We ask two experts the same question on a complex issue.
I want to pay an associate a daily rate plus a monthly bonus based on collections. What are the fair rates and percentages for this type of arrangement?
Tom Snyder, DMD, MBA
Day rates vary from $400 to $650 per day across the country. The reason for this variance is the supply and demand of associates for any geographical area. For example, in many metro areas, the day rate will be lower due to an overabundance of associate candidates. The opposite holds true in locales where associate candidates are in short supply. For the purposes of this answer, I am assuming that this day rate is a guaranteed rate, meaning that this rate is paid regardless of your associate's performance. As it relates to a monthly bonus, I am providing an example using simple math to illustrate how this works.
To calculate a bonus payment, you first need to select a commission rate to calculate any bonus that may be due. The ranges for commissions based on collections vary across the country, typically in the range of 25% to 33%. The reasons for these variances are the same as stated for the ranges in day rates. For our example, we'll use a commission rate of 30%. Let's assume your associate's day rate is $450 and that he or she worked 12 days that month, generating $30,000 in collections. So the guaranteed portion of the salary (day rate) was $5,400 for that month. Next, you calculate the "pool" to determine the bonus payment. To determine this pool, multiply $30,000 times 30%, thus equaling $9,000. Next, subtract $5,400 from $9,000, and that equals a bonus payment of $3,600. In the end, it's the commission rate you select that will determine the amount of bonus your associate receives.
Gretchen Lovelace, MS, CFP, CPM
Compensation percentages for associates range from 24% to 40% of collections. The compensation of 40% often involves a formula that subtracts lab and other expenses. The percentage used most frequently is 30% of collections.
Within a year of graduation, most young dentists are capable of producing $400,000 to $600,000 of dentistry per year if they are booked correctly and have a sufficient patient load. At the low end of this production (30% compensation), an associate would earn approximately $120,000 income per year. This would equal $10,000 per month.
Another benchmark is $450 to $650 per day. If an associate works five days per week, with 20 days off per year (sick leave, vacation, federal holidays, and personal days), then this associate would work 240 days a year. Using a daily rate of $500, the yearly compensation is again approximately $10,000 per month. ($500 x 240 = $120,000)
Bonus programs seem to work best if the plan is based upon a sliding scale. At 30% compensation, the bonus would start at $400,001 of collections. (30% x $400,000 = $120,000). You could then pay 35% for collections between $400,001 and $550,000 and 37% for collections of $551,000 to $800,000.
Numerous bonus plans exist, and all have their advantages and disadvantages. The answer to the question of compensation and bonus for an associate would actually depend on the location of the practice, income of the practice, backlog of patients, access to new patients, practice overhead, percentage of reduced-fee plans accepted, and the profit margin desired by the owner. Use a spreadsheet to enter your income and overhead and calculate different plans before you make an offer to the associate. It is best to offer the right bonus plan that fits your office rather than retract a bonus plan that is costing too much money.
Tom Snyder, DMD, MBA, is the director of transition services for Henry Schein Professional Practice Transitions. He can be reached at (800) 988-5674 or [email protected].
Gretchen Ohlmeyer Lovelace, MS, CFP, CPM, is the past national president of ADS Inc. Gretchen lectures at Louisiana State University School of Dentistry and at national, state, and local dental associations. Her primary focus is ethical practice transitions. Contact her at [email protected] or (877) 674-9564.