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982: Metric Mondays: Overhead - Team Compensation Percentage – Miranda Beeson

Running a business is expensive — and a large portion goes to your team. In this episode, Kirk Behrendt brings back Miranda Beeson, ACT’s director of education, to kick off a series on overhead with team compensation percentage. They break down what it is, how it impacts your practice, and what you can do to improve your numbers. To learn how to keep team compensation in a healthy range, listen to Episode 982 of The Best Practices Show!

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Main Takeaways:

  • Think of team compensation as an investment, not an expense.
  • Your team compensation percentage should be between 25% and 30%.
  • If team compensation percentage is over 30%, you are too people-dependent.
  • Define accountabilities, processes, and responsibilities to be systems-dependent.
  • Consider profit-sharing models or hourly plus commission so your team can earn more.

Quotes:

“A lot of people look at [team compensation] with a lot of angst, or they look at it as an expense. But really, this is an investment. You're investing in humans, people that keep the practice going in the direction. So, I would first tell you, change the way you think about it. It's not an expense — it's an investment. And with any investment, you want to make sure that you have a good ROI.” (3:31—3:53) -Kirk

“Team compensation is typically the largest area of overhead in your practice. Historically, 25% is considered to be a benchmark or a goal for what percentage of the revenue, our collections, is spent on paying our team members. What we are seeing now is that a lot of practices are in that 25% to 30% range. We actually have some that are even above that. I'd like to say that's a product of an effort gap or a collections gap challenge. But, for the most part, the benchmark is to be in that 25% to 30%, at the highest. We have noticed a big shift in the last five to six years because there is a higher demand happening. There is a supply and demand issue with team members, so people are asking for a little bit more — and we all know we have to pay hygienists a bit more now than we did a few years ago, so that impacts, directly, this particular percentage mark. But when it's in a healthy range, when you are in that 25% to 30% range, it means that your team is producing value that matches the investment that you're making in them.” (4:05—5:17) -Miranda

“When [team compensation percentage is] too high, it's one of these measurements where we can almost immediately say what's probably happening in your practice day to day or what it feels like. When it's too high, even with strong production, it can feel really tight. You're pinching pennies. You'll have limited profitability and an inability or limited ability to invest in technology or fix your chair when the fabric rips. Like, you start pinching pennies when we start to feel this tighten up as a percentage. Practices have a tendency to throw people at inefficiencies. It's one of my favorite phrases that you share. And that also drives up this overhead segment. So, we want to be lean and mean, invest in people, and make sure we have the right people in the right seats. When those people are running efficient systems and really flourishing to add the value in your practice, you're going to really see that come back as an ROI and that investment you're making in your team members.” (5:45—6:43) -Miranda

“We know, without even meeting the practice owner, that when your team compensation is at 25%, I can already tell you that's a systems-driven office as opposed to a people-dependent office. When you're a people-dependent office — which means you're not very organized. You're just throwing person, after person, after person at a problem because everyone is maxed — that is a very dangerous place to be. I can already tell you, too, that when you're systems-driven, people love that. It's predictable. You can actually pay people more. So, there are a lot of things to consider on this path.” (7:55—8:30) -Kirk

“I've worked with practices just like that, where when we get going, they're 40%, 45% [with team compensation]. It's really hard to recover from that. But the majority of the time, there's one of two things at play. One, we have so much inefficiency that we've added more and more people to compensate for the stress and our lack of ability to keep up with the day-to-day, and/or we also are having perhaps a really high effort gap. We're writing off a lot, so we have to have a certain amount of people to gross produce this certain amount. But we're not keeping all of that. Maybe we're only keeping 60% of that. So, therefore, we can't even collect. Even if we're at a hundred percent, it's hard to maintain the balance of team compensation when we have a significant effort gap because we have to have enough people to support that gross production, even though we're not going to be able to collect on all of it. So, the biggest contributing factor is definitely around those gaps and around having the revenue that will offset the overhead percentage.” (8:32—9:32) -Miranda

“The very first thing that's pretty simple is looking and saying, does everyone have a role that's truly contributing to the efficiency of the practice? So, if we have five administrative team members but there's no defined accountabilities or processes or responsibilities for what everyone is doing, we're probably all inefficient with our time. So, ensuring every team member is operating at the top of their role and contributing to the efficiency, and having a Function Accountability Chart. And it doesn't have to get fancy. If you need to put something together, you're starting from ground zero, it can be drawn with a magic marker on a piece of paper, initially.” (10:27—11:06) -Miranda

“If I look at my practice as an ideal systems-operating practice, what are the seats that I need? I need maybe three hygiene seats, perhaps two assistant seats, a floater assistant seat, and I need three administrative seats. Okay, great. That's a great place to start because then you can start to say, okay, if I have three administrative seats, what are the accountabilities or responsibilities for seat one? What are the accountabilities or responsibilities for seat two? Once you have that built out, the team is able to operate within this expectation clarity of what their responsibilities are, and efficiency starts to generate. And honestly, your team can help you, to a degree. If you don't know what all the responsibilities of an admin team are or what your assistants complete, let the team help you build this out. It doesn't have to all be on your shoulders. Once you have that in place, your team is going to be able to evaluate schedules and templates and make sure that we're scheduling to production and working efficiently every day. We're going to be able to look at the systems that happen within the practice. Like, if there's somebody responsible for collections, do we have a system around when and how we collect payments from patients? So, it all starts with creating the right seats in the practice and identifying what are the accountabilities and responsibilities within those seats.” (11:15—12:41) -Miranda

“You can also look at ways to provide some incentive to your team that isn't a raise. So, a way that a lot of our teams help to encourage team members to be able to earn more but also benefit the practice is by looking at profit-sharing models or an hourly plus commission-based structure. Hygiene, especially — there's a lot of potential in hygiene. But there's also a cap to what is reasonable to be able to afford a hygienist in the practice. A really great way to be able to navigate that is an hourly plus commission. So, you might be able to keep someone where they're at or give them a little nudge, but then allow for them to have a set goal each day within their schedule. Then, at the end of the month, if they exceed that goal, there's a percentage of that that can then be awarded back to them, almost as a bonus or commission structure. It's usually 30% of whatever the overage is of their goal in that given time period. So, that's something you could do to have a conversation and align with your team around, ‘I want you to be able to earn more. I really, really do. Help us, and we'll help you.’ It's a nice win-win.” (15:20—16:32) -Miranda

Snippets:

0:00 Introduction.

1:06 Team compensation percentage, explained.

3:53 How this metric impacts the practice.

10:16 What you can do to impact this metric.

16:47 ACT’s BPA.

Miranda Beeson, MS, BSDH Bio:

Miranda Beeson has over 25 years of clinical dental hygiene, front office, practice administration, and speaking experience. She is enthusiastic about communication and loves helping others find the power that words can bring to their patient interactions and practice dynamics. As a Lead Practice Coach, she is driven to create opportunities to find value in experiences and cultivate new approaches.

Miranda graduated from Old Dominion University, and enjoys spending time with her husband, Chuck, and her children, Trent, Mallory, and Cassidy. Family time is the best time, and is often spent on a golf course, a volleyball court, or spending the day boating at the beach.
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