Associate/Employee Compensation Models for Orthodontists

Orthodontic Associate & Employee Orthodontist Compensation Models

By: Shannon Patterson, CPR, CMSR
Kolbe Certified™ Consultant
Director of Practice Opportunities

We get at least one inquiry a day about associate compensation either from an associate/employee orthodontist or a potential employer. In the past, the answer to this question wan average salary range, but the pandemic changed the compensation model for many employers. Now in 2021, instead of “What is the average annual salary for an associate?” we are hearing “Is it better to have an income guarantee (salary) or be paid based on a commission of production/collections?” 

One of the first questions I ask a potential associate/employee is “What is most important to you when you consider your overall compensation model?” This is somewhat of an emotional question for many associates because often these two models offer ‘certainty’ versus ‘incentive.’ 

What you have to ask yourself is, “Am I comfortable taking a risk for more income potential?” “Do I want to be compensated more when I increase production?” “Or do I prefer to have a higher daily rate out of the gate and know exactly what my income will be on an annual basis?” 

When considering your compensation model – consider these three areas:

1. Direct Compensation – Income guarantee which is paid either as an annual salary or a per diem 

2. Indirect Compensation – Benefits such as health insurance, continuing education, association dues, licensure reimbursement, and PTO

3. Deferred Compensation – Retirement plans such as 401K or profit-sharing 

When looking at these three factors you must decide what is most important to you. 

Let’s explore the two most popular types of compensation models in the orthodontic industry – production-based (PB) vs income guarantee (IG). It’s critical to understand the difference between these models in order to make an informed decision that’s best for you and your long-term plans and goals.

If you are a highly-motivated orthodontist, the PB compensation model may be very lucrative but you should also understand the model and formula on which you will be paid. I am receiving an increasing number of calls from associate doctors that are being offered to shift to this model after 12 months of employment. This provides you an opportunity to understand what your income potential will be, since you can examine the previous production average for the prior twelve months, minus adjustments (discounts, write-offs and insurances, and your benefits), and calculate the percentage you are being offered with the adjusted production. 

Currently, the most popular model is a hybrid model of both an IG (income guarantee) and a PBI (production-based incentive) plan. This is a shift we have seen employers make post-pandemic. Many potential employers are offering a lower IG rate but a higher PBI plan. How does this plan work and what exactly do you need to know? 

First and foremost, you must understand the production goal and what metrics are available for you to monitor this goal. Second, recognize, how many days per month you will work to meet this goal.

As an example, let’s say your potential employer sets a $100K monthly production goal, and you are working 16 days/per month. Simply divide $100K by 16 (clinical days worked) which equals $6,250/per day. To meet your goal, you must produce $6,250/per day which equals about 1.2 starts per day.

You must also consider the conversion rate in the orthodontic practice. If it’s 60% then you will need to see at least three new patient (NP) consults each day. When an employer hires you, they not only want you to see current patients – which is where the IG comes in – but they also expect you to see NP consults. Can a new orthodontic graduate handle three to four NP consults per day? I am sure many of you look at this and say “Of course I can. That’s easy. I can see two new patients in the morning and two in the afternoon, right?” Well, that depends…

Let’s do a bit more math. How many patients are in the clinic? If there is an average of 50 clinical patients/per day it will allow you to spend more time with each NP consult to warrant a good conversion. But what happens if you are expected to see 80-100 clinical patients/per day? This might cause a bit of a struggle for a new graduate – balancing the clinic and spending the appropriate amount of time with NP exams/consults. 

So, what are some things you should note when visiting a practice to ensure you can handle the patient flow and hit your production goals? Ask any consultant and they will tell you systems, systems, systems! A practice expecting you to hit high production goals must have good systems and teams to help you meet expectations. 

The difference between a well-trained Treatment Coordinator (TC) and a mediocre one can be detrimental for a new graduate. If you have a great TC and you see three-to-four NP consults/ per day, you will most likely be looking at a 70% conversion rate – which makes your target income potential reasonable. If you are considering joining a practice, ask to examine the schedule – not just for that day, but for the week and month. Find out how many NP consults the practice normally sees on a daily or weekly basis, to make sure you have a reasonable opportunity to start new patients. Another consideration is the practice’s target market. Is the practice marketing and advertising to patients who are willing to commit to treatment or are they marketing to attract shoppers? This is important to know before you join, if the majority of your income is production-based. 

If you join a well-established orthodontic practice with a well-trained team that attracts the right new patients, participating in a PB compensation model versus a higher IG can be very lucrative. 

Based on recent trends, the odds are good that associate compensation will continue to shift toward productivity. The more you produce the higher your income potential. Specifically, with DSO and OSO models, paying based on production bonuses shifts the risk from the employer to the associate and helps maintain healthy productivity. 

So, as you interview for potential associate opportunities be sure to weigh the differences between any production-based or income guarantees you may be offered. Do your homework and ask questions of your potential employer to understand whether or not the offer works for you. 

2020: A Year in Review

Though segments of the Wall Street economy thrived, this year has been a challenging year for much of the service side of the economy, and orthodontists were no exception. In most states, they were forced to shut down their offices for six to eight weeks. Residency programs sent students home and virtual classes and mee

By: Shannon Patterson, CPR, CMSR
Kolbe Certified™ Consultant
Director of Practice Opportunities

The last twelve months have been interesting, to say the least, and, like many of you, I am looking forward to saying goodbye to 2020 and welcoming in a new year. We all grew tired of the words furlough, quarantine, closed, canceled, paused, postponed, re-start, PPE, PPP, and bounce-back as the entire planet was consumed by the pandemic, and life as we all knew it was altered, perhaps forever. While it has been an extremely challenging year, it has also taught us many lessons. The first and most important being how to adapt in times of change. 

