Why 40% pay is the best way
Why 40% pay is the best way
It’s an ingrained belief, but 50% earnings are only holding back practices – and their associates.
March 2, 2023

In a recent Twitter poll, Joshua Lisec (aka The Ghostwriter) asked his fellow users which they’d rather have: 1% of $100M or 100% of $250K. I tuned in for the conversation that followed and was surprised to see that 12% of people would opt for the far lower figure of $250K (1% of $100M being, of course, a cool $1M).

This got me thinking about the way our minds work. To me, the choice seems obvious: we should all go for the option that will give us the most money. And yet we often don’t make the obvious – or the sensible – choice. Take associates’ percentages, for example. Inspired by Lisec, I created my first ever poll on LinkedIn, asking dentists whether they’d rather have 50% of £1,200 or 40% of £1,750. These numbers were suggested by Ross, with the idea of making them fairly close, so that the difference isn’t massive.

Although my response pool was far smaller, again 12% of respondents voted for the 50%: a number that seems more generous but yields less. I should underline here that this poll wasn’t about trying to catch people out. Instead, I wanted to explore something that I’ve long been curious about: the legacy belief that 50% is the market norm for “good” pay among associates. Indeed, if a principal isn’t willing to pay the 50%, they risk being seen as unfair or miserly.

In my poll, opting for 50% ultimately gets you less. It seems like a better deal, but the numbers just don’t stack up. However, when it comes to associates’ pay, I’m sure many would argue that this isn’t the case. Here, they might say, a 50% take-home is clearly better than 40%.

I’d respectfully disagree, and I want to explain why.

But first, in my drive to understand the issue better, I began by speaking to some of our clients to break down this belief in the 50%. Does it feel like a better deal because they’re getting paid more per “job” for the work that they’ve done? This means that the product is cheaper, but they’re getting to a better deal on the profits made. This may be related to our innate scarcity mindset, which prefers us to be ahead of others. Previous surveys have shown that if presented with the hypothetical option of earning £80K, while everyone else is earning £100K, or earning £60K when everyone else is earning £50K, most would opt for the smaller number.

There’s also an argument that some associates might prefer 50% because this is their comfort zone. If you’re earning this percentage, you have a seemingly reliable income without having to push yourself every day to drive up income. It’s the same reason that some earners prefer jobs with a solid salary and a lower commission rate, rather than those that are almost entirely commission based. There’s a security in knowing that your 50% is guaranteed, and I do understand that.

We see a similar mindset with some dentists going through incorporation. A directors’ loan agreement might save them £100K initially, and £30K per year thereafter. It seems a no-brainer, but some baulk at the process because it costs them, say, £10K to carry out. As humans, we naturally don’t quantify savings in the same way that we quantify money in our bank accounts.

To me, the commercially obvious choice is for associates to take the 40%. This is because I know that the practices with this arrangement actually make more money. For associates, it’s the same scenario as my LinkedIn poll: 40% of a higher number is preferable to 50% of a lower one.

I can boldly say that if a practice is paying 50% to its associates, it must be under-investing somewhere. Let’s assume that the average profitability of a practice is 3-6%; a figure that is probably now decreasing with inflated costs. If that practice is paying out an extra 10% to its associates, where is the 10% coming from? Chances are, it’s coming straight out of the marketing budget and the investment pool. This means that as an associate, you might be earning 50%, but nobody is marketing your services. Nobody is motivated to think about the patient journey or investing in bringing more new patients through the door.

The highest performing associates I know are on the lowest percentages. Nevertheless, they’re taking home between three and four times the amount of the average associate. Why? Because they’re collaborating with a business-savvy principal to understand their marketing, sales process and reporting. In this context, they’ve built a working relationship in which it’s comfortable to talk about the percentage. Everyone wins; the associate knows they can’t replicate their earnings elsewhere, and the principal is able to spend more in important areas like marketing or attracting nurses. And don’t forget, when earning 40%, an associate is still getting the best deal in the practice by being paid before everyone else, regardless of associated cost.

If I could offer one piece of advice to associates, it’d be this. To paraphrase JFK, don’t get bogged down in the percentages; ask not what your practice can do for you, but what you can do for your practice. When looking for a position, I’d be much more interested in what they’re investing in marketing, what type of treatments they’re bringing through, how many new patients they’re getting, and how their sales system works. Some principals won’t understand what you’re talking about here, but if you meet a principal that does, start getting excited because you’re set to make a lot of money and have a great career there.

And principals: don’t expect your associates to know all this stuff initially. It’s your job to work with them to build an understanding and start off this collaboration. And most importantly, you can’t just pay them 40% and not do all these things, because they will walk. It must be a win-win for both of you. At 50%, it’s a win-lose for the associate and the principal. At 40%, you’ve got a win-win, but it requires you to work together.

I’m in no doubt that it’s going to take time to bust the myths surrounding associate percentages. I still regularly sit in meetings with practices that believe “everyone” is paying 50%. This simply isn’t true; some practices will pay it, but will they be investing in better outcomes for all?

It’s said that if you meet someone and they’re willing to marry you that day, there’s something suspicious going on somewhere. If you meet with a principal and they’re willing to pay 50%, you might not want to take it. I’m not saying that they’re doing anything tricky, but I can guarantee that they don’t know their numbers. And if they don’t know their numbers, they’re not investing correctly or running their business properly. You’re in far safer hands with a principal that knows their numbers very well. This is the easiest way for you to grow your earnings and grow your competency in dentistry. From here, the only way is up.

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The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Dan Fine Group Director
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