Commission or Chair Rent
A stylist with 18 months’ experience has built a repeat clientele and is choosing between two salon arrangements. Salon A offers 45% commission on service revenue and 10% on retail sales. It supplies colour, shampoo, tools, reception, booking and local marketing. Last month the stylist generated KES 60,000 in services and KES 10,000 in retail. Salon B offers a chair at KES 18,000 per month. The stylist keeps all service and retail income but must buy own supplies, estimated at 12% of service revenue, and pay for her own marketing and reception cover. She has KES 50,000 savings for deposits and a slow month, and fixed living costs of KES 25,000 per month. She expects similar revenue in either salon but is worried about sickness and holiday months with no income. She likes Salon B’s location near offices but it has fewer walk-ins.
1. Calculate the stylist’s net income under each arrangement for a typical month. Show the calculations and state the break-even service revenue for Salon B.
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Salon A: service commission is 45% × KES 60,000 = KES 27,000. Retail commission is 10% × KES 10,000 = KES 1,000. Total income before tax is KES 28,000. Salon B: service and retail income is KES 60,000 + KES 10,000 = KES 70,000. Supplies are 12% × KES 60,000 = KES 7,200. Chair rent is KES 18,000. Net before marketing, reception and tax is KES 70,000 − KES 7,200 − KES 18,000 = KES 44,800. That looks much higher, but it is not the whole picture because she must pay marketing, reception cover and any insurance from that amount. For break-even on rent and supplies only, using service revenue R: 0.88R = 18,000, so R = KES 20,455. If she also needs KES 25,000 for living costs, the required service revenue is (18,000 + 25,000) ÷ 0.88 = KES 48,864, before retail and before marketing. Those figures show Salon B is viable only if her revenue stays above roughly KES 49,000 in a month when she must cover living costs.
2. Which arrangement would you recommend, and what non-financial factors would change your answer?
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On a typical month, Salon B leaves KES 44,800 before marketing and reception, compared with KES 28,000 at Salon A, so the chair rent looks attractive. But the recommendation depends on stability. Salon A carries less risk: the salon supplies products, handles reception and marketing, and the stylist does not pay rent when clients cancel or when she is sick. Salon B gives her control and keeps her client relationships direct, but she bears the cost of quiet weeks, holidays, sickness, product price rises and reception cover. With only KES 50,000 savings and KES 25,000 living costs, one slow month could wipe out her buffer. I would recommend Salon B only if she has a written client base, a marketing plan, and at least three to six months of fixed costs saved. If she cannot show that, Salon A is the safer start. Non-financial factors include the salon’s reputation, walk-in traffic, opening hours, security, parking, the condition of the premises, and whether she can sublet the chair or share reception costs.
3. What risk-control plan would you put in place if she chooses the chair-rental option?
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She should first calculate her personal monthly survival figure, not just rent. That means rent, supplies, marketing, reception, insurance, tax set-aside and living costs. She should keep a separate business account and a buffer of at least three months of fixed costs. She should track service and retail revenue weekly, not monthly, so she sees a slow period early. She should pre-book regular clients, take deposits for colour and braiding appointments, and set a minimum monthly revenue target above the break-even figure. She should confirm in writing what the KES 18,000 includes: water, electricity, waste disposal, reception, security, cleaning and card-machine fees can change the real cost. She should also check whether the salon requires her to carry liability insurance for chemical services and whether she is allowed to use her own suppliers. Finally, she should agree a trial period of three months, with an exit clause, before committing to a long lease.