111: Booth Rent vs Employees: Why Your Spa Isn’t Making Money

We audit Brooke’s esthetics business and draw a hard line between landlord and employer, then map the math and mindset that stop hidden subsidies and unlock real freedom. Clear steps follow: price booth rent by true costs, make shared services opt‑in, or pivot to W‑2 hiring.

• current mix of booth renters and one employee front desk
• landlord vs team expectations and legal boundaries
• freedom trade‑offs of booth rent compared to W‑2
• California wage rules and retail commission approach
• calculating true rent, utilities, triple net, maintenance reserve
• annual rent increases and simple, fair contracts
• ending hidden subsidies like front desk and software
• opt‑in fees for receptionist and shared marketing
• fairness over exceptions, numbers over emotion
• pilot path to employees, training, and brand control

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Transcript

Setting The Stage: Brooke’s Setup

Kari Jo 0:00

All right. Welcome back to the Esthetician podcast. We have on Brooke, and she is here for our business audit today, which I'm so pumped because she is running a place with a bunch of women in it. And we need to jump in and figure out what's going on. So, Brooke, thanks for coming on the business audit. Thank you for having me. Yes. Well, I'm like super pumped. So before we get started, tell me a little bit on the form. It said that you had some employees. Do you have 1099s? Do you have booth renters?

Booth Rent Reality Check

Brooke 0:30

Tell me about your business. Okay. So right now I have a front desk girl that is employee. And then from there I have five rooms, one spray tanning room, and I have room four, an esthetician on rent. Room three is a hairstylist on rent. And room two is a massage girl on part-time rent.

Kari Jo 0:49

All right. So you've got a bunch of booth renters. Right. Okay. So what is your biggest problem, would you say?

Brooke 0:57

So I'm in California. So we know that's always really fun with all the laws and the rundowns of everything. Right now, I think my biggest setback is not knowing what to charge for the booth rent and not hitting my rent. And as an owner, I feel like you should actually be cash flowing over your rent. I do acknowledge too going through COVID and being open and closed three different times. It's kind of like my business is still a baby. So where I want to hit a five-year mark, I'm at seven years. But I do think the first three were just rough because the COVID thing and, you know, clients just fluctuating. I'm not being rude, but a couple of them, you know, moved out of state. I get it. Yeah. Yeah. And I was, you know, I was booked before COVID, I was booked out six months for facials. And I was exhausted, but I was grateful and I loved being that successful. And then it kind of made me pivot like, okay, maybe I don't want to be booked out to that extent. Maybe I want to get out of the treatment room and run the business more. And so that's kind of right now where I'm at, needing retail to be pushed way more people to be educated to help with retail. And then just figuring out how to make this team flow, where it's not so reliant on me being there all the time. And then also listening to my team of what their needs are at the same time making sure that as an owner, I'm also successful.

Landlord vs Team: Legal Lines

Freedom Requires W‑2 Employees

Kari Jo 2:13

Yes. Okay. One of the reasons why I asked you, like, tell me about what is your team classified as, is because truly you cannot expect ownership from people who you cannot control or you cannot own. And so one of the confusing things that you have to get really clear on, where I see that the mismatches from the very beginning is how you want to run it. So when you have booth renters, you actually don't have a team. And that probably doesn't sound very good to you. You're like, I feel like I do. But a lot of times when you do booth rent, essentially how that setup is. When you are doing booth renters, you are a landlord. That's what you are. And that is all you are. There isn't my team or I need my team to sell more product. And the reason why is because when you get into that, you start crossing the boundaries what sets you up for a big liability. Does that make sense? Yeah. And I'm not saying that that's what you're doing, but I'm saying first and foremost, I would change your language. Okay. You can want everybody to succeed in your salon or like in the building, right? You can want everybody to succeed. And you as a landlord, what you can control is you get to control the culture by who you vet when they come in. That's it. If you want to have like a really good unified environment and stuff like that, then where you control, because you can't control if they sell product, you can't control if they rebook, you can't control anything, you can't ask them to come to meetings, you can't have all of these things with them. Because that crosses into W2 or employee, where your control is, is by vetting who first and foremost you let come and booth rent from you. You've got to have a vision of who the ideal candidate is, first and foremost, what kind of things and who they are not. And you definitely hit that. And then you can create the culture within your company offering, say maybe you have somebody come in to teach, you know, rebookings, and it's an opt-in. You can opt in or you can opt out, right? But it's not a team environment, and you at no point should care what they are doing in their businesses, selling product, whatever, you should not care. You should solely be caring about are they paying the rent and then what you're doing. The hard thing with booth renters is you are not going to make money, right? And you are not going to get freedom. And freedom comes from having W-2 employees straight up, right? Unless you bought this building, you own this building and it paid off and you're getting income, right? If you don't have that, then that is the trade-off. People are afraid to have W-2 employees. So they take a route that feels easier, but actually it's like 10 times more complicated than having like the booth renters because you have no control, no ownership, right? And so, first and foremost, I guess my question to you would be like, do you want to build that freedom and yeah? And so that would be under a different structure. Right. And so that would be the first pinpoint. When I say like having like employees and booth renters, I mean like, what do you feel about that?

