Optometric Management Tip # 86   -   Wednesday, September 10, 2003
Payroll Costs, Part 2

Last week, I wrote about ideas for scheduling staff and keeping them productive on days when patients are not seen. Smart management can keep productivity high and make payroll costs a good investment.

Today we'll concentrate on how to gauge if your payroll costs are appropriate - and how to decide on the proper number of employees.

Conventional wisdom in optometry sets payroll cost, as a percentage of gross revenues, at 17%. But where does this number really come from? How do we know that "conventional wisdom" is right? Well, AOA surveys have been used to garner the average expense in various categories from practicing ODs nationwide, and respected management consulting firms have researched their client bases and have made recommendations for expense categories. I believe, however, that the standard 17% benchmark for payroll is too low. I think a practice that wants to grow and prosper must make a sizable investment in highly qualified staff and must delegate an increasing number of procedures, which requires a larger staff. When functioning properly, the expenses for an excellent staff is not a financial drain on the practice, but actually becomes a tremendous savings. Productivity is elevated much more than the payroll cost, and doctors' time is preserved in order to function at the highest level.

Here are some other reasons why the 17% standard is out of date. I actually try to exceed the 17% payroll expense standard! I think 20% is actually the goal to shoot for, and I know many excellent practices that exceed that.

If you track your payroll cost percentage, here are the specific factors that most experts agree should be included. When examining the high costs of doing business, I remember the quote I read in a business book once...

"You can't cut your way to prosperity"
Best wishes for continued success,

Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management