Profit sharing is a great model that drives profit to the business and inspires employees to perform effectively. In a nutshell, it is when a company contributes part of its profits into a pool that is distributed among eligible employees. It can be dependent on salary, hours, and can even be used as a supplement to an existing benefit plan. How you choose to do profit sharing in your practice can go in many different directions and needs to be what suits you and your team best.
Very often dentists feel compelled to give raises or bonuses to their employees, but doing so without any growth means they end up taking the money out of their own pockets. Ever had a year when your production was down, yet you still gave your staff an end of year bonus? Many dentists feel obligated to continue these practices, simply because the staff expects it. Since staff compensation is the highest overhead expense of the practice, it pays to pay wisely. Dentists typically lack a system for determining pay increases. Instead they pull figures out of a hat, often at the expense of their own compensation.
Start by looking at annual revenue and profit growth in the practice, set a benchmark on your break even, and be open to sharing this with your team. It is important that your team understands how profitability plays such an important role in business ownership. Have conversations with them about the overall health of the business and together come up with a profit margin. It’s okay for them to understand that the doctor makes more than the employees, after all, you provide them with a job.
Staff raises and bonuses should be based on increased revenue growth and profits. If the practice has no revenue or profit growth, it might be wise to delay raises. Boundaries should be placed for re-evaluation every year, you cannot pay out when you do less, and team members should know upfront that raises or bonuses are dependent upon the practice meeting or exceeding projected revenue and profit goals. This gives the employees ‘skin in the game’ and enables them to have control over their own compensation. Keep in mind, it is the Doctor’s responsibility to help the staff recognize their overall contribution to the practice`s goals that affect their salaries.
The positive impact of profit sharing is that it gives all of the employees the sense that they are working together on the same team. The employees then have the same goals and are rewarded equally. This, in turn, is passed on to the patients by enhancing the overall patient experience in the practice. Employees who know that they will receive financial rewards if the company does well are more likely to be motivated to help the company succeed because they have a vested interest in the company's success.
