Nathan Hayes

Nathan Hayes is the Manager of Business Development for Red Tray and Editor of sellingtoecps.com.

Reps are welcome to contact him at 404.934.3535 or to send him an e-mail if you have questions about how Red Tray can benefit your accounts or with general comments about selling to ECPs.

Click here to subscribe to this blog.

Staff Salaries: Is 20% Of Practice Gross Enough?

Posted on May 27, 2010
Filed Under Articles |

Here’s a quick follow-up to the last post on devoting 20% of a practice’s gross income to staff salaries.  We got great feedback from several ODs, which you can read below:

Dr. Hayes,

I was curious about your 20% cost of staff benchmark mentioned in your blog of May 11. For any given practice, you are suggesting $25k per FTE based on your one FTE per $125k of production. With taxes and benefits, you are looking at $10-11/hr. I don’t see how one can develop and retain a well trained professional staff on that kind of compensation. Are these benchmarks skewed toward rural depressed areas? Even at 25% for labor you are looking at $31k per employee.

Love reading your insights. Keep them coming. Dr K

Jerry,

I have generally followed your recommended guidelines/metrics for cost containment. They have been very helpful to make sure we are on the right track. But I disagree with one employee for every $125,000 of practice income. This only allows for $12/hr. employees. It is difficult to find anyone with half a brain that will work for $10-12/hr, especially after a couple of years of employment.

I think it is definitely better to have higher paid employees that are smart, dedicated, and good workers.We have 13 employees, 5 of them are good refractionists, and come in at your recommended 19%. I recommend higher better employees, who will make a more positive impression, and be of more assistance.

Best regards, David Miller, OD

Dr. Hayes:

Regarding your blog on production per employee, please consider the following math:

One staff per $125,000 gross per year x 20% percentage of payroll = $25,000/yr
40 hrs/wk x 52 wks = 2080 hours
$25,000 divided by 2080 = $12.02 average hourly wage per employee. (assuming-including benefits?)

Assuming your manager makes more than the other staff, most employees will make considerably less than $12/hr in this scenario.

In many years of managing a $1mil+ practice, I have never found it possible have high quality staff at these pay levels. Perhaps the #’s should be adjusted? Any comments?

Thanks again, John Marcin, OD

Dear Readers,

I agree with both the logic and the math proposed by Drs. K, Miller and Marcin. I am proud to say this is becoming a ‘thinking OD’s blog’ as these are great comments all!

At this point, I need to clarify something. Sometimes I will simply report a metric, such as $125,000 annual revenue per employee and 20% of gross revenues for staff expenses. But, it doesn’t necessarily mean that is what I think is best for your practice.

In this case, the median revenue per employee per year for over 1,000 very successful practices surveyed by the CibaVision Essilor MBA program is actually $133,000.

$133,000 is not necessarily my recommendation. It’s simply what our colleagues reported in a very accurate survey of practice overhead. You can decide for yourself if you think it is high or low.

Is 20% of gross enough for staff overhead?

The answer is, it depends on how productive your staff is. As Drs. K, Miller and Marcin correctly point out, 20% of revenue is not a big budget for staff expenses in a median to low productivity practice.

Example: a practice with 4 FTE’s producing $133,000 each per year equals $532,000. Convert that into a budget of 20% of gross for staff and you have $106,400.

Some of your employees will make less. Some will make more. But at an average of $26,600 per person, that’s not a lot to spread over four people.

Now change the equation to three staff members producing $177,333 each. That equals the same $532,000. But this time, its only split three ways. That’s an average of $35,466 per person.

Conclusion; the higher your productivity on a per person basis, the more you can justify paying each staff member.

Best Regards,

Jerry Hayes, OD

How do you think ODs can attract and maintain a great staff? Post a comment below or send me an email.

RELATED:  Al Cleinman, an optometric  practice management consultant, has thoughts on where your accounts can look for strong employees here.

Disclaimer: The information and opinions contained on this site are for discussion purposes only and are NOT intended to serve as legal, accounting or investment advice. ©2010 Red Tray. All rights reserved. Not to be reproduced without written permission of the author.

Comments

Leave a Reply