Implementing A Performance Based Compensation Model For Your Medical Aesthetics Business

Let me start by asking you these questions? Are you waking up in the middle of the night, wondering how you can have a healthier business? Are you wishing you had a great team who is helping your medical spa or spa business grow? Do you desire a business that is providing you financial freedom instead of stress?

On this episode of Dori Talks, I will be sharing with you how to Implement A Performance-Based Compensation Model so you can achieve financial health!

Let’s start from the beginning. Remember how happy you were when you first decided to go into business for yourself and open a medical spa and act upon your entrepreneurial spirit?

You had big dreams and a vivid vision of how your medi spa or spa was going to be… you wanted to deliver great guest experiences while operating a successful and profitable medical spa business. Did you make your vision a reality? Or is the pressure of running and sustaining a business getting to you? Most entrepreneurs face financial difficulty, frustration, and challenges to make ends meet or to be more profitable.

One of the main factors that keep medical spa owners from being super successful is payroll cost. Most have high compensation payout rates that lead to lower profits due to the fact that they don’t have a performance-based compensation model.

If you want to increase your medical spa profits and attract high performers you will need to implement a performance-based compensation model. The spa team’s pay should be based on how much revenue each provider generates from each guest and the type of experiences they deliver. The more revenue the team member generates per guest, the more income they can earn. The less they generate, the less they will earn. No one should earn just a flat rate for just showing up. The flat-rate compensation model is outdated and does not work.

It’s time to discover the Volume Per Guest Compensation model. It’s innovative and effective, it allows the team to get paid their true worth. Your compensation model must include a pay mix with base pay, bonuses, benefits, and rewards.

8 Principles to implementing a performance-based
compensation model for your medical spa & or spa

1. Realize Your Medical Spa Compensation Payout Rate

Financial RatiosPrior to developing your compensation model, it is essential to determine your financial ratios. Calculate your current compensation payout and discover what is your compensation rate from your overall gross revenue.

Example: From your P&L statement take the overall amount you paid out in compensation and divide it by the total gross revenue – this will give you a percentage rate. What is that percentage? Is it more than 35%? If it is, you need to reduce it. The second ratio you need to know is your profit ratio. Is your medspa profit rate between 10 to 20%? If it’s less, you need to get financially healthy.

Keep in mind your financial ratios may vary due to several factors, its best to check with a medical spa business consultant and have them perform a detailed financial assessment to learn how healthy your business is and how to improve it. This is a good rule of thumb.

2. Determine your Medical Spa Compensation Ranges by Position

How do you decide how much to pay team members? As a medical spa consulting firm this is probably one of the most often asked questions. Here is the answer. Go to websites such as,, etc. enter your zip code and the type of positions you offer and discover the pay ranges for each. You will see the high, the median, and the low rates for each position. This will provide guidance of the value for each position instead of pulling numbers out of thin air. Once you know the value you can reverse engineer your compensation model to fit within the ranges for each particular position.

This is an important exercise to do before setting up your medical spa or spa compensation model.

3. Team Status - Independent Contractor vs. Employee Status

Some spa/medspa owners are still hiring independent contractors. If you are doing so be aware of the laws and guidelines for independent contractors. Status has changed, making it difficult to manage independent contractors and the IRS has strict guidelines for this classification.  It’s wiser and safer to hire employees. This will provide you with the ability to manage, set expectations, and lead the team. Having employees will also raise your employee retention and loyalty.  Yes, it’s a little more costly but the payoff in the long term is worth it.

4. Offering a Compensation Mix

Offering a compensation mix for the medspa team that is based on performance is the way to go. Your mix must include an hourly rate or a salary base, premium pay or bonuses, rewards, and benefits. This will help you attract spa professionals who are desiring to get paid their true worth. This mix allows your injector, aestheticians, laser techs, and therapists to earn more the better they perform. About half the pay mix should be a guaranteed base and the other half can be the bonus, benefit, and rewards, that allow them to earn a lot more when they bring in more value, it’s tied to performance.

This compensation model and pay mix offers the team the opportunity to generate income in several ways. It makes them more aware of their performance, their goals, and their ability to improve performance so they can earn more.

5. Hourly or Salary Pay

You may choose to either pay hourly or salary. Either way you can set the hourly and/or salary as low of a rate as possible. This strategy will help you reduce the payroll payout, enhance your cash flow but at the same time, you can still give the team the opportunity to earn more with the other compensation mix that is based on performance.

As mentioned earlier, the hourly rate or salary should represent about half of their compensation opportunities. The remaining of the income is based on performance.

6. Premium Pay or Bonuses

Premium Pay and Bonuses can be based on the Volume Per Guest for reaching certain revenue targets you want them to reach on a monthly basis. I love the VPG compensation model because it truly helps the team focus on each guest. We want to help them achieve results by recommending additional treatments they would benefit from and by taking products home with them.

Calculating the VPG is very easy. You simply take how much in revenue they generated for a certain period and divide it by the number of guests they saw. This will give you the average amount of revenue they are generating per guest. When they hit the VPG target they will earn the premium pay or a bonus, therefore, increasing their pay.

All you need to do is set VPG targets by the department and it’s up to the team to increase their pay by achieving it! You give them the opportunity and it’s up to them to step up and earn it!

7. Employee Benefits

To encourage team retention, you may want to offer benefits. This can include medical insurance, 401K plan, taxes, profit sharing, vacation, education, etc. The benefits you offer will vary depending on the percentage rate you designate for benefits.

8. Medical spa team Rewards

Rewards are earned based on Key Performance Indicators – KPIs. You can reward the medical spa or spa team on key indicators such as the number of referrals, reviews, retention rate, cross-marketing, hitting their targets, work ethic, training attendance, image, skills, and more. Set targets for everyone and at the end of the month, you can reward them based on hitting their KPI targets.

Many InSPAration Management members and clients have implemented the VPG compensation model and love it! Here are some of the benefits they are enjoying and that you can too.

Here is what you can expect after you implement the VPG compensation plan

  1. Provides targets and goals to focus on and strive towards
  2. Encourages upgrade opportunities, resulting in increased Volume Per Guest
  3. Increases retail sales
  4. Promotes performance stretching to reach the highest target
  5. Rewards exceptional performance
  6. Provides a performance measurement tool to the leadership and the team
  7. Fosters a motivational environment
  8. Great management & recruiting tool
  9. Reduces payroll costs
  10. Increases profits

The goal is to have everyone earn a great income, but it must be a win/win for everyone. Currently, many spa owners are barely breaking even due to the compensation model they utilize. We encourage you to implement the Performance Based Compensation model to revitalize your business and ensure profitability & growth.

Compensation Pitfalls to Avoid:

  • A compensation plan paying all providers a flat rate not based on performance
  • Hiring independent contractors and expecting them to behave like employees
  • Not accounting for gratuity and other benefits as part of the compensation model
  • A compensation plan not based on targets
  • Unawareness of your overall compensation plan payout and related costs

It’s essential to offer a compensation plan that attracts and retains medical professionals and high performers. Currently, the medspa industry is experiencing a human capital shortage. Retaining medical spa employees and investing in them is less costly than operating with a high employee turnover rate.

Implement a performance-based compensation plan and watch your business grow exponentially.

Need help setting up your medical spa or spa compensation model? Check out the VPG Compensation Model on or reserve a Success Planning Session to guide you!

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