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, 16 October, 2024

The Profitability of an Associate Dentist

Have you considered adding an associate dentist to your dental practice? It can have a positive impact on your business success and work-life balance. However, the success of the dental associate depends on several factors: the compensation plan, the costs involved with hiring another dentist, your dental practice’s ability to take on more patients, and the practice model (fee-for-service or PPO). When set up correctly, hiring an associate dentist can help you expand your dental practice and reduce your excess working hours.

Key Factors Impacting Revenue

There are many factors that you’ll want to review when adding a dental associate to your dental practice.

1. Associate Compensation Model

How you pay your dental associate directly affects your practice profitability. There are two common ways to offer compensation:

  • Percentage of Production or Collections: In this model, the dental associate earns a percentage of the revenue they bring in. Most associates receive 25% to 35% of their gross production or collections. For example, if the associate generates $500,000 in annual collections and gets 30%, they will earn $150,000. The remaining $350,000 goes to your dental practice to cover expenses and provide profits.
  • Salary Plus Incentives: As an alternative to the percentage model, you can offer the associate a base salary with bonuses for hitting production targets. For example, an associate might earn $120,000 per year and receive additional pay if they surpass certain revenue goals or targets.

2. Practice Overhead

Hiring a dental associate increases  direct costs and may increase indirect costs. These additional expenses must be measured and factored into your profitability calculations.

  • Direct Costs: This includes the associate’s compensation package, plus increased staff wages, lab fees, and dental supplies. Adding another dentist means more procedures, which requires more materials and support staff.
  • Indirect Costs: This includes marketing, administrative support, and facility expenses. Typically, a dental practice’s overhead ranges from 60% to 70% of total revenue. Adding an associate may or may not increase these costs. For instance, your practice might need to spend more on marketing to attract new patients or on additional front office staff to handle increased appointments.

3. Increased Patient Volume

An associate dentist can help your practice handle more patients, which directly impacts revenue, profitability, and your workload. If you’re working early mornings, late nights, or weekends, it might be time to hire an associate to cover some of the patient appointments.

  • Meeting Patient Demand: If your practice is turning away patients or scheduling appointments too far out, a dental associate can help meet that demand. As more patients are seen, your practice revenue increases.
  • Extended Hours and Availability: An associate can offer appointments during times the principal dentist is unavailable, such as evenings or weekends. This increases the practice’s capacity and brings in new patients.
  • Expanded Services: A dental associate may have skills or specialities in areas your practice does not currently offer, such as orthodontics or implant dentistry. Keeping more services in-house can reduce referrals to outside specialists and increase revenue.

4. Quality of the Dental Associate

When hiring a dental associate, it’s important to make sure they fit with your dental practice culture and work ethic. Try and find someone whose personality and work style aligns with your practice culture. Here are some other things to consider:

 

  • Training and Mentorship: How much training or mentorship will the associate need? Estimate the time you will need to spend helping them get up to speed, which can reduce productivity in the short term.
  • Contract and Legal Agreements: Have you included clear contract terms regarding expectations, compensation, and a non-compete clause, to prevent the associate from starting a competing practice nearby?
  • Licensing and Credentials: Does the dental associate meet all licensing requirements, hold qualifications, and are they credentialed with insurance providers?
  • Patient Retention: How does the associate treat patients and what is the quality of their approach and technical skills? Are they likely to retain your patients? Can they maintain the same level of care and trust that you have established with your patients?
  • Technology and Skillset: Is the associate comfortable with your dental practice’s technology, including digital imaging and practice management software? Do their skills match the services you provide?

It’s important to consider these factors as the dental associate will be a reflection of your dental practice brand. Their work represents your business and can help or hinder your success. It’s worth hiring a quality associate even if you have to pay slightly higher compensation, as it will make your dental practice better in the long run.

Estimating the Impact 

“How much profit can I make by adding an Associate Dentist?”

This is a question we hear a lot from our clients. The additional revenue generated by a dental associate depends on all of the above factors. Some dental practices use associates to expand and grow long-term. Others use an associate to help balance workloads without a huge increase in revenue, which may reduce profits going to the owner, at least initially. It really depends on what your goals are.

We’ve put together an estimated breakdown of the impact a dental associate can make. If you want help estimating the impact of adding an associate for your specific situation – we can help. We’ll analyze your dental practice’s numbers and structure a plan to ensure profitability. We can also review potential compensation and cost structures for you. Getting assistance in this area will help you hire the right associate and make the right decision for your practice. 

Figure 1.1 – The Estimated Financial Impact of Hiring an Associate Dentist

Conclusion

Adding an associate dentist can increase revenue and expand your dental practice offering and specializations. However, you’ll need to plan carefully to make sure the associate will actually improve your profitability – otherwise you could end up losing money. We recommend reviewing your compensation model, overhead costs, patient volume, and other factors before making a final decision. If you need help analyzing your dental practice’s finances or estimating the financial impact of hiring an associate, book a call with us. Here at DrillDown Solution we specialize in helping dental practices make smart financial decisions for long-term success.

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Note: The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Ed Gabriel, CPA is President of DrillDown Solution and a graduate of Brigham Young University. His clients benefit from over 40 years of experience in maximizing profits, minimizing taxes and putting them in the best financial position possible.