying myself and my employees, but I want to tell you something. It almost took me out. Today, I'm going to pull back the curtain and I'm going to tell you the hard truth about why your pay structure is probably going to keep you broke and, more importantly, how you can go ahead and fix it Really. What I want is, by the end of this episode, I want you to understand the biggest mistake that is occurring in this beauty industry. I want you to know what business owners, what mistakes business owners, are making when they are setting up their pay system. And I'll tell you the exact moment when I realized I was completely broken and that changes had to be made. So if you're ready to stop working for free and start building a real business, then let's get into this I want to talk about it.

Kari Jo Patterson:

Why is it that so many estheticians struggle with money? I think, especially business owners who are growing a team. I feel like their biggest problem when it comes to financials is when they are setting up their financials and getting ready to hire. They start looking at what everybody else is doing. They start copying hairstylist models and they might even think, oh, I'll do a booth renter, or maybe I should do this because Sally Sue is doing it. Well, congratulations. If you have a booth renter on and they're renting a room from you, you are not a business owner, you are literally a landlord. That's the job that you signed up for and I hope you're charging the right amount, because normally you're not. You're doing all the marketing for them. I learned this actually from one of my business mentors who actually is in the real estate game, and he talked about how the problem with that is you're doing all this marketing basically for them, for free, under your brand. That's bringing people in. They should be paying a part of that marketing, which is a whole nother. I should totally have him come on and talk about that. But anyways, what I want you to know is if you are looking at different people and you are looking at, say, different commission rates that some spas or hairstylists are offering, say you're doing 50%, 55% or 60, 65%. If you're sitting there looking at that and you're thinking, well, if I don't match that, no one will want to work for me. But what you don't realize is that their numbers are not adding up. You don't know their numbers. If they are paying that much in commission, they are running on razor thin margins and they're either going to collapse or say they have the most beautiful building in the entire world because they put all this money into it when they opened. That's not going to upkeep. It's going to continually depreciate and get worse. They're never going to bring in anything. You want to know how I know? I know because I did that. That story that you just heard, that was me. I almost lost everything because I had the wrong pay structure, and the reason why is I was copying everybody else around me.

Kari Jo Patterson:

I want to tell you about the first time that I hired someone. I was so excited about it. I built my business up to the point where I couldn't handle all the clients myself and I thought this is it. I finally made it, and so I looked at what some hairstylists were doing in my town and they had a bunch of 1099s and I was like, okay, I'll do the same thing. So I hired someone on as a 1099.

Kari Jo Patterson:

But what I didn't realize at the time is that actually 1099s are actually illegal in the beauty industry. Because you guys, if a true 1099 I want you to think of this a true 1099 means that they are like a gypsy, a real gypsy. They go from this business to that business to this business. They do not show up to the same building, the same business location, every single day. No, they're gypsies, they're going everywhere. They have lots of different locations. This is one of the things that the IRS looks at when they are going to decide if you are true 1099 or if you should have been a W-2.

Kari Jo Patterson:

Yeah, that was not the case with my girl, so I obviously had to fix it and luckily that girl actually left and she left and I actually had a lot of issues with her, like she didn't show up for her clients and then the clients were mad at me and I feel like it was ruining my reputation to have her associated with me. But I couldn't control that she was 1099 and then I feel like it was ruining my reputation to have her associated with me, but I couldn't control that. She was 1099. And then I was like, and so I started looking into this. I was like what? That's where I found out that it was legal. And so then I went to hire my first W2 employee. Well, I didn't want to be thought of as a greedy owner. I didn't want to be thought of as somebody who just, um, I'm all about the money. It wasn't like that. At the time I didn't even really necessarily care about the money, it's just. I wanted help in my business so bad. But I didn't want to be thought of as greedy. I did look around and hear what other people were paying. Which in my town, it was a small town. Which in my town, it was a small town, it was 65% commission. Okay, so what did I do? I put her on a 65% commission and I thought that that was fair, because that's what. Obviously, these other people's business has been open for a while. They know what they're doing, right? No, they don't know what they're doing.

Kari Jo Patterson:

What eventually ended up happening is payday came and guess what, my stomach started dropping when my employee was taking home big fat checks. Meanwhile, I hadn't wrote myself anything in a really long time. I was making nothing, and part of the reason why I was making nothing is because I was paying her so much after I was covering all the cost the rent, the utilities, the marketing, the investing in the growth, the insurance, all the just different little things. Right, I had to pay for her insurance, pay for my insurance. And guess what? Like how can you pay for someone else's insurance when you're only like making like 30, 35% commission rate? Basically, I was really stupid and, as you can tell, there was nothing left for me.

