9 ways to increase profits by controlling labor expenses

We’ve all seen cartoons of a street dentist pulling teeth on the corner with a pair of pliers. Not only is it comical, it’s a tad enticing. A whopper profit margin with cheap tools and no labor expenses!

I’ll make a big assumption that this is not the road that you want to take for your practice - but that doesn’t change the fact that today’s drastically-reduced PPO fees have put economic pressures on most dental practices. Labor costs are the largest percentage of a dental office’s overhead; thus, a healthy business needs to take a careful look at labor costs.

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The salary component of your expenses should stay within 25 percent of your production. You could consider salary reductions, but the groaning would hurt your ears, not to mention the mass exodus. To save everyone’s sanity, here are 10 ways to keep your labor overhead under control while retaining a happy, quality staff:

1. Implement a bonus system

Instead of raises, offer bonuses based on production. When doing this, it is important to set goals that can be attainable within reasonable limits. It should be a goal that can be reached with quality hard work approximately once per quarter.

If the goal is reached consistently every month, staff members tend to think of that as being part of their normal salary and can become irritated when they fall short in a given month. You want the goal to be a reward for going the extra mile.

It is amazing how the staff will bump up their efforts when there is a goal in mind. Once they have ratcheted up their performance and begin to consistently make goal, then it is time to raise the bar, so the bonus continues to be a special thing.

2. Eliminate across the board annual raises

If revenue has been flat or decreasing, then I recommend no raises. When PPO payments are taking a huge chunk of the profits, let alone funds to cover overhead, one cannot afford increases in the cost of labor.

3. Consider replacing a full-time employee with a part-timer

Have the part-timer work during peak hours. You can usually pay a lower wage and won’t have to pay for fringe benefits.

4. Eliminate overtime by staggering hours

In my office, we have two staff members, a business and dental assistant, show up a half hour early to prepare for the day. The bulk of the staff starts at the first appointment time. Two remaining staff come in a half an hour after first appointment time and stay behind to close. The cost of overtime can really add up over the course of a year. Staggering the hours can be a huge savings.

It is best to make sure that they do not clock in any earlier than they are scheduled. Fifteen minutes extra every day for every staff member can add up in a heartbeat. If they do show up early, make sure that they are not doing any off-the-clock work. You don’t want to run afoul of federal employment laws. Let them get caught up with their Facebook or personal emails and texts, then punch in.

5. Coordinate staff vacations with yours

It is vitally important for a dentist to take adequate time away from the office to avoid burnout. And while the dentist is working at the office, he/she needs to have a full staff available to keep the machine running smoothly. Dentists can’t afford to have staff members consistently out on vacation. This leaves a burden on the rest of the staff to pick up the slack.j

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In my office, we allow employees to select one week of vacation whenever they want. The remainder must be taken when the doctor is out. Keep only enough staff available to answer phones.

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6. Cross train

The cost of paying a half dental assistant/half business assistant versus two fulltime employees can be a sizable saving. Plus, it helps immensely when someone is out sick or on vacation to keep the office running without missing a beat.

7. Consider outsourcing your payroll processing

This will free up business personnel to do front desk work like answering phones or greeting patients.

8. Outsource patient financing

Limit any in-office payment arrangements to automatic bank drafts or credit card charges to minimize billing and collection activities. Financing fees are significantly less than collection fees. And, it saves your staff from having to make collection calls.

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9. Eliminate dead wood

“One bad apple will spoil the barrel” is well said. If you have a staff member who is underperforming or causing static throughout the office, it’s time to say goodbye. Not only will the other employees thank you, but you’ll also find that productivity increases.

Finding that magic compromise on what it will take to keep a wonderful staff pleased enough to stay and what you can afford to pay them can be daunting at times, but it is doable with the right amount of effort. Keeping an eye on labor overhead can make a huge difference in your take-home pay.