California Pay Rules And Options

Brooke 5:37

So California, I've been doing a little research on this. There was something it was posted on a you know Facebook chat that I was on that you have to pay an esthetician double minimum wage. So we'd be like in the $30 range. Yeah. Um, and we're not allowed to pay them commission on I think services, but I think you can pay commission on their sales. So I actually have someone recently that we've been working together and talking about, you know, even two days a week on her being on hourly and the commission on the products. And she's actually trained in the same skincare line as me. And I think that's like probably my first. Well, what do you think? Like if I dip my toes into trying that because I've done employees before and it was just hit and miss with COVID.

Kari Jo 6:18

Yeah. And I think if your goal is to get more freedom to build a company, to build a brand and whatnot, that's only going to come from you having a say. Cause when you're building a brand, you have to control it, right? So, like that employee has to fall in line with what you represent, and that's how you build the brand. And so if you want freedom, I think definitely the employee route would be beneficial. You are right on those laws. It is $30 minimum. And so you would want to definitely save up for that. I think you've done it before, you know how to do it. I think you definitely could do it. I think the booth renters are a safer option, but it's not going to give you the long term. But I do want to go back to your booth renters because the first step is you need to choose the business model that is going to help you win first and foremost. So the trade-off is the booth renters is you're a landlord, you can't choose it. You're not going to make a bunch of money off of them. You probably might make a few extra hundred. Maybe it will pay. I don't know what it's going to be. We'd have to look at your numbers, but you're not going to make a lot, right? I mean, you can go to work and go home, right? Great. Or you can choose to like risk and grow, and that's going to be the employee. So, first step is that. Let's talk about your booth renters, which you said you don't feel like you're making money.

Brooke 7:41

Tell me how I'm absolutely not. I'm not even breaking even. And that's just in all honesty.

Kari Jo 7:47

I'm so glad that you're on and being open with this because I feel like aestheticians think that like when they pay rent, that the owners are walking away with thousands of dollars.

Why The Numbers Aren’t Mathing

Brooke 7:57

Dollars, yeah. Yeah, yeah. And we're paying for toilet paper, paper towels, a front desk person that all comes out of my overhead. And I actually pay rent on my own room, and it's still pretty high. So everyone else is actually paying less than I am for my own room in my own business. Yeah. Not making sense, not panning out. Okay.

Kari Jo 8:16

So you're coming out every month, yeah, right now. All right. So the first step that I think you need to do with your booth renters is you need to add up your cost for running this building every single month. That cost does include electricity, it includes like just maintenance. I am in the real estate because when you're a landlord, basically you're in real estate. That's all you are is in real estate. So in real estate, the standard is 10% of whatever your rent is, about what you need to be putting away per year for maintenance, right? So let's say your rent is, I don't know, say in a year, make it easy, $10,000. Then you have at least a minimum of $1,000. Is that right?

unknown 9:06

Okay. Yeah.

Kari Jo 9:07

In like just maintenance alone. That's not like fixing, but that's just little paint touches or the toilet paper roll broke in the bathroom and all of that. I would add up every single expense for the business and your utilities and stuff. Do you pay them monthly? Do they have you on like adjustable? Does it change every month or is it a fixed rate?

