The Dentist's Network #12, Dental Practice Management, Orthodontic Practice Consulting, Team Building, Business Consulting, New Dental Practice Startup Consulting, Practice Appraisals, Transitions


	Patient Base Attrition Associate Bonus

Joel Harris, CEO
Intelligent Dental
Marketing, Inc.
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Attrition Of Your Patient Base

Experienced dental consultants almost always agree that the patient attrition rate of an established practice runs between 10 and 12 percent each year, and that the attrition rate for patients in a new practice is in the 15 to 20 percent range. It happens to every dentist and you can’t stop it. People move and people die. You can have every mechanism in place to prevent some types of patient loss, but in many ways it’s not something you can control. Obviously, just to maintain status quo, you must attract at least as many new patients into your practice as you lose. Although the concept is simple, too many dentists don’t accurately assess the numbers of lost patients when they determine their needs for new-patient flow. If you don’t believe me, here are several reasons that patients leave a practice that are indisputable and based on national data and statistics.

Patients Move
For years I’ve heard different statistics about the percentage of people that move each year. The estimates vary from a low of 10 percent to a high of 25 percent. Using the information provided by the U.S. Census Bureau, I’ll try to simplify and clarify any confusion. Out of a population of 282,556,000 people in 2003, 40,093,000 moved. That’s an overall percentage of 14.19 percent annually. These 40-plus-million people break down as follows:

23,468,000 moved within the same county
7,728,000 moved to a different county within the same state
7,628,000 moved to a different state and
1,269,000 moved to a different country

The major moving activity takes place within the 18-34 year olds, with people in their 20s representing the highest concentration. Once people reach their 50s, their move rate is minimal. And in people over the age of 70, the move percentages are below 2 percent annually.

Couples with young children are the most likely to move a long distance. As people get older, the percentage who move decreases consistently. There are two exceptions to this trend. When people reach age 65, there is an increase in both the percentage of moves, and distance of the move – this is likely due to retirement. When people reach age 85-plus, there is an increase in the percentage of moves, and a decrease in the distance of the move. This is possibly due to a move to an assisted living facility.
Patients moving is a reality for any dental practice and just one household may eliminate several patients. It is also important to remember that you’ll never know about all of them. In fact, half of the population moves without ever notifying the US Postal Service.

Patients Die
As with population statistics of people who move, statistics of people who die each year is reported differently from various sources. However, for these statistics I’ll rely on the National Center for Health statistics. Out of a population of 282,556,000 people, 2,517,000 will die each year. That’s nearly one percent annually. It might not sound like a lot but in some practices it can be as high as 20 patients each year.

Patients Divorce
In 2003, there were a total of 1,214,990 divorces granted in the US. According to national divorce statistics, the average family unit affected by divorce included 3.14 members. Therefore, the total number of immediate family members affected by divorce was 3,816,068, or 1.3 percent of the population that year. Even if all family members remain in their community, the emotional distraction and change in financial means can keep those affected away from the dentist for long periods of time.

Patients File for Bankruptcy
Each year in the United States one half of one percent (.5%) of the population files for bankruptcy protection. Undoubtedly these Americans are more likely to put dental care at the bottom of their list of priorities.

Patients Get Cancer
Each year in the United States approximately one half of one percent (.5%) of the population is diagnosed with some form of Cancer.

Patients Lose Jobs
From January 2003 through December 2005 (three years), 3.8 million workers were displaced from jobs they had held for at least 3 years. An additional 4.3 million persons were displaced from jobs they had held for less than 3 years, for a combined total of 8.1 million from 2003-2005. On an annual basis the total was 2.7 million, or approximately 1% of the population. After factoring in children and spouses, approximately 2.5 percent of the population was affected by job loss in those years. Financial hardship, changes in dental insurance and shifting health-care priorities were all affected.

Patients Change Jobs
According to human resources experts working for Monster.com, “Nearly three-in-ten workers plan to look for new job opportunities in 2006 and 41 percent of the group plan to leave their companies by the end of 2007.” Such change has obvious impact on patient status.

Patients Lose Dental Insurance
As of 2005, only 55% of Americans under age 65 had dental insurance (mostly through their employers), according to the National Association of Dental Plans. Pressured by the soaring cost of health care, many companies are being forced to take a hard look at how they spend their limited health-care dollars. Dental insurance tops the list of benefits employers are looking to reduce or completely eliminate.

What does this mean to your dental practice each year?
The total number of patients moving out of your county or further (5.8%), combined with patients who die (1%) already total nearly 7%. With job loss and divorce the total easily exceeds 10%. This does not even begin to factor in all of the other issues that can influence a patient’s motivation to go to the dentist such as, terminal illness, depression, drug abuse, alcoholism and mental illness, none of which can be controlled by great customer service or dental care.

