Dental Practice Management: Dental Hygienists Further Economic Considerations

Dental Hygienists: Further Economic Considerations

Comparing Hygienists and Associates
Editorial by Jim Du Molin

Four out of five dentists in a recent Wealthy Dentist survey report paying their dental hygienists a salary or base hourly wage rather than on commission. It’s an important economic consideration for any dentist.

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

Hygienists Mary Tim
(Commission) (Salary)
Production $700 $700
Collections (96%) 672 672
..Less: variable costs (9%) – 63 – 63
..Less: labor
…..commission (45%) – 288 n/a
…..salary n/a – 288
…..employer taxes (10%) – 29 – 29
Profit $292 $292

In the example, Mary is paid on commission (45% of production), whereas Tim is paid a flat daily salary of $288. At current production levels, the dentist realizes about the same amount of profit on each, $292 per day.

As production increases, Tim will become increasingly more profitable than Mary. The dentist’s profit on Mary will always be 36% of whatever amount she produces, as a result of the commission structure.

Measuring Profits

Profit margin on: Mary Tim
Collections 96% 96%
Less: variable costs – 9% – 9%
Less: commission – 41% n/a
Less: employer taxes – 10% n/a
Profit 36% 87%

However, for each additional dollar that Tim produces, the dentist’s profit will be 87% – 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 $161 ($58 divided by 36%) to generate the $58 profit; Tim would only have to produce an extra $67.

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, the doctor 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” situation that benefits both the hygienists and the dentist.

Let’s assume that the dentist has already determined that in order to meet the practice’s goals, hygiene production has to equal $962 per day. (We have repeatedly seen practices increase hygiene production from levels of $700 per day to $1,000 or more per day.)

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 $288 per day.

Step 2: The new production goal is $962 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 $313.

Increasing Daily Hygiene Production to $962… plus:

Tim (Salary) Goal Increase
Production 700 962 262
Collections (96%) 672 924 252
Less:
…variable costs (9%) – 63 – 87 24
…commission (41%) n/a n/a
…salary – 288 – 313 25
…employer taxes (10%) – 29 – 31 3
Profit per Day 292 493 200

Under this proposal, neither hygienist experiences a reduction in current income due to the conversion from commission to salary. However, they do obtain the potential for realizing significantly higher levels of income, and the doctor increases his or her profit by $200 per hygienist a day. 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.

Next week I’ll discuss the economic differences between hygienists and dental associates.

About Jim Du Molin

+Jim Du Molin is a leading Internet marketing expert for dentists in North America. He has helped hundreds of doctors make more money in their practices using his proven Internet marketing techniques.

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