When it comes to practice expenses, dentists can feel burdened by overhead. Without a doubt, a dental practice’s single largest overhead expense category is staff labor. Accounting for approximately 18 percent to 25 percent of revenue, labor expenses are largely a fixed cost. Even if your staff is paid an hourly wage, most practices function with a set, predictable work schedule. This allows hourly staff to have a stable income and makes this expense a largely fixed cost.
There are unpredictable elements afoot that can also increase labor costs. Three factors are usually to blame:
- Staff turnover is alarming. Today the average American worker will hold five to seven jobs in his or her career. This phenomenon is playing out in dental practices as well. Dental staff members will now turn over, on average every 3.5 years. The costs, stress and practice disruption caused by staff turnover often causes dentists to increase staff compensation in an effort to reduce turnover.
- The labor market is tight. Dental practices do not have effective and efficient training programs for staff. There are fewer opportunities for individuals to receive appropriate training in these areas. These days the pool of qualified individuals is shrinking. As a result, recruiting skilled and highly qualified dental professionals is challenging. Typically, dental practices try to remain competitive by increasing staff compensation and enhancing team benefit packages.
- Automatic raises escalate labor costs. In many dental practices staff members receive automatic annual raises during their performance evaluation. Yet even practices that are successful in retaining long-term staff will eventually reach a point where continuing to increase compensation raises labor costs beyond feasible levels.
Control Salaries, Control Labor Costs
As CEO of your practice, you have no choice but to be realistic about salaries. Yet it’s natural to want to fairly compensate those skilled, long-term staff members who are assets to your practice. You can, however, take control of labor costs with the following strategy:
- Place a cap or ceiling on the total dollars guaranteed to each staff member. It’s one effective way to control the cost of staff compensation.
- Base the cap on a thorough analysis of the market rate for each particular position relative to the practice’s geographic area.
- Award pay raises based on performance and merit.
- Arrange an open, honest conversation between the doctor and staff members who reach their maximum compensation level, explaining the rationale behind this system.
- Explain that cost-of living raises will continue to be awarded annually.
- Clarify that once a team member reaches this maximum compensation level for their specific position, no further significant salary increases will be forthcoming.
The aim of this method is not to underpay your staff. You are simply replacing the old compensation system with a new one. Make it clear to your staff that if they want more significant income increases, they have a very attractive option available – bonuses. An effective bonus system establishes a connection between reaching practice goals and enabling team members to grow beyond their base compensation.
Bonus Systems Improve Your Bottom Line
Labor expenses are largely fixed costs. But an effective bonus system is a variable expense, only paid when production and collections go up. Base your bonus system on practice collections and pay it on a two-month cycle. This discounts uncharacteristic increases or decreases in any single month of production.
Two vital things are accomplished with bonus systems:
- Every team member has an opportunity to significantly increase his or her compensation.
- Bonus systems do not inflate the percentage of labor costs against revenue or expose the practice to liability.
Bonuses can be a beneficial for the doctor and the staff, but the team must completely accept the idea. Staff members must understand what the bonus is and how they get it. In addition, the bonus system should be relatively easy to follow with results measured daily, so that the staff knows where they stand in relation to the goal and the resulting bonus. Our experience is that bonus systems create a win-win situation for both the doctor and staff. Everyone on the team must realize that this is a true incentive program based on the outstanding performance of the entire team.
Bonus systems are important tools because they give the doctor a measure of control. You do not have to play the game of wondering how to give a bonus, or resenting decreased doctor income due to the bonus. A bonus program based on collections is a logical and effective system where everyone benefits.
Summary
Both the practice and team win with a bonus system. Bonus systems help keep your valuable staff productive, while staying in the financial boundaries of your budget. Yet, how effective a bonus system will be is completely dependent on the team’s buy-in. The best way to gain acceptance from the team for a bonus system is presenting it as an advantage. Make sure that team members can clearly track their progress toward reaching their bonus every day. Get your team involved in evaluating the systems, scripts, and training necessary to grow practice production. Once your bonus system is in place and your team has the proper tools, just watch how some new productivity will begin to emerge while employees’ excitement grows.