Kari Jo Patterson:

See, I built this business from the ground up, I put in all the work and I took all the risk, and yet, here I was, I was the one struggling. And you might think that's fair right, you're a business owner, you should struggle. Well, I'll tell you this Nobody goes into business not to make money. Like that would be a bad business owner. Every business owner wants to make money. So, meanwhile, my employee she was completely thriving and she was making great money. And I was sitting there looking at her and I was thinking how the hell did I mess this up? And then I realized something had to change. That just had to change.

Kari Jo Patterson:

Here's what happens when you don't have a profitable pay structure you'll end up working for free. Your family is ultimately going to suffer because you're trading your time for money and you're not even making any money. You can't grow your business because, at the end of the day, there is no money left for investments. You know what happens when you can't reinvest your spa starts failing. It starts falling behind the trends of the aesthetics industry. You can't afford that new hydrafacial machine. You can't afford to upgrade your products. You can't compete with any of the other businesses who are constantly leveling up their game and you can't offer any new treatments. Your clients are going to leave to follow who's got the newest and the best. Why am I going to be stuck with the old? I want to go with the new. If your clients leave, your employees are eventually going to leave too. They need money. Now you also have a higher turnover rate, and now you got to pay to train somebody else, and then, when they leave, maybe some of those clients are going to leave too. It is a cycle and it is going to keep you stuck.

Kari Jo Patterson:

Here's what I did to fix it, and this is exactly what I teach in my course so you don't have to make the same mistakes that I made. I restructured my pay system no more 65% commission. I put a cap on commission rates and I built in a structured bonus instead. The second thing, number two I made sure that my business was profitable. First, your business has to be able to sustain itself before you start giving away money that you don't even have. Number three I created a win-win model where both my employees and my business grew together. That is the ultimate win-win your business is growing and your employees.

Kari Jo Patterson:

If your business is stagnant, not growing, guess what? Your employees are stagnant and they aren't growing. You have to create a win-win when you guys are growing together. Instead of overpaying commission, I structured my pay so that, as we made more money as a team, everybody was benefiting, even including me. That's what I want for you. So guess what? My employees? They still. They made great money. I had estheticians that were making over a hundred thousand dollars, working less than 40 hours a week. I'm not even kidding you. I had an esthetician that was working 20 hours less than 20 hours a week and she was making $65,000 part-time. Yeah, you guys, I'm not making this up. It was great. I was making money, they were making money, and that's what happens when you have a sustainable model where you can continue to invest, to get new things, to build the business, to grow the business, because if the business is growing, your employees are growing. If they're growing, their paychecks are growing.

Kari Jo Patterson:

Let's be really clear about some of the biggest lies that you're going to think about when it comes down to you building your payment structure right. The first one is that 50-50 commission or 65-35, whatever it is any of those commission rates above 45% it's standard? No, it's not, and it's a quick way to go broke, okay. Second, you have to overpay your employee or they will leave. No, you don't. All you have to do is create a growth-focused business that retains talent. That's what you got to do. Let's talk about the last one. 1099s are totally fine. No, not unless they're completely independent and going to several other businesses around town. If they're not doing that, I'm sorry, sweetheart, they're a W-2 employee.

Kari Jo Patterson:

If you are listening to this and you realize that you've been making any of these mistakes that I just said, I have good news. You don't have to keep struggling through this alone. I created the Esthetician's Guide to a Profitable Pay Structure. So that, well, basically I did it because I know what it feels like to be stuck, to feel like you are literally working for free and to feel like you'll never make good money from your business. So in this course, I give you the exact framework that I use to pay my employees well, to keep my business profitable and actually pay myself a salary. That gave me some freedom, and that's why I was working in the first place. The best part is, I have a way to give you a free training to get you started. It's called the three steps to fixing your pay structure and you can get it in the link below. At the end of the day, you didn't start your business to be broke and you started it to build something real. So let's get you there and I will see you on the next episode.

Announcer:

Thank you for listening to the Esthetician Podcast with Kari Jo Patterson. Each week, Kari brings you real-world lessons on how to grow your empire. To learn more about Kari fearless prosperity mastermind group, one-on-one VIP coaching opportunities and more visit Kari. That's Kari. That's wwwk-a-r-i-j-o-pattersoncom. See you next week for more insights and strategies on the Esthetician Podcast.

People on this episode