Myth – My (staff salaries, lab costs, rent, etc.) are too high.

By Tyson Steele

The practice management mantra in some study clubs today goes something like this: “The local staff salaries are killing us. Who could afford this? Our salaries are running 40% of production. We should have all gone to hygiene school. I heard that Dr. John had to marry his receptionist just to lower his overhead.”

Of course, it is important to have some benchmarks regarding expected ranges for overhead items. However, you can’t assume that any overhead item is too expensive just because you are paying a higher percentage than the benchmark.

Take staff salaries for example. Let’s assume that your salaries are running at 35% of production, far above our target benchmark of 28% or less. A natural assumption would be that you are overstaffed or paying too high salaries. But this is just the beginning.

Gradually, this thought will take over your brain. Everything that happens in the practice will be filtered through a portion of your brain that says, “remember, you’re paying too much.” You begin to dwell on the expense. The next time you give someone a 50 cent raise, you start to add up the additional costs of payroll taxes and retirement plan contributions you will have to make.

The funny thing, though, is that there’s not much you can do to lower your gross staff salaries. (When was the last time you heard of someone successfully giving his staff a salary reduction?) Sure, you may be able to lay off a staff member, but this rarely happens. Instead, you feel trapped, destined to suffer from high overhead for the rest of your life.

The truth, of course, is that your salaries, lab fees, rent or other overhead items may be too high. But they are only too high in comparison to your production level. In other words, if you were to increase production and keep all your overhead items close to their current levels, you could substantially “reduce” your overhead.

Take those pesky staff salaries that were running at 35% in our example. If you were to increase production by 20%, your salary expense would be “lowered” to just 29% of production, placing you very close to expected overhead ranges. That’s why you can implement a team bonus system even when your salaries are running “too high.” Any increase production will more than offset the increased overhead cost.

The truth is that you should quit focusing on overhead reduction. Rather, your energy should go into the implementation of strategies that will increase production.

My view: Tyson is spot on with his article.I’m happy to share some thoughts and ideas on different ways Patterson can help grow your practice. Also see the tip later in this newsletter about increasing case acceptance!