Associate Compensation – Which Plan is Right for your Practice?

“What should I pay an associate dentist?”

Among the list of associate related questions we field here at MGE, this one ranks at or near the top.  And whether you’re looking to add one now or later, it’s something you’re going to want to have a handle on.

Beyond the compensation issue, there’s quite a list of things you’ll want to consider when it comes to associate dentists. Not the least of which include: clinical excellence, speed, clinical philosophy, whether a partnership is in the cards, that associate’s long-term career plans, and of course, whether your practice actually needs or can support an associate!  To keep this an “article” as opposed to a book, I’ve narrowed my focus to associate compensation. That said, if you have questions about any of these other points, I’m happy to help, just drop me an email to me at jeffb@mgeonline.com.

So, what, and how, should you pay an associate dentist? Well, it depends on how you plan to utilize that associate within your practice.

While not covering every associate possibility, the most common associate relationships break down into three major categories:

1. The Traditional Associate model.
2. The “Production” Doctor Associate model and
3. Autonomous Operation model (for example in a second location).

Each of these would be compensated differently.

I’ll start by explaining and examining each, along with the general compensation percentages they’d work under. And I should note that many associate pay plans are a blend of salary and percentage, which I’ll discuss towards the end of this article.  As you review the models below, you’ll see I that refer back to a percentage of production or collections when determining compensation for each. The idea being that regardless of how you pay your associate (e.g. guaranteed base, plus percentage, etc), these percentages are not a bad point from which to navigate to ensure you maintain practice profitability.

Before I get started, I wanted to mention that if you are looking to grow to the point where you can add associates, acquire a second location, or simply organize your current setup better so that you’re stable and profitable, check out the MGE Power Program.

And with that, let’s jump in!

1. Traditional associate model.

This is the setup we’ve all seen for the past 30+ years.  The owner-doctor brings in an associate to handle the less productive procedures or the procedures the owner does not want to do, allowing the owner-doctor to focus on more complex and productive procedures.  The associate might handle emergencies, kids, basic operative procedures, possibly some endo, and maybe single-unit crowns, etc. They may work Saturdays so the owner-doctor can take time off. This associate might be an experienced doctor or a newer graduate, working with an experienced owner-doctor in what might best be described as a mentorship-type relationship.

These associates may or may not see new patients (depending on their sales skills or lack thereof), they may be expected to bring in new patients of their own, and they might do some recall exams. There are a ton of possibilities, and it really depends on your individual situation.

Compensation-wise, the traditional model has paid 30% of (adjusted – i.e. collectible) production or 30-35% of collections.

How the compensation is paid (e.g., straight percentage, base pay, per diem, base pay plus production override, etc.) also varies by practice, and again, I’ll be covering this later in the article.

But a safe bet is 30% of production or 30-35% of Collections, commonly with a split on lab fees. If you’re not splitting labs, you’d probably stick with the lower end of the percentage scale.  I’d add that I’m a bigger fan of using collections for this calculation, as it’s money you actually have – there’s always a chance you don’t collect for a procedure and then you’re paying someone for money you’ve never received.

(Related: Finding a Long Term Associate Dentist)

2. “Production” Doctor Model

This model is a newer development. We’ve seen a lot of MGE Clients use it, and it really began to gain ground in the mid-2000s (especially from 2005 forward).

Here, the owner-doctor “sells” treatment, and has associate(s) that performs more or less all clinical procedures.

Now, the owner-doctor in this scenario might still do some clinical – e.g. place implants a couple of mornings a week, but the lion’s share of his or her time would be spent diagnosing and presenting treatment, leaving the associate doctor(s) to produce most (if not all) of the practice’s production.

In essence, this basic model is that ALL diagnosis and treatment planning flows through the owner-doctor and the MAJORITY of the office’s production is done by associates.

To make this work, a few things need to be in place:

1. The office needs to have the patient volume to justify this setup. Minimally 2 full-time hygienists and 50 or more new patients a month (or less hygiene and more new patients).  Otherwise, there is not enough going on to keep everyone busy.
2. The associate(s) in this model needs to be skilled and efficient clinicians. Rarely will a new grad fit the bill here due to lack of experience.  There’s always the outlier, but realistically, you’re looking for a highly skilled associate who’s been practicing for at least a few years and is used to working in an efficient, yet rapid-paced environment.  And it goes without saying that you’ll want excellent clinical here (you could just assume this for all associates).  If, as the owner-doctor, you would not have this associate work on you, then you really have no business letting them loose on your patients!
3. You’ll also need a well-structured organization (you could say this about any practice, for that matter). With a more active practice, weak points are severely exacerbated. You’ll need good structure, a skilled Office Manager, and one or more sharp Treatment Coordinators. Which normally an MGE client has as a result of doing the MGE Power Program.

Assuming you have 1-3 above, consider this last point:

How long does it take for you to successfully present a larger case? Let’s say, for example, 4 root canals, six crowns, and 2 implants. Maybe 20-40 minutes.  An hour at the most.

Now how long does it take to do and complete all these procedures? While this of course depends on the doctor – we could safely say hours and hours.