Brooke 9:31

Um, well, if it's cold out here or it's hot, we run the AC or the heater. So that changes. Water bill pretty much stays the same. I just paid to have all the floors professionally cleaned and resealed because my business is seven years old and plank fake whatever vinyl starts looking crappy. So that was 1400 square feet of getting that done. And I've already, that was easily, you know, 1800 just to do that. So I see exactly what you're saying.

Calculate True Costs And Rent

Kari Jo 10:02

Yeah, I would if it's not on a fixed rate, what I would look at is obviously the average. If you take all the last year and find your averages, but I would add it all up, and then I would take all the rooms in your space, but you need to minus the shared areas, right? And then, of course, obviously divide it. And that is the bare minimum that you should be charging for booth rent, period. Okay, like period. That does not mean you're going to make money. I'm like saying bare minimum. On top of that, every year, this is across the board in real estate, your rent should be going up three percent minimum every year. So that needs to be like known to your girls every year. It's going up three percent, period. And I would actually, if I was you in the contract, I'd put like three to five, right? Because especially in California.

Brooke 10:54

Oh, I know. It's crazy how much you gotta adjust for and I'm in prime real estate, I'm in one of the busiest shopping centers within five cities. Yeah, it's awesome, but I'm paying for it, so great location, but it costs me a lot of money.

Kari Jo 11:10

And your rent, I bet you're under contract and it goes up three percent every year.

Brooke 11:15

And triple net. I never knew what a triple net was because I wasn't the one to do the contract when I opened this business. And then that person exited, and I was like, Oh my goodness, I need to Google all these things because I did the skincare. I went in, sold stuff, did the skincare, someone else was doing all the finances. It's never a good idea to be disconnected from your business in that sense, even if somebody intimidates you and says, Well, you're not good at it, or you don't need to look at numbers. Always, I will never do that again. Yeah, and you know, you learn.

Annual Increases And Triple Net

Kari Jo 11:43

Yeah, you do. You learn you're like, Oh my gosh, that was don't worry. I I like made a big bad move on like bringing hair extensions, and I think I lost like 70 grand on that. So don't worry, like okay, you may not feel like I lost we all live and and we learn. Yeah, so I would take that up, I would increase it every month. And also, in addition, if you have a bunch of booth renters, I mean, this is an option, but I'm just gonna tell you that this is like I would never get into booth rent unless I did this because this is just total, completely, I don't know, landlord 101 is if you have a bunch of booth renters on top of that, what you also should have them paying into is marketing, right? Because they're using your brand's name, right? On the front of the advertising. And so that is something that's helping their business out. Now you can choose how much you decide you want it to be, but they should be paying, like, even if it's, I mean, you can choose however much you wanted. But for example, if I had this booth renter space, like I would want to advertise the company, right? So I would make a budget. And a good way to do this is to look at it similar to how you would do your own finances as an esthetician. So as an aesthetician, you usually you should be paying, and I say usually, but you we need to see your numbers, but anywhere between like seven to twelve percent is marketing. Okay, right. So let's say you're at $10,000 of rent. If you did 7% of that, you should collect that 7% from everybody. You know what I mean? Yeah, and then use that and let them know what it's going towards. And that goes towards marketing. So you guys can be in magazines, you're advertising that you guys have a billboard so that it's helping them. You do go further as a group of women, and so if you guys all do that, you guys can do bigger marketing everywhere to come into your company, all of the little tiny things, put them on the radio, like right, go to this salon suite or whatnot. But that should also be a part of it. So, knowing all of this, what is gonna be your biggest concern? You're gonna be like, that sounds really great.

Brooke 13:58

That is probably what I should be doing, but there is no but. That's why I connected with you because I definitely knew sometimes you need a little tough love and someone to be like, listen, this is what's gonna work better for you. And what's what you're doing now isn't working. And I'm very aware of that. So I'm really ready to pivot. And like, I think sometimes as aestheticians, we care so much about other people, which is great, but longevity, I have to think about this business. And at some point, I'd like to, you know, retire, have a retirement, sell it, travel, not be in the treatment room, you know, all the time. And then I'm not able to run it efficiently the way that I need to be and be present because it, you know, I've hired managers before and stuff. It doesn't work. People, it's your baby, it's your business. You're the best person to run it.

