PracticalDermatology

When adding a non-surgical provider to an aesthetic medical practice, an owner is likely to first address compensation and incentive plans. Generally, this is because prospective providers often come to the table with a dollar amount they feel they should be paid. However, by jumping straight into compensation discussions, owners are skipping an important step paramount to provider longevity and retention—outlining the full cost the practice incurs when hiring an aesthetic provider.

Having this discussion with new—and even existing—providers ensures that both parties understand the actual costs associated with the position, helping to dispel assumptions and alleviate tension. When business owners are transparent with providers regarding cost, realistic revenue goals can be set, leading to higher job satisfaction and less turnover.

Scenario One: Hiring a New Provider

Recruiting, onboarding, and training a new provider takes time and considerable investment. Therefore, it would behoove you to openly discuss the various expenses and revenue considerations listed below before making an offer to a new provider. This ensures the provider understands his or her net value to the practice and, in turn, the basis for his or her compensation.

• Costs absorbed by the practice. Discuss how base pay is only part of the cost to bring on a provider. The practice also absorbs the cost of payroll taxes, benefits, continuing medical education, dues, and licenses, among others.
• Variable expenses. Outline the price of cosmetic supplies, retail products, medical supplies, and other goods associated with the provider’s role.
• Fixed expenses. Detail any costs associated with hiring a fully burdened new employee (e.g., marketing expenses to promote his or her services and new equipment purchases).
• The “breakeven” point. Use the expenses above to clearly explain that the net income available to the practice is often negative in the first year of hiring a new provider; at best, the business may breakeven on its investment, meaning the provider generates an amount of revenue that matches fixed and variable costs. Only after the breakeven point is surpassed does the practice and its owners make money on the provider.

Imparting this knowledge to potential providers upfront is useful, as providers with different experience levels (identified below) might expect a certain amount of pay. It helps circumvent potential compensation pitfalls early in the discussion process and allows for realistic revenue goals and long-term planning to be set for the next three to five years, including incentives.

• An experienced provider. If your prospective provider is coming from an established practice, s/he may feel entitled to higher pay due to an existing patient base. However, in many cases, patients stay with the provider’s former practice. Should the provider retain a majority of his or her patient base, you can have short- and long-term goals that reward the provider for helping the practice’s bottom line and exceeding expectations quickly.
• A novice provider. If your prospective provider needs more time to train and get certified in a specific area, you should have a different set of expectations. Frame your expectations by explaining what revenue s/he will need to generate for the practice just to break even. Establish stretch goals and explain how, if those goals and their thresholds are met, the provider can make more money, as it helps generate additional revenue for the practice.

By transparently setting compensation that considers all these factors, business owners can prevent providers from feeling unfairly compensated and ensure all parties have “skin in the game” in terms of revenue versus the cost of doing business.

Scenario Two: Paying an Existing Provider

Eventually, existing providers will request a higher share of the revenue they generate. This can cause business owners frustration due to provider costs and other associated variables already eating into profit margins. Additionally, owners may be perplexed to the actual amount of net income the provider is generating—in some cases, it can be negative or just breaking even when all provider expenses are considered. When compensation has been previously set in a way that doesn’t benefit the owner or the provider, properly addressing a pay raise request is a must.

While it may seem difficult to “put the toothpaste back in the tube” after compensation has been established, having a conversation about what fair compensation looks like is still possible with a little preparation. Use the discussion points outlined below to reset compensation expectations and revenue goals that better align with the practice.

• Illustrate provider importance. Explain the importance this provider plays in generating revenue for the practice. Then emphasize that your goal is to help him or her understand how to make more money while also helping the practice become more profitable. This sets the base for having a positive, genuine discussion.
• Outline the cost of doing business. Put variable expenses (e.g., the cost of cosmetic supplies) and fixed expenses (e.g., marketing and support personnel) into perspective using practical examples. Providers often think they have been extremely profitable for your business by generating, for example, a gross revenue of $600,000. What they often do not fully consider is that the cost for injectables and fillers alone can eat up to 50 percent of that figure. Once this is outlined for them—along with their salary (i.e., $100,000), payroll taxes, retail products, and any incentive pay—providers will see that the actual net revenue available to the business owner can be as little as $75,000. Gaining this perspective can help the provider align with the owner so mutually beneficial revenue goals can be discussed.
• Set new revenue goals. Work together to outline new revenue goals that benefit both parties. Outline a clear plan detailing how you will help the provider hit these targets, such as posting more social media messages credentialing the provider or before-and-after pictures on the practice website showcasing the provider’s results. At the end of the conversation, the provider should feel empowered and supported, with a clear way to put more money in their pockets as well as the practice’s.

Losing an existing provider over a lack of communication or understanding around compensation is costly to a practice. Use the tips above to foster a mutual understanding of practice finances and what compensation is feasible and fair for all parties.

Honesty is the Best Policy

When full transparency is used, a well-thought-out and mutually agreed upon compensation plan can be created. The ideal plan will balance the needs of the provider with the revenue growth goals of the practice, thereby ensuring a happier, more productive experience for all parties.

Confer with advisors familiar with local laws and regulations before implementing strategies in your practice.