I am asked almost daily “How do I take home more money?”
We all went to school for a number of years expected to come out living a certain type of lifestyle, and in order to answer this question, we have to look at what happens to the gross revenue of the practice.
In our industry, there are certain perennial benchmarks that have been tossed around for years. While they do provide benefit, we need to look at these and update them to modern times. The days of the solo practitioner and a small staff have become much more challenging to run, due to an increased health insurance burden, and a financial point of view.
First, and the most important in my opinion, is the expense of your staff. This may shock you, but the staff is as important if not more important than the provider/owner. I am not going to apologize if I hurt your feelings; the staff is the first point of contact your patients encounter. In most cases, they usually spend more face-to-face time with your patients.
Staff expenses should roughly be 25% of your total gross revenue. This can vary due to geographical location and higher cost of living, but every benefit to your non-doctor staff should be included. For example, payroll, payroll taxes (FICA), bonuses, health and dental insurances, retirement, uniforms, travel, online training, and HIPAA training would be considered staff expenses. Anything you provide to your employees is included in this category. Do not, however, include associate doctors or optical staff who edge in-house at this time.
The next category would be Cost of Goods. Cost of goods should also be in the same range of 25%. Some exceptions do exist when there are high-end optical products or pharmaceutical-covered costs from surgeons, but any product you sell at retail prices should be included in this category. Also, any optical staff expenses generated by those who provide in-house edging are included here as well. Here is where as an owner you must decide the quality and integrity of the products you are recommending to your patients. Costs from a wholesale side should always be negotiated and analyzed, but never spend too much time on this as it can be counter-productive to growth.
Fixed expenses should not be any more than 20% of your gross revenue. Some examples of these would be rent, taxes, mortgages, utilities, accounting, legal, maintenance, etc. This category is historically called “Fixed,” but it is not really fixed. As we know, a number of these expenses continuously rise. I believe that in today’s society, there is no such thing as a Fixed cost. Property taxes, utilities, salaries, and more, they all rise and you have to have to know to plan ahead for these unknown increases.
The last category would be Net Revenue. We like to see this around 30% of your gross revenue for a solo practitioner. This includes everything from salary, payroll taxes, health and dental, retirement, travel, education, and additional write-offs you as the owner may deduct. If you own a group practice, this is where you would include associate doctors and all of their salaries, taxes, and benefits. A very important point to consider is that in a group setting, the owner’s percentage is not 30% of the gross. In most cases, it is less percentage-wise, but a lower percentage of more revenue should result in more total dollars going to the owner than if working by themselves.
There are some exceptions to these estimates as well. Specialty practices such as contacts, vision therapy, and dry-eye clinics may generate a lower cost of goods and net a higher revenue. In either case, your practice’s revenue must be understood in order to maximize your take-home dollars at the end of the day.