So, what does this tell us? A few things:

1. Assuming patient volume is adequate, one owner-doctor diagnosing, and presenting could potentially keep 2-3 “Production” doctors busy.
2. By delegating these clinical procedures, the owner-doctor would be producing none or very little of the practice’s revenues. Therefore, the associate compensation (as a percentage) would have to be far lower than in most traditional associate models.
3. For the associate – it can be a “dream” job. Come in, glove up, work through your morning schedule of two patients for 6 veneer and 4 crown preps… none of which you had to market for, discuss fees with, and so on.

With all of this in mind, the Production Doctor model would pay an associate anywhere from 20-25% of collections – max. The associate would not pay for labs.

When you interview a prospective associate doctor, they may balk at these lower percentages. And I’d expect it.  After all, the office they interviewed with yesterday offered them a good base salary and a 30% override when they hit certain production targets. Of course, that office offered them a “traditional” associate set up, which would have them producing maybe $30-35,000 a month.  They’d have to present, diagnose, etc.

It’s at that point that you’d show them the numbers. For example, that 30% of $35,000 a month is $10,500. Well, you’re putting almost everything on their schedule. You’re expecting them to produce $60-$100,000 a month! 20% of that is $12-20,000.  And as an added bonus, they get to do all the cool procedures they love to do!

Again, like our first model, this may be structured as a blend of base and override percentage or a straight percentage, which I’ll be covering below.

(Related: Struggling to Find Good Dental Staff Right Now? Here are 8 Things That Can Help!)

Some last words on this:

1. With all associate models, even when done correctly, your percentage of profit will drop – but the amount of profit should increase. That solo doctor at 45% profit collecting $90,000 a month ($36,000 a month or $432,000 a year in profit), building up to a multi-provider practice doing $400,000 a month at 25% profit ($100,000 a month or $1.2M a year), is essentially getting a smaller piece of a much larger pie.
2. This model, when done correctly, can be a dream. Done wrong it can be a real mess. Inadequate volume, an associate who’s a bad fit, etc. can cost you tens if not hundreds of thousands of dollars. If you have any doubts about where to start, give us a call here at MGE to discuss or request a free consultation here.

This brings us to our last model.

3. Autonomous operation, working in your second (or third, fourth, etc.) location.

By autonomous, we’re indicating that this doctor works on his or her own. They are you, with the only thing missing being ownership.  They diagnose, present, perform all the clinical, etc.

For this scenario, overhead control requires even more oversight than usual.  There’s also a tone of variables: how much you paid for the practice (i.e. practice debt), where the practice is located, practice size, how many chairs, staff costs, etc. If you’ve just dropped $500,000 into a new location and another $150,000 to update the equipment, you have to take these costs into consideration before you settle on a compensation package.  So, giving you a flat “X” percentage just doesn’t cut it in every scenario.

The way forward, and something to consider even prior to purchasing the practice would be:

1. Conservatively estimating/projecting practice revenues, and then
2. Running these revenues against projected costs.
3. Using these figures to work out what you could realistically pay an associate, while still maintaining a degree of profitability.

The last thing you want to do is to develop your compensation plan based on “If everything goes right, this should all work out.” It usually doesn’t.

You need to be real. This model can be great – but it’s the model that we’ve seen most doctors get in trouble with.  Handled incorrectly it becomes a raging cash burn.  And this is one where, with MGE Clients, we help walk them through every step of the way to ensure it turns out well.  And it’s with that in mind, I’d say that if you are looking at jumping into a new office, I’d invite you to give us a call to discuss (this is free of charge, call us at (800) 640-1140 or request a consultation here).

When crunching the numbers and developing a compensation plan, even with an office carrying considerable debt, you should still be making SOME profit if you’re meeting your conservative estimates. It may not be a ton, but as the debt is paid down, this amount will go up.

(Related: Does Your Dental Practice Need More Staff?)

In most cases, the compensation for an associate in an “Autonomous Operation” model is a guaranteed base, with a percentage override once collections targets are met. For example:

Let’s say you do 1-3 above.  You determine that the conservative monthly collections estimate is $40,000 a month, and you determine you could afford to pay an associate the going per diem rate in your area of $500, and still service your debt, salaries, etc. and make a little bit of profit. The office will be open 16 days a month – so, you’re paying $8,000 a month for this associate.

Well, using our Traditional model (as this doctor is really on his or her own in this office), you might do the $8,000 a month guaranteed and pay them 30% of everything over $40-$45,000, paying for all or splitting labs. Percentage-wise, it’s not amazing, but it has an upside: this doctor has a bit more autonomy and some of these situations may lead to a potential partnership. Again, this all depends on your baseline, you may be able to offer more. But again, if we were to establish a maximum compensation percentage – I’d say 30% of collections however it’s paid out (guaranteed base and percentage combo, etc.).  But again, getting those numbers crunched as 30% right out of the gate at lower production levels may not meet your overhead!

Lastly, if you’re putting an associate in charge of a second or third location, you might consider equity at some point in their future – e.g. a buy-in.

For example: You’re slammed at practice #1 and have an associate humming along at practice #2 which is 20 miles away.

