Dentaltown October 2017 - 14

howard speaks
column

Roll-ups versus rollouts

The costs of doing business

This can be particularly tough for dentists who buy
existing practices-doing a "roll-up"-because they're
entering a situation where expectations about salaries
have already been established with the existing staff.
The new owner is often forced to install a new wage
schedule that changes or contradicts "the way it's always
been"-and that's never easy.
When corporate chains do a roll-up, they need their
labor costs to be less than 25 percent of collections, but
often the labor costs in an existing practice are over 30
percent-sometimes as high as 38 percent. This is a
very sticky situation. When you go into an office and
tell everyone who's making $25 an hour that, starting
Monday, they'll be making $18 instead, nobody's happy
and you have a morale nightmare on your hands.
That's a big part of the reason corporate dentistry
companies in the United States are beginning to shy
away from roll-ups and instead are starting de novo
practices-doing "rollouts" instead. They say, "It's a lot
easier to start from scratch. We may have less revenue the
first year, and we'll spend more on marketing, but it's
still better than dealing with employees whose morale
is off the charts. You just can't turn this around."

When I got out of school 30 years ago, I'd send an
insurance company the bill for a crown and a root canal,
and it would just pay whatever percent the company
covered. But under the current PPO model, instead of
"send me your bill and I'll pay a percent," an insurance
company now determines the exact amount it will pay,
and those prices are about 42 percent less for me (and
for the nation's dentists in general).
Today's customer says, "I'm going where my benefits
are," and if those benefits pay $55 for cleaning, it doesn't
work out to pay your hygienist $40 to do the work. The
math just isn't there.
That's why you have to be transparent with your
employees and set the ceiling on salaries. Tell them
your labor costs are going to be set at 20 percent, 25
percent or whatever of collections, and that as the
practice produces more and collects more, then you'll
have more money to give.
Notice that I said "more money to give," not "more
money for raises." Rather than salary increases, it's better
to institute a bonus plan that incentivizes the staff based
on productivity. Higher profits? Cash bonuses, not wage
increases. That's because productivity could be great for
six months and then-boom!-it could drop again for
any number of reasons. If the economy takes a tank or
whatever, you don't want to be left stuck paying wages
based on higher-productivity days.
If someone doesn't like the wages of being a receptionist, she should become an office manager. If he
doesn't like the wages of an assistant, he should become
a dental hygienist. In my 30 years as a dentist, I've had
many assistants move on and become hygienists. Two
even became dentists themselves.
It's important to set expectations as early as the job
interview about salaries and bonuses. Base your salaries
on the going rates in the area, and let your candidates
know how you calculated those salary caps. Give your
employees opportunities for advancement, and incentivize
them though production-based bonuses instead of salary
increases, and you'll set the stage for greater success
than you could achieve by awarding annual raises. ■

See Howard Live!
Howard Farran, DDS, MBA, is an international speaker
who has written books and dozens of articles. To schedule Howard to speak at your next national, state or local
dental meeting, email rebecca@farranmedia.com.

2017
24

OCT.

NOV.

Caribbean Institute for Strategic
Planning and Research in Oral Health
Kingston, Jamaica

Toronto Academy of Dentistry,
Winter Clinic
Toronto, Ontario

OCTOBER 2017 // dentaltown.com

http://www.dentaltown.com

Table of Contents for the Digital Edition of Dentaltown October 2017