Dental Economics - Associates verses Hygienists 

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Comparative Value of One Day's Production

Have you ever wondered what your real profit is on your hygienists or associates? Have you ever wondered when a hygienist can be more profitable to you than an associate?

When setting compensation structures or assigning available operatory space, it is useful to analyze the relative profitability of the individual producers in the practice.

The chart below begins by analyzing one dentist's profit on his two hygienists, Mary and Tim, after direct costs (labor and treatment supplies) but before general overhead costs such as rent and office administration.

Comparative Value of One Day's Production

Provider:	-- Hygienists --			Assoc.
	Mary	Tim	Goal	Equiv.
	(Commission)	(Salary)		(Per op)
Production	$475	$475	$650	$790
Collections (96%)	456	456	624	758
..Less: variable costs (6%)	- 29	- 29	- 39	-47
..Less: labor
.....commission (45%)	- 214	n/a		-355
.....salary	n/a	- 214	- 239	n/a
.....employer taxes	- 19	- 19	- 22	-32
Profit	194	194	324	324

In the example, Mary is paid on commission (45% of production), whereas Tim is paid a flat daily salary of $219. At current production levels, the dentist realizes about the same amount of profit on each, $194 per day

As production increases, Tim will become increasingly more profitable than Mary. The dentist's profit on Mary will always be 41% of whatever amount she produces, as a result of the commission structure.

Measuring Profits

However, for each additional dollar that Tim produces, the dentist's profit will be 90% - over twice as much! This is because once Tim's salary is paid, there is no further labor cost for that day.

Suppose the dentist has a goal to increase profit in the practice by $1,000 per month, or $58 per day. Mary would have to produce an extra $141 ($58 divided by 41%) to generate the $58 profit; Tim would only have to produce an extra $64.

The majority of the practices that we see have a goal of increasing profit. For the most part, this means that production must increase. Clearly, the dentist in this situation wants to convert his hygiene department to a salaried basis. That way, he will net more profit on each additional dollar produced.

The conversion from commission basis to salary basis, together with the setting of the higher goals, can be structured as a "Win-Win" with both the hygienists and the dentist benefiting.

Assume that the dentist has already determined that in order to meet the practice's goals, hygiene production has to equal $650 per day. (We have repeatedly seen practices increase hygiene production from levels of $400 per day to $700 or more per day. For more information on the techniques used, call our office.)

An equitable, Win-Win compensation alternative that meets the dentist's goal and motivates the hygienists could look like the following:

Step 1: effective immediately, both hygienists are placed on salary at $214 per day

Step 2: the new production goal is $650 per hygienist per day, with advanced training to be provided

Step 3: when each hygienist achieves an average production level equal to the new goal for one month, then he or she will earn a one-time increase in base salary of $25 per day, for a total of $239.

Under this proposal, neither hygienist experiences a reduction in current income due to the conversion. However, they do obtain the potential for realizing significantly higher levels of income.

This is achieved through a combination of advanced clinical training and a bonus system that motivates the entire office staff to achieve ever-higher levels of production.

The third column in the chart on page 5 shows the dentist's profit when the new hygiene goal of $650 is achieved, in combination with the alternative compensation structure. Note that the dentist's profit increases by $130, from $194 per day to $324. For a dentist with two hygienists working four days per week, that's a potential increase of $4,500 in monthly profit, or $54,000 per year.

If you have an extra operatory available, would it be more profitable to hire an associate or another hygienist? Here again, the Comparative Value Analysis is helpful.

Based on the above, assume that you have already determined that you can earn a profit of $324 per day from a hygienist who produces $650. How much would an associate have to produce to yield the same profit?

Let's assume that you would pay the associate 45% of his production. (In reality, we normally recommend that the associate be paid a percentage of his collections. However, we will keep things simple here.)

Further assume that the associate would pay his own lab fees and assistant, and that you would not have to add any front desk staff to handle the associate's patients and scheduling.

Your net profit rate on the associate would be as follows:

The associate would have to produce $790 per operatory used to give you the same profit as another hygienist ($790 x 41% = $324 profit). If the associate would use two operatories, he would have to produce $1,580 per day to be as profitable as hygiene.

In our experience, it is easier to bring hygiene production up to $650 per day than it is to find an associate capable of consistently producing $790 in each operatory, or $1,580 in two operatories. Also, the associate must have a sufficient flow of patients to make this production level possible.

When structuring both hygiene and associate compensation, we advise that you compare what the hygienist or associate is earning on the relationship, compared to what the senior dentist is earning. The relative compensation levels should reflect a fair distribution based on the parties' investments of time, energy, and financial risk.

In our example, the hygienists were each making $214 per day, while the dentist was initially making only $194 per day on the relationship - and that's before considering general office overhead. With the proposed compensation structure and new goal, both the hygienists and the dentist would make more. The dentist would make dramatically more, almost twice as much as before, which we consider to be fair based on the financial risk he takes and his investment in facilities and staff.

Many dentists find it helpful to present this analysis, along with overhead figures, to the hygienist or associate if compensation becomes a problem area. Often, the hygienist or associate is not conscious of the costs that the doctor has to pay. When shown, a belligerent staff member may realize that they have a pretty good deal after all.

Dental Economics - Associates verses Hygienists