August 20, 2023

How to Keep Dental Salaries from Eroding Your Profits

By Drew Hinrichs, CPA, CEO of Engage Advisors

Over the last year, most dental practice owners have been forced to increase wages in order to attract and maintain quality staff. Employee salaries are the single largest expense at most dental practices, and the rising cost of labor has added to the challenge of building a profitable dental practice.

But payroll increases don’t have to come at the expense of eroding profit margins. Practice owners have alternatives to simply absorbing the rising costs of wages. Here are some strategies that will help prevent dental salaries from eating into your practice’s bottom line.

Create an Employee Bonus System

A well-designed, performance-based bonus structure is an effective way to provide additional compensation to your team while keeping their base pay in check. A performance-based bonus incentivizes team members to earn additional compensation by achieving pre-established goals and benchmarks.

A bonus system based on the practice’s overall financial performance encourages teamwork and aligns individual effort with the practice’s success. It can be as simple as establishing a threshold for monthly collections, with collections above that threshold triggering bonus pay. Monthly bonuses would be calculated using a three month rolling average.

Individualized System Connects Team Members to KPIs

A more advanced system would be to set individualized bonuses that correspond to specific key performance indicators (KPIs) for each team member. For the hygiene department, in addition to hygiene production, bonuses could incentivize hygienists to pre-sell treatment plans for the dentist. Your administrative team could receive bonuses based on KPIs such as increasing the percentage of new patient appointments, improving your scheduling process to reduce cancellations, or by keeping supply orders within the monthly budget. A personalized approach motivates employees to excel in their designated areas, leading to a more efficient and profitable practice.

Remember that having team members in salaried positions doesn’t exempt you from overtime regulations. Make sure to comply with labor laws and appropriately compensate any eligible employees for overtime work.

Set Fees at Appropriate Levels

Charging fees that accurately reflect the cost of delivering high-quality patient care is crucial. Many dentists are hesitant to raise their fees but keeping them static for too long can harm your practice’s financial health and undercut your ability to pay competitive salaries. Practice owners should regularly review their fee schedules, especially during periods of higher-than-normal inflation. You should position your fees to fall within the higher percentile of the local market. Patients often equate higher fees with better quality, so it’s essential to communicate the value your practice provides.

Review and Evaluate PPO Contracts

It’s common practice for insurance companies to make changes to PPO contracts that allow them to lower reimbursements, often without the practice even realizing it. So, just like with fee schedules, practice owners should regularly review and evaluate their relationships with insurers to be sure it’s still benefiting their business. Given the complexity of PPO contracts, I recommend working with a firm like PPO Advisors. They’ll conduct a free analysis and tell you up front how much of a revenue increase you can expect by renegotiating your PPO contract. That way you know exactly what your return on investment will be before you decide to act.

Drop Low-Paying Insurers

You also may need to consider the real possibility that some PPOs are simply not worth it. To decide, you’ll need to conduct a thorough analysis based on real data, so you can assess the impact your PPO agreement has on your business. If you decide to cancel one or more PPO contracts, a little planning and thoughtful communication can help you avoid losing any clients who will become out-of-network.

Building a Healthy Practice

An experienced and motivated team plays an important role in the long-term success of your dental practice, making the effort to retain them worth it. If you’d like to discuss ideas for how to strike a balance between compensating your team fairly and ensuring salaries don’t erode profits, contact our team at Engage Advisors. We have the knowledge and experience to help you build a healthy practice in a challenging business environment so you can achieve your financial goals.