By ROSS MARTIN, Accountancy Director at Hive Business
One of my clients had to have a chat with his associate the other day to renegotiate their pay structure. In what seems to be common in dentistry, the business had been operating for 10 years in exactly the same manner, paying no attention to the cost of changing regulations and the blossoming of private dentistry. The associate asserted that as he was an “experienced” dentist he should be paid a higher percentage.
Needless to say, that’s not how things work commercially. It seems quite obvious to me that if an associate wants to earn more (as long as they are given the facilities and infrastructure to do so) it boils down to their revenue-generating capabilities.
Unhealthily high commission rates are an inefficient economic mechanism as they simply pass profit from the practice to the associate and discourage investment and growth – after all, if a practice owner is not making profit from the associate, why would he be motivated to generate new patients?
For that matter, I find many principals ask me, “Why do I bother running a practice at all?” Even if they don’t know the answer, I can guarantee it won’t be “to break even” or “to fund other people’s lifestyles”.
Dentists must be mindful of the profit margins in light of the costs of running a surgery in a high tech practice. Think about the CT scanner the associate uses now and again, the decon room, lab costs and business rates, the well staffed reception, the separate hub that handles inbound traffic from ongoing marketing campaigns that provide the associates with new patients and, for that matter, the exorbitant lease paid in order to be in an exclusive part of town… I could go on, but you get the picture.
Many practice owners simply hire extra associates because it supports a misguided growth strategy. True, at the point where you’ve reached capacity, the idea of hiring an expensive “experienced associate” might seem appealing, even if it means paying 60% – at least you get 40%, right?
Well, no, actually. You get whatever is left over once you’ve paid the overhead costs per surgery per day, so do your maths first. Here’s how:
- Ignore lab costs and associate / hygienist costs.
- Add up your admin staff wages + rent and other premises costs + marketing costs and all other overheads and sundry items per year. Also allow an amount for equipment depreciation.
- Divide the total by your number of surgeries.
- Divide that by the number of days you’re open per year.
The answer will likely vary between £450 and £750 per surgery per day. The point is, when your associate goes on holiday their surgery is running at a loss, and even when they are there, they may not be generating profit. The question boils down to: do you want your practice to be profitable? It’s probably better for everyone in the long run if you do.
Most private practice associates generate at least £1,200 a day and lab and material costs will be say 15%. Let’s say your associate gets 50%. You’ve got £510 left, but the cost of operating the surgery could be more than that. It’s for good reason that some profitable practices we work with pay associates 40%.
Interestingly, the extra cash tends to be ploughed back into these bigger practices to fund aggressive marketing so the surgeries are never short of patients, which means despite their ‘low’ rate, the associates are happy because they are well supported and earn a very good living.
Realistically, even if you are paying 40% and aren’t subsidising your business, it’s difficult to see how any of the following could be much less:
- Lab and materials 15%
- Associates 40%
- Admin and staff 20%
- Equipment, marketing and other overheads 20%
- Profit 5%
If you’d like to discuss your growth strategy, call 01872 300232 or email us at hello@hivebusiness.co.uk.