Interested in speaking to Joel about your Direct Mail marketing campaign? Email him at Joel@thedentistsnetwork.net

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Thomas L. Snyder, DMD, MBA
Managing Partner
The Snyder Group, LLC
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Creating a Bonus Program for Your Associate

If you have employed an associate for a year or two, chances are they probably want an increase in the percentage of compensation you have been paying. If you want to maintain a fair profit margin for your associates’ efforts, consider offering them a bonus. Reward the associate for increasing their production just as you increase your profit if you have a great year and good growth occurs.

An increasing number of practices are structuring associate bonus programs based on the concept of breakeven analysis. Breakeven analysis determines the total costs of having an associate measured against revenue, and ultimately desired profitability. No matter the size of your practice, the breakeven point will reflect the annual revenue an associate must generate so that a specified profit margin can be maintained. Armed with this knowledge, you can set bonus percentages that will enable you to preserve your profit, yet fairly reward extraordinary performance.

To determine your breakeven point, make an estimate of the associate’s annual production and collections. Subtract the associate’s direct and variable expenses, such as laboratory and dental supplies, as well as fixed costs such as staff salaries and fringe benefits. After you determine the direct costs for your associate and project a 30 to 33 percent profit margin, the annual revenue figure needed to reach that goal will be your breakeven point.

When calculated properly, breakeven analysis offers a baseline which ensures an associate’s additional compensation is based on the ‘gravy’ rather than the meat and potatoes of practice production. A bonus structure using a carefully calculated baseline helps preserve your profit margins, even as expenses and overhead costs rise. It also rewards the associate for loyal service and superior productivity. In cases where a future partnership is being considered, this approach gets them prepared for the ups and downs of business ownership, namely if you are successful you are properly rewarded.

Creating a Bonus Program That Works

Most associate bonus programs are calculated on a quarterly basis. Associates receive their usual compensation plus a percentage of the difference over the baseline breakeven point. Practices just beginning bonus programs typically start at 10 to 15 percent of the differential over the breakeven baseline, and can offer annual bonus increases of two to three percent until reaching a threshold of 25 percent.

Now you still may be wondering how you can afford to pay the associate a regular percentage of compensation plus 10 to 25 percent in bonuses and still make a profit. Rest assured the math works as long as you calculate the breakeven point correctly. That’s because the costs associated with increasing an associate’s compensation through a bonus program should only be based on the associate’s regular compensation plus their variable expenses. The other fixed costs, such as salaries, are kept constant and are part of the breakeven point calculation. If you opted to increase the associate’s overall base compensation percentage, you are increasing compensation from the first dollar they generate. This approach will eventually erode your associate’s profit margins.

Bonus programs are not for everyone, of course, but for long-term, loyal associates, they can be major motivators for achievement and success. In this scenario, both owner and associate win. For those who use a breakeven analysis in their practice, you understand the power of the incremental profit generated when the breakeven point is reached.

Associate Bonus 101
Increasing an associate’s overall compensation percentage may eventually erode stable profit margins. However, when you calculate rewards on superior performance over and above a breakeven baseline, both associate and owner win. A bonus program offers a better way to reward associates, and ensure profitability. To illustrate, let’s follow the example below. In this example, we are paying the associate 34% of Revenue (Collections) minus 34% of Lab Expense.

Sample Bonus Calculation @ 15%
	Gross Quarterly Revenue Created by Associate	$ 85,000
	Less Breakeven Point (BEP)	$ (60,000)
	Performance Differential	$ 25,000
	Differential x 15% = BONUS	$ 3,750

Bonus Your Associate
	Gross Revenue Quarter	$ 85,000
	Staff Salaries	(8,000)
	Dental Supplies (6%)	(4,800)
	Office Supplies (2%)	(1,600)
	Lab Expense	(8,500)
	Compensation + Taxes (34% of revenue)	(27,800)
	Associate Health Insurance	(850)
	Associate Bonus	(3,750)
	Total Expenses	$ 55,300
	Associate Profit	$ 29,700
	% Profit	34.9%

Dr. Thomas L. Snyder, is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With over 75 years of experience in the field, The Snyder Group can provide you a full range of services relating to practice transition matters and retirement planning. They can also be reached directly at 1-800-988-5674.

If you would like additional help regarding implementing an associate into your practice, email Dr. Snyder at Drsnyder@thedentistsnetwork.net.

Interested in having Dr. Snyder speak to your dental society or study club? Click Here.