One year later, they give you notice. You scramble and can’t find an adequate replacement. You’re now working six days a week between two offices – neither of which is as productive as before. I’ve seen this a lot in my career. A partner (even a junior partner) solves this problem this to a large degree. And again, there’s tons to talk about on that subject, but it’s something to consider.

Pay Plans and Viability Levels

As I’ve mentioned throughout this article, how you pay might be a blend of a fixed base pay plus a percentage, a straight percentage, etc. Regardless of how you structure their pay plan, I’d recommend the total compensation for the Traditional and Production Doctor scenarios that does not exceed the percentages discussed above for that particular scenario.

With the Autonomous Doctor Scenario, we have a number of other considerations as I covered in that section.  But again, no matter how the numbers shake out, I wouldn’t recommend paying them above 30% of collections – even if it’s possible.

And in any of these cases where you are offering a large guaranteed salary, I’d take it a step further.

Let’s say you have a Production Doctor that you’ve agreed to pay 22% of collections.

Using what we’ll call “Scenario 1”, let’s say this doctor would be working 15 days a month and asks for a modest base pay of $420 a day, or $75,600 a year or $6,300 a month. They agree that they would subtract their base pay from the overall compensation as a percentage of their production, for example:

They produce $68,000 in a month, 22% of which is $14,960.  You paid them $6,300 as their base pay.  You owe them the difference of $8,660. ($14,960-6300=$8,660).

(Related: Improving Staff Initiative in the Dental Office)

Now, prior to agreeing to all of this, you did the math. Specifically, this doctor is looking for $6,300 a month guaranteed. And you’ve agreed to pay 22% of what they produce/collect. All right.  The first thing you do is determine this doctor’s VIABILITY POINT as a provider.

By VIABILITY POINT, we mean: how much would this doctor have to produce (collect) for the practice to not lose money?

To figure this out, we’d have to determine what their base pay is or what $6,300 is 22% of.

So, we do the math and see that $6,300 is 22% of $28,636.36.

As long as this doctor’s efforts result in at least $28,636.37 each month, you’re not losing money.

You could even structure a pay plan like this:

$6,300 a month base and 22% of anything collected over $28,650 ( I rounded up a little).

Considering that you’ll be employing them as a production doctor, you’re comfortable with all of this as you expect them on average to produce far more – as in this model, you’re feeding them high ticket procedures. When the guaranteed salary is lower (and I’ve seen plenty that have a tiny guarantee which is virtually a straight percentage) the risk to you as the owner is minimal. It’s a shared risk between you and the associate.

Let’s paint another picture and call it “Scenario 2.”

Same setup – you have a production doctor you’ve agreed to pay 22%.  This doctor wants a guaranteed base of $150,000 a year or $12,500 a month. In this scenario, we’ve transferred some of the risk from the associate to you. This should be reflected in their compensation plan.

Based on our math above, this doctor’s monthly “viability point,” is $56,818.18. That’s what their guaranteed pay of $12,500 a month is 22% of.

Now, we could all be hopeful, and I’m game with that. But the risk of this doctor producing less than almost $57,000 a month is far greater than the risk of them producing less than $28,636.37 as in scenario 1. They produce $40,000 and you’re paying them over 31% – which can wreck things if this is the production doctor model.

(Related: Having Trouble with New Employees? Try This!)

So, what do you do?  You’re accepting more risk; they have to give you some of the upside in exchange. You could make a few adjustments:

1. Lower the percentage to 20% or
2. Raise the bar as to when their percentage kicks in. In Scenario 1, we guaranteed $6,300 a month and 22% of everything the doctor produced over $28,650 (their Viability Point).  We did this as the risk was minimal.  Well, here, the risk is a bigger deal. So, instead of offering them $12,500 and 22% of everything over $57,000 (their viability point), we offer them $12,500 and 22% of everything over $70,000.  In return for their guarantee, they have less upside than our doctor in Scenario 1.

In any event, if this doctor or any associate in any scenario produces less than their “Viability Point,” you’re going to have issues.  You’ll start to see the effect of practice finances and have to make a change.  So, this Viability Point, regardless of how you structure your associate’s compensation, is critical to be aware of.

Let’s look at the Viability Point in a Traditional Model.

You agree to guarantee your new associate $8,000 a month.  The traditional model would normally run at 30% of collections. Well, what is $8,000 30% of? $26,667.  So, you know, if this doctor isn’t on their way to producing more than that in relatively short order, it’s not good and something needs to be done about it.

Putting it All Together

Once you’ve decided how your associate will function in the practice (i.e. Production Doctor, Traditional, etc.), I recommend that, prior to hiring anyone, you take whatever pay plan you’ve formulated and run it against your office’s numbers.

You want to see how this is going to shake out in the real world.  You’ll want to know what effect it will have on practice revenues and profitability.

And lastly, I’d also recommend that you get proper legal advice on your associate contract and legal/accounting advice on compensation.  A bit of work and preparation can save you a ton of headaches in the long term.

Bringing in another provider can be exciting!  It’s a sign of expansion.  Keep it fun by making sure you are as prepared as possible!

And if you have any questions or would like some guidance, request a free consultation with us here or look into the MGE Power Program.