Kari Jo 14:44

Yes, it is true. Going back, okay. So you also said that you have a receptionist. That is, are you including that right now in their rent or the day they're putting in? No, so you're paying for the receptionist. Yeah, you are really nice.

Marketing Buy‑In For Renters

Brooke 15:02

I'm trying not to be so nice this year. Um, on a positive note though, my receptionist, she's one, she's a sweetheart, but she's super tech savvy. She's redone a lot of my inventory where I didn't really know, have a pulse point of what was going on in Square. We're working on a new website, we're working on getting an online store backup. So she's actually to me a gem to have to do that. But it's, you know, between paying a bookkeeper and paying front desk and then all the utilities, and then for my own room. And then you're just working to I'm funding my job. I'm not funding a business, if that makes sense. Yeah. And I don't want to keep doing that. I absolutely do not think that's the smart way to go.

Kari Jo 15:44

Yeah. Booth renters, this should be the number one rule. Booth renters should never be supported by the owners ever in any tiny little category of the business. And so the problem is your booth renters are reaping the benefits of your receptionist, but you're fully funding the receptionist for them, which is what the benefits are for a W-2 employee. Right. If you continue down the booth renter route, you will need to separate that as well, where it can be an option, a buy-in, right? So if you want to buy in, right, and then you can buy into the receptionist. And this is also an additional of how much it is going to cost for you to buy in for her payroll, right? And everybody pitches in. If you don't want it and you don't want a receptionist or anything like that, that's totally fine. You don't have to buy in, right? And she can just run it for whoever it does, and she can just run it for just you, but you can't have that. I mean, that is a really nice. I'm sure that there's some someone there's gonna be listeners listening to this that's like, shut up, Kari. Like no, because you're right. Like, not you, like the business owners are like, yeah, Kari, say it. The booth renters are like, shut up, Kari.

Brooke 17:01

I want the renters are like, no, no.

Stop Subsidizing The Front Desk

Kari Jo 17:04

Yeah, they need to pitch in for the payroll. And you can do that one of two ways. You can just set a set amount of how much that's going to be. I would calculate it by like all eight rooms, you know what I mean, or however many rooms you have, and then what is her salary for the year? Including bonuses, maybe adjust for I don't know, any Christmas guests, whatever you guys want to do, add some bonuses in there. Don't yeah, think ahead, right? And then you can split it between the rooms. So, and it's just this is the flat amount. It covers the receptionist, and you can be a part of it or not, right? And you can have it adjust. So, like the more people that opt in, it's lower. The more people that opt out, it's going to be a little bit higher. And so it will adjust. And so, hey, the other booth renters will like totally be doing the work for you of trying to talk the other ones into it because then it goes lower for them. Right. That's a good idea. That's a great idea. I love that. But okay, so now if I say this and you're gonna go and tell it to your booth renters, how is that going to go? Are they going to, are you worried? Are you like, okay, so if you go and do the math, is the math like going to be what worry comes next if you did the math and you're like, okay, that's gonna be way more than what they're paying right now.

