To Be or Not to Be… To Hire or Not to Hire…
These are The Associate Questions

By Bill Nolan, Vice President of Client Solutions, Williams Group™

There are two sides to The Associate Question: to become an associate and to hire an associate. Both sides can be professionally and financially rewarding. Understanding the desire and motivation of both parties involved is critical for success.

As a new doctor just graduating and beginning practice, you have one major objective: get a job and pay back those loans! Over $100,000 in student loans is not unusual these days and shortly after those boards, it’s payback time. An associate salary can definitely help with that: in the first year your income should easily exceed $80,000 (salaries may vary in different regions of the country).

As a seasoned professional, thoughts of an associate are different indeed: “It would be nice to have another doctor covering these Saturdays. If I just had an associate, I could take that vacation I’ve been wanting. Maybe if I got another doctor in here, I could hit $1,000,000.”

In more cases than not, the desire to hire an associate is emotional – hoping someone will take on some of the stress, reduce work hours and provide more time for the good life. The reality, however, could be just the opposite. Hiring an associate can increase your hours: you need to work the new doctor into the schedule, make adjustments to staff hours, and make changes to bookkeeping. These changes take time.

As a doctor interviewing for an associate position, it’s important you interview the practice as well. What is the current patient load and how much will it need to increase to reach a break even point? Is the doctor willing to put in the extra time to make this work and invest in marketing dollars to increase the patient base? Are the two of you in complete agreement on what needs to be done in order to be successful?

As the doctor looking to hire an associate, you need to look within yourself and your practice and determine if you are making this decision for the right reasons. Are there other ways to increase your revenue per patient? Is your practice as streamlined as it could be? Are there other changes you could make to decrease your hours without sacrificing the bottom line? Are you willing to put the hard work into making an associate work?

Consider the Costs, Do the Math

Adding a staff member can have the same financial impact as the purchase of a large piece of equipment or capital expansion. The practice must be able to generate the necessary cash flow to ensure an adequate return on investment. Below are some financial guidelines to help with this decision using the contribution margin accounting principle. However, if you aren’t comfortable with numbers or feel you lack the necessary accounting and financial management expertise to “work the numbers”, consult someone who does. This decision is too important to be made without doing your homework first.

Every business has two types of costs: fixed costs and variable costs. Fixed costs are those that are independent of the number of patients you see, such as the monthly rent for office space. Variable costs are just the opposite. These costs change when you produce more, like the cost of opening the office on a Saturday to see patients on the weekend. Examples are salaries, postage, long distance charges, office supplies, etc. When the total revenue equals the total fixed and variable costs, that is the break even point for the practice, or when profit equals zero. From the break even point forward, every dollar produced is available for profit.

Here is where contribution margin (CM) comes into play. With the CM, you can analyze revenue and variable costs to figure out how to pay for a new expense (i.e., hiring an associate) while maintaining your same percentage of profit. In the optometric industry, we can make a couple of assumptions after your practice reaches the break even point each month: cost of goods equals about 32% of revenue and cost of running the business equals about 12-15 % of revenue. (Notice that the cost of running the business is significantly lower after the break even point.)

Using these two assumptions, CM can be expressed as a decimal by using the following example:

Once you have determined the contribution margin, divide the new expense, which in this case is the associate’s salary, by the CM to figure out the revenue needed to break even. For example, the average salary of an associate in private practice is around $80,000. Using the contribution margin accounting principle, we find that approximately $145,455 ($80,000 ÷ .55) in additional revenue is needed for the practice to break even. At an average transaction per patient of $250, that’s 582 new patients. Remember, the break even point is where total revenues equal total costs, and profits equal zero. Additional new patients beyond the 582 are necessary to realize a profit.

Consider the Options, Make a Plan
These numbers can appear daunting, and whether you’ve been practicing for 25 years or you are a recent graduate starting your career, several factors come into play if this transition is to go well. First, you can increase the number of patients seen each year. This is the most common way to make up the additional needed revenue, however this can lead to working harder and not necessarily smarter. Secondly, you can increase fees. Although, in today’s health care environment 70% of Americans are covered by some form of third-party vision or eye health plan, and increases in professional fees won’t always add to the bottom line.

The third and most successful way is to increase revenue per patient. This is easier said than done. You will have to analyze your process from the beginning of each patient encounter to the end, streamline as you go, and work toward increasing the value you give your patients. This process can be difficult—most change is! But increasing revenue per patient is the smartest way to add to your bottom line. Here’s an example of how to rethink a typical patient encounter.

Divide patient encounters into two parts and explain simply what is going to happen in each part. First, check their vision and make recommendations at the end of the exam to solve their visual problems. Second, check the health of their eyes. Explain that seeing well is more than just seeing 20/20. During both parts of the exam, it is critically important to tell them what you are doing, what equipment you’re using and why. It’s also important to tell them what you are seeing during the exam process. For example, when using the slit lamp or the BIO, as you look at their interior segment or retina describe exactly what you’re seeing. Nothing builds the perception of patient care quite like this process. It is important that patients perceive they are seeing their doctor, not coming just to get eyewear or contact lenses. Finally, finish the process by making your recommendations and telling them why you have preappointed them and want to see them again next year.

The key here is to increase the patient’s perception of value. You already know you are providing a valuable service to them. This process helps the patient understand that, too! And by recommending care and preappointing them, you take control over their care and your revenues. It’s a win win!

Increasing revenue per patient will make revenue goals more attainable, however the need to increase the patient base is still a reality. Optometry practices in general do not have a sufficient backlog of patients to ensure the early success of an additional doctor. Therefore, a well developed and implemented professional marketing campaign is needed. Both practice owner and associate must build a marketing calendar to ensure success. Getting out into the community and developing contacts through professional business and service organizations is also critical. And evening and weekend appointment hours can be added to give the associate the needed chair time to generate patients and revenue.

Most doctors hope an associateship will lead to a partnership within two years. However, many of these relationships don’t work out because the expectations of both doctors are misaligned. Long-term value and return on investment can be increased, but only through an associateship which is properly planned. If there is a clear understanding of the increased management and marketing efforts required, and both parties are willing to work hard at building the practice, success is sure to follow.

Bill Nolan is Vice President of Client Solutions for Williams Group™. He has consulted with hundreds of practitioners in all areas of organizational management, staff management, financial management, and internal marketing. He is a renowned worldwide lecturer on each of these topics.

Williams Group™ is the world’s largest practice management firm providing consulting, software and web solutions for eyecare practices. Its mission is simple: Help successful optometrists take their practices to new levels of growth, profitability and efficiency. Williams Group™ can help optometrists put the fun back into owning their practice.