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Partnership Compensation
Over my career I have often been asked to assist failing partnerships. The root cause of many failures has been related to income sharing. Historically, partnerships were always relationships based upon partner income being shared equally. This approach, in many instances, did not succeed in the long-term. Not all partners contribute equally to their practice whether it’s due to the number of patients or how efficient they are. Basing part of partner income on production is a fair approach to solving that problem. Being an owner should reap some rewards as well, so basing partner income on a blend of personal clinical production and ownership share is the best way to address this issue. We’ll present two methods of sharing partner income in this article.
Method I
Payment on a Proportion of Personal Clinical Production and Profit Sharing
In this method we calculate available partner compensation, which is defined as all income available after deducting the practice’s operating expenses. We term this as Available Partner Compensation. It is then divided in the following way:
Component I – Calculate the Personal Clinical Production Ratio of Each Partner
Based on the partners’ philosophy towards emphasizing clinical production on their relationship, the proportion of Available Partner Compensation that will be allocated toward production, is anywhere from 20 to 80% of available partner compensation. The remaining balance of available partner compensation will be shared based upon the percentage of partnership interest. Many of our clients, however, select 50 to 60% of available partner compensation to be allocated to the production equation.
The next step is to calculate the ratio of personal clinical production. So, for example, if one partner produces 55% of clinical production, the remainder will obviously be paid at the rate of 45% of clinical production. These percentages are multiplied by the proportion of available partner compensation that is allocated to clinical production. In certain instances when there is a significant difference in the size of the partner’s patient base, the respective hygiene production may be added to this calculation. The remaining balance of available partner compensation then is allocated to each respective partner’s interest in the practice.
Method II – Pay Partner’s a Percentage of Production
Another method of compensation uses the approach that most associates are paid, namely applying a percentage of net production or collections with an adjustment for lab expenses. Select a compensation rate between 33 to 37%, overhead permitting. Lab expense is deducted at the same percentage rate as the selected compensation rate. In cases where a severe discrepancy exists in lab expenses, it may be wise to deduct 100% of the lab. This would be done by paying the percentage of compensation first, then deducting 100% of the lab costs. In either case after you apply the percentage calculated to personal clinical production the remaining balance of available partner compensation is split, based upon partnership interest.
Below are illustrations of two examples to show you how the math works for both methods.
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Method I
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Method II
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Summary
At the end of the day, the most important issue to carefully analyze when forming your partnership is to develop an equitable way of splitting income. At the outset, typically, in newly formed partnerships the “senior partner” will be the big producer thus receiving a greater portion of available partner compensation. However, as the senior partner begins to reduce his/her time in the practice, the junior partner will more than likely receive a larger proportion of income. In balance, over the life of your partnership, this appears to be the fairest way of sharing income.
Next month we will look at innovative ways to buy out the senior partner.
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Questions regarding Partnerships? Email Dr. Snyder at Drsnyder@thedentistsnetwork.net.
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Harness The Power of Free Publicity
One of the most misunderstood disciplines within the marketing business is public relations. Most of the time it’s simply referred to as “PR”, and giant ad agencies and firms charge huge sums of money helping their clients get the right kind of media exposure. As someone who has personally spent a lot of money with professional PR firms, I can tell you that the business of professional public relations is difficult to quantify in terms of a return on your investment. However, I have also learned that there is nothing more valuable and than free media exposure, especially when it is obtained without the expense of hiring a pro.
As a dental professional getting free media exposure can be very easy in a small market or extremely difficult in larger markets. However as with most things, the harder it is, the more it’s worth. Here are seven steps that any dentist or office manager can follow to create exposure for their practice that don’t cost a dime.
Step 1: Learn your local media market
Make a list of all the publications in your target market area. These will most likely be newspapers, business journals, free circulation publications, and local interest magazines. Ignore national publications and even regional publications because as a dentist your marketing target should be within just a few miles of your practice. Next, determine the radio and television stations in your target market area. This includes AM, FM, public radio and college radio stations. Pay attention to the small stations with small broadcast areas. In most rural markets there are two or three obvious media outlets that everybody listens to or reads.
Step 2: Develop a list of contacts
From each of the publications, understand where your news or announcement would fit best. Next, find out who the primary editor or reporter is for that part of the publication. Sometimes you’ll deal with a feature editor, a feature reporter or the managing editor. Never send your press release to anybody and everybody at a particular publication. All that will do is cause frustration and possibly get you blacklisted. Follow the same steps for radio and TV stations. Find out who assigns the news to reporters. Find out who edits the on-air news.
Step 3: Create a newsworthy story
At this point it is critical that you develop a story that has some appeal. No editor is going to run an article on advanced flossing techniques or your cool new hand-piece. Stick with things like new technology and advancements in dental care. Even news that is not necessarily exclusive to your practice is great. An example would be the recent findings that periodontal disease is associated with heart disease. Become the local spokesperson of national dental news. Always make sure your information is not promotionally slanted. Try to average a new topic or announcement each month for one year. That kind of consistency will show news outlets that you are serious and not just one-dimensional.
Step 4: Write the actual press release.
Editors love press releases that are easy to digest and to the point. A one-page press release that opens with who, what, where, when and why will make them happy and increase your probability of getting exposure in their publication or on their station. Include some background information, a quote from the dentist or another leader in the practice. It’s that simple. It doesn't have to be the length of a novel and it doesn't have to have every single detail in it. If the reporter wants to lengthen the story, he or she will get your input or interview you in more detail.
Step 5: Send your press release to the list you created in step two.
Some editors prefer faxed press releases, yet there is a growing trend toward receiving them by e-mail. Very rarely are press releases mailed with in an envelope, unless photos are part of the press release. Finding out the personal preferences of the editors or reporters will always increase your chance of publicity.
Step 6: Maintain relationships with editors, reporters and producers.
The more relationships you have with your targeted publications, the increased likelihood you have of getting publicity. The time to do this is not when you have a breaking news story. Take your time in this area and spread out your efforts. Remember to be sincere and don’t come off as someone who’s just looking for free advertising. Then when you do have that breaking news or blockbuster story, you'll know who to contact directly and quickly for the biggest PR impact.
Step 7: Use your press release as a marketing tool.
You’ll never get all of your press releases published. In fact, at first you might not get many at all. Don't let this stop you from continuing to issue the to your list of contacts. However, there are other things you can do with press releases. You can post them on your website. You can use them as statement stuffers to patients. Keep a stack in the reception area. Use your imagination, and you will be surprised at the unique ways to generate publicity and ultimately buzz about you and your dental practice.
Spending just a little time every week on these seven steps will help you become very tuned into the local PR market. It will also help you create invaluable awareness for you dental practice in your community. The coolest of a PR strategy is the cost, or lack thereof. This is not expensive marketing, but rather it relies on your time, enthusiasm and imagination.
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To reach Joel Harris Email him at Joel@thedentistsnetwork.net
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