Structuring Opt‑In Services

Brooke 18:21

What is your first thought? I don't know. I think though I'm ready to just lay it out and just maybe I would take, maybe I wouldn't do the marketing right out the gate, go a little lower on that, but it's at the point. It this gravy train is done. Um because it's not fair to be so stressed out as the owner and everybody else to be benefiting. I'm also paying for square for everyone, though I was, but then that got a little messy because some people had their own and then it was double booking. So right now I have, I think, just myself and one other person on there, but also I should be like, it's 10 bucks a month. Those are the little things that add up that at the end of the year, you're like, oh my goodness, I cannot believe. It seems like, oh, it's 10 bucks, no big deal. I can just take the hit. It's not a big deal. It's 10. No, that adds up. Yes. So I think I've just been a little too bendable, easygoing. And honestly, it's been a challenge to find good renters, good moral compass, people that are trustworthy, you know, that even have like a kind of like-minded situation. I will say, on a positive, this is pretty exciting. My hairstylist right now, she was at another place and really felt passionate about this hair care line that's amazing. It's uh just absolutely amazing. And where she was renting, she was part-time, she's rebuilding her clientele. She's from here but had moved. The owner was just, he was absolutely adamant that he would not bring another line on. He only wanted her to sell what he had. And she happened to just come in for a facial off of a referral. And I showed her the room and said, Hey, if you know any hairstylists, you know, I've already like outfitted the room twice now and then made it back to massage. And then, but I like having hair because hair is a good referral. She called me that night and she's like, If you would bring on this line, I don't want to front it with the money. And I said, Okay, and it had a buy-in. And she's like, I'll sell it like crazy. I'd love to be a partner. And we we sat down the next morning and we negotiated, even though maybe a rent is less for a suite than I would have liked to get. She's been a key partner with me and actually pushes good product, doesn't even have to really same personality type. I haven't had someone work with me like that in a really long time where she's like another version of myself. So that is an exciting positive of room three. Because it's actually someone that's invested in my business and cares.

Kari Jo 20:39

Yes. But are you making a justification for her that her rent can be lower?

Brooke 20:45

For one year, and she was really fair. We said one year, and then she we wrote out the whole how it's gonna increase, what it's gonna, we didn't find it out.

Hard Conversations Without Emotion

Kari Jo 20:53

And I think that's totally fine, but like where you are gonna cross the boundaries is you can't make exceptions for someone just because you like them and she's helpful and great, and you get along well with her and not do it for other people. So if this is something that you're offering for her, then you should be offering it for others to your own. And she might be better than everyone else, but that doesn't mean because she's being held to the same standard as everyone else, including yourself, because you're just taking a hit to yourself by justifying it. She would probably be well, she would probably do the same amount. Do you know what I mean? She's still being helpful and everything like that. But like the truth is, I remember my business coach told me this is when I was going through my finances and I was at a situation similar where I was like, I'm not making any money, I was negative and I was working my butt off. You know what I mean? But I actually had like employees and I was still broke with employees. And my business owner is like, Well, you have two choices. You fix your payroll with your W2. Change the pricing for your clients. And I was like, Oh no, I can't do that. Right. And she's like, Kari, you know what you got to do as an owner is you have to do whatever it takes to keep your doors open. Open. Period. Do you know what I mean? So you can't make justifications for everyone else. You're tired. You're broke. You have to do whatever it takes in order to keep your business open. And if it doesn't fit her situation, and like other booth renters, they don't want to pay. And this is where you don't want to call around and figure out what other people are charging for booth rent. I don't care. I give two craps to anyone else's. I care that this is how much it costs me to be a landlord every single month. And they either have to pay that or they are the wrong fit because then I am shouldering everything. I get bitter. I don't like them. I'm out. Then you're creating the toxicity. Totally. The space. And so, like, you just have to draw a line of it's not me. I would do this for five dollars if I could. Right. It's not me. The numbers aren't mathing. Here's the numbers. And I'm not afraid to show numbers, dude. I know some people like are like, I have employees and I would show them exactly how much they made every broaden for my company. But at the same time, I break down where every single dollar is going so that they can see it. I don't care. Like, I love you all. I can't front load this anymore. Right. If it works for you, great. Come be in my business, but you're gonna pay the same amount. If it doesn't work for you, maybe you should be a W2 if you want. And then you can start going into that a little bit. Yeah, how do you feel? I guess the biggest thing is I think that you should start off with choosing the business model that you feel like is going to help you win right first and foremost, and then start moving towards that direction. How do you feel about everything?

Brooke 23:56

No, I totally agree. And I think when something isn't working, that's when your brain goes, okay, this isn't benefiting you. We're not getting ahead, we're not seeing a nice savings account, we're not even taking like a break for a couple days. This is not, this is not panning out, right?

