Article Date: 8/1/2011

Are Your Labor Costs too High?
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Are Your Labor Costs too High?

Or, could it be that an outdated benchmark is running your practice?

Gary Gerber, O.D.

Dr. D. called us to lament about his high labor costs and his staff complaining about being overworked: “But Gary, my labor cost is already too high at 22%. I can't afford to hire any more staff!”

“Well, what will happen if you either do not hire more staff or you don't use the ones you have more efficiently?” I asked.

“Hmmm … I guess you're right, but I really hate to go above that 22% benchmark.”

This doctor dictated his practice success on a single two-digit number that is not only out of date, but also not reflective of his geographic area. I was amazed it was so low, given how well he was doing. In his case, his net was much higher than I thought it would be. That was until we dug deeper and found that it wasn't uncommon for him to personally work about 50 hours per week.

Here are a few lessons and reminders gleaned from this call:

1. Don't let benchmarks run your practice. That's right — I'm a practice management consultant telling you to ignore benchmarks. But I'm also saying that if you are smart and alert while running your practice, you can let the numbers fall where they may. As the Disney organization has stated many times, some of the most important things about a business can't be measured — patient loyalty and your happiness with your practice being two of the big ones. If you achieve the goals of making yourself and your patients happy, does it really matter if your COGS is 30% instead of 27%?

2. Staff wages and associated labor costs should be viewed as an investment in your practice, not an expense. In this doctor's case, he was very happy that his retinal camera was generating income. While not as immediately visible as a digital fundus image, a top performing staff member also generates income — typically a lot more than any piece of technology. It's true that at first, while being trained, the staff costs the practice money. But after what should be a very short time, on the order of weeks, that should turn around. If it doesn't, it's a sign either your training program or your hires need attention.

3. Don't forget about your own contribution to labor costs. If you work 50 hours per week and you don't see patients during all those hours, count any staff or administrative tasks you perform toward your labor costs. Of course, you probably shouldn't be doing these tasks anyway unless you're a very new practice (less than a few months old). If you are, then realize your labor cost (22% in this case) is really much higher.

4. Very often we have the wrong staff person assigned to a particular task, or we have too many redundancies in how we do things. Instead of using a shy receptionist to answer the phones, think about putting your chatty insurance biller on the phones. That way you'll not only put a better “face” on your practice, but the shyness of your receptionist being uncomfortable asking for a patient's e-mail address, for example, won't result in someone else having to do the task at a less opportune time — like during a clinical procedure. “Put your chin in the chin rest. And oh, I noticed we don't have your e-mail address.”

It was a short phone call with some very powerful lessons. OM


Optometric Management, Issue: August 2011