Is 26% Too High For Staff Expenses?

Dear Jerry,

I enjoyed your recent lecture on cost control and practice overhead.

Here is my situation. I have a one man practice that will gross $1.2 Million this year.

I watch my overhead carefully. But, my total staff expenses, which includes all payroll taxes and related benefits, have risen to 26% of collected gross revenues. I know that is higher than you recommend.

My cost of goods, on the other hand, is only 24% of collected revenues. I think that is lower than the suggested range in the Hayes 7 Key Expenses.

Should I be concerned about my staff costs?

Thanks,

Richard Gooden, OD (named changed)

Dear Richard,

Thanks for the note. It seems you and your staff are doing a great job on production.

As for your staff expenses, I would usually consider 26% of gross revenues to be a little high. But, not in your case. Here’s why.

Because practice expenses are all interrelated, it is a mistake to make management decisions based on any single metric such as staff expenses or cost of goods.

The better rule of thumb is to look at the total of all staff related expenses and cost of goods as a percent of collected gross income. That range should be 50% or less for any practice netting 30%. For example:

100% of collected gross
- 50% staff and cost of goods
- 30% for net income
20% is all you have left to cover every other practice expense such as rent, utilities, insurance, marketing, etc.

In the case of a solo OD grossing $1.2 Million with staff costs of 26% + cost of goods of 24% = 50% of collected gross, I would say you are GOLDEN!

Keep up the good work!