The final words on pay and profit formula. We started two weeks ago with The Extortion of Pay at the Cost of Profit, moved to The Reality Pay Formula, and finish today with a look at stopping overhead creep through systematic rework of your pay/profit strategy. If you have read the Super General Dental Practice (Second Edition) you will have already been exposed to this, so be patient for a moment as I summarize overhead benchmarks. If you have not read it, please go to www.supergeneralpractice.com and get your free copy. If it’s been a while, it is re-written and added to. Read it again for the first time.
Overhead: Goals of the Super General Dental Practice
Staff Compensation: 25%
Office Supplies: less than 2%
Dental Supplies: 6%
Total overhead goal 50%-57% (at least be below 63%)
As the owner, chief shareholder, leader, and boss you have the responsibility and the right to demand a profit and stave off overhead creep. Like it or not, the buck stops with you. Ignorance of the situation will never be an adequate excuse for poor results. What you are doing now is giving you what you deserve, not what you want. Everything is ordered to get the results you are currently getting. To help you grasp the importance of the small things in overhead and pay, write down the collections that you did last year. Next, determine what 1% equals. For example, if it was $650,000 last year, 1% is $6,500. If it was $1,000,000, then it is $10,000. You get the idea. Now every time you look at a short fall, multiply it by that 1%. Goal for hygiene is about 33% of your total collections, but let’s say it is 27% or 6% below your goal. If it were a million-dollar practice, you left $60,000 on the table. It’s not just the $60,000 you did not get, but investment return you would have each year and the increase in that investment multiplied over years. What if you only collected 96% or 4% less than what is possible: Another $40,000. What if your cost for compensation for employees is 37% instead of 25% or 12% off target or in this case, $120,000. You get the idea. Use the 1% formula to modify your thinking about why small things matter. Bottom line in overhead is that profits do not go to employees, they go to the owner(s) and you deserve this.
Limiting beliefs feed the defeatist in all of us. Too many act as if they don’t deserve to prosper. You could even be totally unaware that, because of limiting beliefs, you tend to sabotage your efforts so you keep missing the mark. You have a voice to which you listen. You have a choice of the type of people and information you allow to control your actions. You will tend to gravitate to people that are bringing you up or dragging you down. Now is the time to take back your business and be the leader you always wanted to be. Lose those excuses and find your results. This overhead creep and lack of profit was caused by your own decisions or lack of action. You can take this back.
Using the image of the “spread of a virus”, there is an epidemic that runs its course. It does not kill you, but it seems to create a genetic deficit that lies dormant or is invisible. It has no symptoms until it is almost terminal. The surprise is that it has been misdiagnosed as too much competition, poor demographics, lack of good staff, supply and demand being upside down, debt and burnout. While being contributing factors, none of them hit the mark as a definitive diagnosis. It has no name and is almost always misdiagnosed. It is a fundamental business denial created by herd mentality in a world of “sheeple” dentists. Sheep follow the leader even to their death. Like being a sled dog, unless you are the leader, the view never changes. I for one want a change of vision for every dentist I have met.
Staff pay must fit your overhead and must fluctuate with economic reality. This fluctuation cannot be reflected in guaranteed hourly wage when the office makes no profit. This reality should affect everyone in your practice, not just you and what you take home. This “do-over” will have to be a top to bottom restructure by creating a hierarchy of pay based on overhead and profit sharing. Basically, you want to have the highest paid staff in your area, but not at the cost of profit. Rather, it is based on results. If we produce more and collect more, everyone should share in the profits. Be sure to take the time and read the chapter in the SGDP book on bonuses (profit sharing). In my office the ownership mentality of the associates and staff was bolstered by sharing the numbers, which created clarity and revelation of costs, profits, and take home. With this clarity came a financial structure do-over. Offices now and in the future will not be able to make a profit without making a change in their operating structure. Resetting the staff’s expectations so that it is based on realistic pay formulas and reality of profit and loss. Here is what I find holds dentists back from taking a hard look at the numbers and acting on the reality of their financial situation.
- You’ve been doing the wrong thing so long that it has become truth to you.
- This momentum in the wrong direction has become insurmountable to the point that most dentists are heading toward financial poverty fueled by these limiting beliefs.
- Doctors don’t have the vision they need or understanding of their current plight to act now with conviction to turn it around.
- They fail to adapt to the new dental reality by not resetting their deserve meter to a 15% or greater growth a year. Another lie that has become truth for us is that consistent growth is no longer possible.
- They have not studied leadership and applied its principles to their dental practice.
- Doctors have so much debt that they find they have no wiggle room to invest the time and money to make the changes that would rock their world.
- They just never act. There are far too many dentists that ready, aim, aim, aim, aim and never fire. Step out, and even if you fire and miss the bullseye, you are still closer than not having taken the shot.
Here is your clear vision that will ensure your financial future as well as your teams. Produce more while lowering your overhead, pay people based on results, not longevity (hygienists on commission or hybrid as well as sustainable percentage pay for associates), move towards a $20,000-$25,000 collection rate per employee per month, getting to $25,000-$30,000 per op per month, few if any staff turnover, a staff owned mentality, and a growth rate of 15% a year.
This is how you Summit. Get your copy of The Super General Dental Practice at www.supergeneralpractice.com and create the culture that is the best plan for the next decade.
Michael Abernathy, DDS
PS. If you prefer a hard copy book rather than a digital copy, just click here to order.