BENCHMARKS THAT SHOULD GIVE YOU PAUSE #2 – PRODUCTION PER EMPLOYEE
The next number you should track, but no one does, is the monthly production per employee. Very simple calculation, but I don’t know of any other group that ever follows this number. All you do is count up the number of staff including associates, front desk, assistants, office manager and anyone else who is an employee. Note: Part timers would be added not as a whole number but as a percentage like .50 instead of 1. Then simply divide this into your production for the month. This alone should cause you pause. We are in a small consumer driven business and the last time I heard, we need our businesses to produce a profit. Profit is almost a guarantee if we have a production per employee per month of $20,000-$25,000. If you have never done this calculation before, you are going to be a little surprised at how poor it is. The average office out there will be $12,000-$14,000 per employee per month and I assure you that practices like this struggle to control their overhead and consistently achieve acceptable profit margins.
The production per employee is the most likely category to destroy your overhead. It starts out the day you open your practice. Far too many of us hire a front desk, assistant and hygienist when we don’t have any patients. You should have started with a “girl Friday” that could work the front desk and assist. It’s not like you are busy at first. So, who out there doesn’t think they can produce at least $20,000 a month with just you and this one employee? Any of you can do this. If it were not for the legal ramifications, I am sure you could do it without any employees.
So, the question is: When do you hire the next employee and for what position? Once you can easily produce the $20,000-$25,000 per month per employee, you are ready for the next hire. This would be a full time front desk or a full-time assistant depending on where your first hire’s talents and strengths lie. Within a month, and no longer than 60 days, you should be at close to $40,000 per month in collections. During this time, you are doing the cleanings. Most scratch start offices need about 4-6 months of continuous growth and production before they hire that first hygienist. Growth demands a benchmark for hiring people. Done any other way, you compromise your overhead and your leadership by not getting enough productivity from each of your staff members.
Now let’s look at a seasoned doctor’s practice with production per employee falling lower than $20,000 per month. Very few practices can extricate themselves from having too little production per employee per month without radical change and leadership. The symptoms that pop up when this is out of whack usually surface as:
• High staff overhead. Your total staff expenditure should be 25% or less of your current collections. Any higher and the profitability and sustainability of your practice suffers.
• Poor systems. Stay with me for a minute. When you just throw money at a problem by adding more staff, you are in effect admitting that your systems are not adequate to do what you want to do. The ripple effect of this will be a low production per employee, lower overall pay per employee, and high staff turnover.
• Inability to pay all of your commitments (bills) on time every time.
• Increase in practice and personal debt. I have never seen a doctor who struggles with money at the office not have the same problem at home.
• Frustrations or lack of leadership. You cannot abdicate your obligations of becoming a good leader by just hiring more staff and praying that everything will work out. It won’t.
Your homework today, as it was in the last article, is to actually find out and track monthly what your production per employee is. Take this starting point and use it as an explanation to your staff of what they need to do. If in the process of reading this article you can identify any member of your team as marginal, consider freeing up their future without replacing them. Same thing goes for a staff member that leaves from an over staffed office, don’t replace them. Figure out a way to spread their duties to other existing staff members. I will see you next week.
Michael Abernathy, DDS
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