Can an associate generate a profit? The answer is in the size of your patient base. If you have a saturated practice with an abundance of patients, you can keep your associate busy and generate a 30-35% profit margin.
The first step after accurately measuring the size of your patient base is to perform a cost benefit analysis to determine the likelihood of profitability, as well as to gauge the non-monetary benefits such as improved quality of life, which may be equally important. The following steps will help you analyze the economic sense of hiring an associate, and will help you set realistic expectations about the return on investment you are likely to attain.
Step 1: Determine Production Goals
Step 2: Assign Direct Expenses to the Associate
Step 3: Apply the Formula and Get the Answer
Associate Profit Analysis Summary
Daily Collection – $950
(Assume 95% Collection/Production Ratio on Daily Production Goal of $1000)
# Days Worked Per Year X 196
Projected Annual Revenue $186,200
(Assume 34% Collections) Associate Compensation – $63,608
(6% Dental Supplies) Associate Payroll Taxes – $4,843
(8% Lab Expenses) Associate Lab Expense – $14,896
Associate Supplies – $11,172
Assistant Salary (inc P/R tax) – $21,620
Uniforms – $200
CDE Allowance + $1,100
TOTAL EXPENSES – $117,439
Projected Annual Revenue: $186,200
Less TOTAL EXPENSES – $117,439
Associate Profit: $68,761
PROFIT MARGIN: 37%
($68,761 PROFIT / $186,200 ANNUAL REVENUE)
Once you’ve assured yourself that the economics make sense for your associate, proper planning is key. Most importantly, if this associate is a candidate for your long term transition plans, make sure that you properly think about your exit strategy so that once you begin interviewing candidates, you clearly spell your vision for a successful relationship.
To read the original article in its entirety please visit: The Dentist’s Network Newsletter #100
Dr. Thomas L. Snyder, Director, Practice Transitions for The Snyder Group, a division of Henry Schein Professional Practice Transitions.