The Entrepreneurial O.D.:Busting the Benchmarks

by Neil B. Gailmard, O.D., M.B.A.

We've all heard the traditional financial benchmarks for optometric practice: Cost of goods around 30% of gross, net around 33%, staff salaries in the 15-17% range, and so on.

Comparative data like these provide a good rule of thumb, and like any good manager, I watch these numbers in my practice. After all, if we don't keep expenses down, our margins will erode.

Yet, I believe that last benchmark—staff wages not exceeding 17%—is not only outdated, but it is a big mistake for most O.D.s to try to achieve. I'll come right out and admit that my staff salaries are higher than 17% of my gross. Way higher. Higher even than 20%. This is actually very smart management in my book.

First, the biggest competitive advantage my practice has is outstanding customer service. I'm talking legendary service. This is why people come to my office. The service drives the practice, and a large, excellent staff drives the service. That must come first, not some artificial benchmark.

Maybe some O.D.s can provide the kind of customer service I do and still keep the payroll at 17%, but I can't and I wouldn't want to try. Let me quickly add that my practice is doing great financially; the gross continues to grow and the net is very healthy. I would certainly rather net 30% of a very large number than 35% of a small number.

Trying to keep staff payroll under 17% in the name of good management encourages the small thinking that holds many O.D.s back. It stifles growth. It makes doctors think their too-small staff must be OK. It makes them offer low salaries and poor benefits, and keeps them from attracting the A-list staffers (most of whom go to ophthalmologists).

Consider the following guidelines if you want to analyze this statistic in your practice:

• Include all the following in your staffing cost: wages, payroll taxes, benefits, uniforms.
• Do not include in-office lab personnel (this belongs in cost of goods sold) or associate doctors (this is part of the net).
• Use the true gross in your calculation. That is, the actual deposits from patient fees, not the amount that you write up before insurance adjustments.

My best advice: try to spend more than 17% on your staff—way more. Your practice will head in the right direction, with outstanding customer service and efficient delegation. Ironically, you may find it more difficult than you think to increase your payroll percentage. The improved productivity and increased referrals will keep driving up your gross!

Dr. Neil Gailmard is in group practice at Gailmard Eye Center in Munster, Ind., and is chairman of the AOA's Practice Management University.