Kari Jo 24:12

Yeah, I mean, I have so much empathy for you. I'm like listening to your situation and my heart just breaks for you because everyone listening right now knows how hard it is to work. And so for you to be working and doing all of that work and then carrying others without the benefit, right? You don't even get to tell them sell more product. You don't get to tell them increase your rebooks, you don't get to like tell them, hey, can you take this off of my plate? Right. You don't get any of that, but you're paying for them, right? You're literally paying for them, but you have no help. Right. And that's just not sustainable on the term. So with your booth renters, you gotta change your pricing structure and completely change your mode into I'm a landlord, right? Not a business. I mean, business owners can be landlords, but I'm not a boss, I am a landlord, period. And this is what it is. Yeah, no, I agree. Yeah. Can you have the hard conversation? Yeah.

Brooke 25:12

I love it. Yep. Yay! I'm at that point.

Kari Jo 25:18

Well, what was like the most helpful thing for you on today's call?

Fairness, Exceptions, And Boundaries

Brooke 25:23

Sometimes we just need someone to back us because we're kind of just floating out there on our own. And you just sometimes you need to hear the truth. Obviously, I'm here for a reason. My business structure's not working. I'm not gonna say it's sinking, but it's not thriving, it's not progressing forward, it's just stagnant. And I don't like anything in life stagnant.

Kari Jo 25:42

Yeah.

Brooke 25:42

Acne.

Kari Jo 25:44

I've been like know you before this a little bit. We talked, I don't know, a year or so ago or something. And you've built a team before. Yeah, you know, and I mean, to be honest, I would love to see you do that. Yeah, me too. But because I think that's gonna give you the ultimate time and financial freedom that I think that you're truly after.

Brooke 26:04

Yeah. And I think I didn't have it in me back then because I was, you know, in an interesting predicament. And I think, you know, when you go through things in life, it's hard sometimes to, like you're saying, have a difficult conversation. But if you can separate an emotion versus these are numbers, and I remember you saying that to me a while back, Brooke, it's it's math. Math doesn't, there's no emotion when I go pay my rent, you know, like through an app. There's no emotion when the landlord raises my rent. There's, I mean, that it's just money. It's money in, it's money out, and it's how I choose to move forward with the situation. Yeah.

Kari Jo 26:38

Well, all right. So if my listeners want to reach out to you because they're like, oh my gosh, I'm in the same situation and I have feedback or anything like that. How can they find you?

Owner Survival: Keep Doors Open

Brooke 26:49

My Instagram is remedy underscore central underscore coast. DMs on that would be great. I'm gonna be honest, I barely check emails. I just don't have the time. I hate that they're like a mind sucker in the morning, and I hear people all the time, like 10 minutes to check emails. I'm like, you know what? If you know me, also you can text me. Like, here's my number, here's direct messaging, like that kind of stuff I can handle. But it's so funny when you get in a predicament like this, like everything goes to the wayside. Exercise, eating good, going pee during the day, like stupid stuff that you're like, that's not a big thing. But it is a big thing when you're kind of in a cycle and you're like, I gotta break the cycle. I have to pattern disrupt this because this is a pattern and it's not gonna, I don't want it to keep going. I'm I'm excited about growth and the right partnerships with the right people, and also getting people that are excited to like sell the skincare and they're stoked on getting, you know, trained on things and have continuing education. And, you know, sometimes we're working for people that aren't like that, or like I heard someone the other day, this is actually kind of funny. She said, the aestheticians aren't allowed to trade anymore at work. And I said, Why? And she goes, Well, the human I work for doesn't like that we use a product. And I'm like, Well, why don't you just offer to pay for the product and then you still can work on each other because we need to touch each other and understand like that's a good massage, that's a terrible massage, that's a good acupressure, all the things like that's how we learn. I had her in the other day and we did we traded facials, and I was like, This is key to make time for this stuff, and I haven't because all I'm doing is running. So it's just interesting. And in my mind, I'm like all day long come in and do facials on each other, just pay for the product, like it's not that big of a deal. But it's funny how people get so complacent, you know. Yes, absolutely.

Kari Jo 28:29

Well, thank you so much for coming on, and I can't wait to see like what you all be following along on your journey and see what you end up deciding to do. Well, it's gonna be exciting, I can tell you that. All right, well, thanks for joining, Brooke. And we have time.