Is 20% Of Gross Enough For Staff Overhead?

Dr. Hayes,

I was curious about your 20% cost of staff benchmark mentioned in your blog of May 11. For any given practice, you are suggesting $25k per FTE based on your one FTE per $125k of production. With taxes and benefits, you are looking at $10-11/hr. I don't see how one can develop and retain a well trained professional staff on that kind of compensation. Are these benchmarks skewed toward rural depressed areas? Even at 25% for labor you are looking at $31k per employee. 

Love reading your insights. Keep them coming. Dr K

Jerry,

I have generally followed your recommended guidelines/metrics for cost containment.  They have been very helpful to make sure we are on the right track.  But I disagree with one employee for every $125,000 of practice income.  This only allows for $12/hr. employees.  It is difficult to find anyone with half a brain that will work for $10-12/hr, especially after a couple of years of employment.  

I think it is definitely better to have higher paid employees that are smart, dedicated, and good workers.We have 13 employees, 5 of them are good refractionists, and come in at your recommended 19%.  I recommend higher better employees, who will make a more positive impression, and be of more assistance.

Best regards, David Miller, OD

In this case, the median revenue per employee per year for over 1,000 very successful practices surveyed by the CibaVision Essilor MBA program is actually $133,000. 

$133,000 is not necessarily my recommendation. It's simply what our colleagues reported in a very accurate survey of practice overhead. You can decide for yourself if you think it is high or low. 

Is 20% of gross enough for staff overhead?  

The answer is, it depends on how productive your staff is.  As Drs. K, Miller and Marcin correctly point out, 20% of revenue is not a big budget for staff expenses in a median to low productivity practice.  

Example: a practice with 4 FTE's producing $133,000 each per year equals $532,000.  Convert that into a budget of 20% of gross for staff and you have $106,400.  

Some of your employees will make less.  Some will make more. But at an average of $26,600 per person, that's not a lot to spread over four people. 

Now change the equation to three staff members producing $177,333 each. That equals the same $532,000.  But this time, its only split three ways. That's an average of $35,466 per person. 

Conclusion; the higher your productivity on a per person basis, the more you can justify paying each staff member. 

20% of growth

doctordoradavis - 05/19/2010 - 10:27 am

I will agree with the 20% of revenue. I took over a practice that was paying 27% to the employees and they were "show up every day and work for my paycheck" type employees. Educated but without incentive to strive and improve.

I had a little turnover and instituted a bonus program and my EMPLOYEES have grown my practice 200K (I now have a million+ practice) in one year and THEY are making MORE money and the percentage that I am paying them has dropped (therefore I am making more money).

Incentive is the key, and keeping employees feeling as if they are PART of the business and not just another employee!!!!! The other thought, by keeping employees in the loop and working with their requests (a simple ice machine in the breakroom, for example), you develop LOYAL employees who show up every day because they WANT to work and not just for a paycheck.

Dr. D