According to Professional Consultants and Resources, a strategic consulting company and salon industry data source in the U.S., the booth rental and chain salon business model continues to consistently beat out independent salons in terms of market share, with booth rental salon stylists now constituting a “large chunk of the market.”
Since the odds are that your cosmetology career, at some point, will include working in the booth rental business model, it is important to understand the booth rental concept and what it means to your business.
Booth rental means you own your own business. You are your own boss, which means there is no one looking over your shoulder, telling you how to run your business or treat your clients. Although this may sound appealing, this type of business model is only successful if you find the right salon and the most effective way to drive your business. Here’s what you will want to know:
Understanding the Booth Rental Business Model for Cosmetologists
To understand the booth rental business model, it is important to also understand that all cosmetologists work under one of two broad classifications:
- Payroll employee
- Non-payroll independent contractor
In other words, the salon you work for will either hire you as an employee (W-2 employee), which means you will work under the direct supervision of a salon owner/manager, or you will work as a self-employed hairstylist, renting a work station (often called a booth or a chair) in a salon.
The booth rental business model allows you to remain an independent stylist, with the owner or manager of the salon acting as your landlord. The booth rental business model is not suited for everyone; however, for many cosmetologists, this type of format can result in a great deal of professional and financial success, provided it is properly executed and operated.
How Salon Booth Rental Works
Salon chair rental is a fairly simple premise: a licensed cosmetologist (or barber, nail technician, or esthetician) rents a space in a salon. In exchange, the salon owner provides a work space and amenities for the cosmetologist to use. In essence, the salon booth rental model results in businesses within a business.
If you choose this type of model to grow your cosmetology business, you will be responsible for:
- Promoting your services
- Building your clientele
- Providing your own products
- Handling your own accounting and tax obligations
In other words, to make this type of business arrangement a success, you must be both a good stylist and a good businessperson. You must be willing to handle administrative responsibilities in addition to focusing on your craft.
Benefits and Drawbacks of Salon Booth Rental
From a stylist’s perspective, chair rental can have both its advantages and drawbacks. For most stylists, choosing this type of model for their cosmetology career means plenty of independence. As independent contractors, they are able to:
- Set their own schedule
- Manage their own business
- After the booth rental fee, keep all of their earnings
- Use their favorite product line
However, there are a number of negative aspects of salon booth rental, as well. Independent stylists must be prepared to:
- Maintain their own books, including filing and paying quarterly income taxes
- Pay for advertising and market themselves to attract new business
- Earn less money while they build their client base
- Deal with increasing booth rental fees
- Purchase their own equipment and supplies
- Pay for their own health insurance and receive no benefits (no vacation time, retirement plan, etc.)
Understanding State Laws
Although renting a chair in a salon is a tenant/landlord relationship, it is important to understand that laws differ from state to state. Know these laws! Contact your state’s Department of Labor for more information on your rights and obligations as an independent contractor and booth renter. You may need to obtain a booth rental and/or independent contractor license in addition to your cosmetology license. For example, in Louisiana, cosmetologists must possess a Booth Rental/and Operators License, while in Kentucky, cosmetologists working under this model must possess an Independent Contractor license.
Keep in mind that not all states permit the booth rental business model, including Pennsylvania, Michigan, Colorado, New York, Virginia, and New Jersey, among others.
Choosing a Salon
Choosing a salon is an important decision for a booth renter. First (and arguably most importantly), you must consider the location of the salon. You may choose a salon based on where you live, but is it really the best location for business? The salon you choose must be easily accessible for your clients and, ideally, highly visible. It must also be clean, updated, and filled with other renters with the same high professional standards and performance. The last thing you want to do is set up shop in a salon that is known for its poor-quality stylists.
Salons that operate under the booth rental business model will often attract new stylists with incentives, such as a discount on their contract or the first month free. As a stylist new to the booth rental business, this type of arrangement can allow you to establish yourself while saving money.
Negotiating a Contract
A salon booth rental arrangement must include a contract between the cosmetologist and the salon owner. You must have a contract to protect yourself legally and to establish your status as an independent contractor with the Internal Revenue Service (IRS).
A basic contract should include:
- The lease rate
- The length of the contract
- Language regarding cancellation of the contract
- What you are entitled to in exchange for your chair rental
Some of the amenities you can expect to receive in this type of arrangement (and should therefore be part of the contract) include:
- Use of a station
- Use of electricity, water, and credit card machine
- Use of the shampoo area, towels, hair dryers, and other salon equipment
- Use of the reception area
In this type of arrangement, you may also be allowed to add other amenities to your monthly lease rate, such as use of a receptionist or use of the salon phone.
A booth rental will also include the obligations of the salon owner, such as:
- Paying the taxes on the salon
- Protecting the salon property from damage
- Indemnifying the salon from losses resulting from your actions or omissions that harm a third party
Marketing Your Services
One of the most important aspects of working in a booth rental business is marketing yourself so that you can attract new business. Although you may choose this type of salon arrangement as a new stylist, experienced stylists often choose to rent salon space because they have already built a strong clientele base.
There is a plethora of ways to market yourself and your hairstylist business, such as through a website and social media platforms. Your website should feature your training, experience, list of client services, and before-and-after client pictures. In addition to a website, you must have ways to drive traffic, which often includes advertising, incentives for client referrals, and teaming up with local businesses for cross-marketing efforts.
Protecting Yourself and Your Business
As an independent contractor, you must protect yourself and your business by carrying personal liability, disability insurance, and health insurance. You must also protect yourself by keeping good records and paying all necessary taxes. Many stylists use accounting or financial software programs (like Intuit or QuickBooks) that keep expenses, taxes, and income organized and readily accessible for tax purposes. Keep in mind that as an independent contractor, you can deduct business-related expenses, such as the purchase of equipment and supplies, so it is important to establish and maintain a concise system of bookkeeping.