Though segments of the Wall Street economy thrived, this year has been a challenging year for much of the service side of the economy, and orthodontists were no exception. In most states, they were forced to shut down their offices for six to eight weeks. Residency programs sent students home and virtual classes and meetings took over, while our pets at home were thrilled, it left many of us very concerned about the future of orthodontics. As we wrap up the end of 2020, this is what we have learned:

1. Most practices rebounded strongly even after shutting down for 6-8 weeks (and in some cases up to 12 weeks) during the pandemic. At first, we thought this was pent up demand accumulated during the shut-downs, but as the months have gone on we continue to see trends where practices have had continuous growth through year-end. In most cases, the June-December period of 2020 was up substantially compared to the June-December period of 2019.   

2. Practices quickly adapted and added virtual exams to stay connected to established patients. This technology allowed practices to decrease the distance between themselves and patients during a very challenging time. We feel strongly this is not going to disappear once social distancing is lifted. The pandemic has only accelerated a move toward teledentistry that was already taking hold; we expect it is here to stay.

3. We have seen multiple practices invest in software such as Dental Monitoring, Smile Snap, Rhinogram, and others which allow for patient interaction and case tracking often resulting in fewer patient appointments, a trend that patients are embracing.

4. Interestingly, practice overhead rates are down in most practices this year by 5-10%.  There are several reasons for this, but perhaps the biggest is the tightening of our collective belts which resulted in better management of our expenses than before the pandemic.

5. Job seekers saw a big shift to a remote interview process with virtual interviews versus on-site interviews. We feel this has enhanced the interview process for both parties allowing more time to get to know one another during the interview process. I would encourage all of you to embrace this trend and take advantage of this technology as part of your due diligence process. 

6. Although some associate salaries took a dip early on during the pandemic, we are now seeing many of those associates hit year-end, new-patient start goals attached to their production incentive bonuses. We would say the orthodontic specialty is enjoying full employment again.

7. The job market is still very strong for new doctors with both private practices and DSOs hiring and offering competitive compensation packages. If you are looking to make a change in your career, now is a good time to investigate potential opportunities. 

8. We’re all in this together, it was amazing how many webinars and online events took place in our industry to help one another and share ideas on how to pull through the pandemic. We believe this will continue and suggest you take full advantage of learning from others and sharing insight and ideas. This idea of “we’re better together” is one of the key truths emerging from this pandemic year. By sharing ideas, solutions, fears, and hopes – we all coped and performed much better than we would have alone. 

For decades to come, we will remember the year COVID-19 struck. It was a year to remember whether we liked it or not. However, endings bring us closer, teach us lessons and prepare us for the future. Our industry grew stronger from this year’s events and we should never forget that we’re all in this together. You’re not alone and someday soon we’ll be able to visit, learn and laugh together again. 

Retail Healthcare & Teeth Straightening: Your Local CVS Pharmacy Could Include A SmileShop

Retail Healthcare & Teeth Straightening: Your Local CVS Pharmacy Could Include A SmileShopBy: Shannon Patterson, CRP, CMSR
Partner, Kolbe Certified™ Consultant

The trend that disrupted healthcare consumerism a decade ago has entered the orthodontic market. Traditionally, retail clinics have been a convenient way for patients to visit a walk-in healthcare clinic. These clinics are located inside of retail stores, such as supermarkets and department stores and are part of a broader category called convenient care clinics (CCCs) in the medical world. Retail health is emerging as a means of delivering quality, convenient care to millions of consumers, as well as a model for healthcare systems, to consider when providing services to new and existing patient populations.

As traditional and big box retailers have watched consumers evolve, they began to understand that consumers expect convenience, quality, and transparency when choosing where to spend their time and money. Naturally, those consumers have come to expect those same experiences from healthcare providers. Therefore, retailers are aggressively stepping up and opening in-store clinics that offer convenient access to health and wellness products and services across the US, and it’s in serious growth mode. In 2007, there were 351 retail clinics in operation. Today, that number has skyrocketed to over 3,000.

CVS announced in April they plan to open hundreds of SmileDirectClub shops in its stores in 2019, offering a cheaper way to straighten teeth. Maly Bernstein, CVS’ Vice President recently stated in an interview, “This partnership is about how CVS is very much on the lookout for innovative solutions we can provide conveniently, locally and affordably.” The drugstore is trying to keep up with its changing customers. Consumers are shopping online more, especially on sites like Amazon, which hurt CVS and other retail drugstores sales in traditional beauty and household products.  CVS thinks focusing on health and wellness services will be a way to draw consumers in its stores.

As of today, SmileDirectClub SmileShops are open in 57 CVS Pharmacy locations in 20 states, with planned expansion to hundreds more by the end of 2019. Click here to see if there is a SmileShop location near you.

New U.S. Census Data and Trends to Watch

By: Shannon Patterson
The population changes every year in the United States. Generally we see a positive change with the overall populations meaning more births and deaths, however, a few states had more deaths than births according to the U.S. Census Bureau.

According to the Bureau’s factors that contribute to the 2016-2017 estimates for populations for the 50 states results are international and domestic migration and the “natural population change,” which is the net births minus deaths.

The results showed that two states, Maine and West Virginia, actually saw more deaths than births. Maine’s natural population went down by 0.9 residents per 1,000, while West Virginia’s dropped by 1.7 residents per 1,000. However, Utah had an excess of births over deaths contributing to why it’s ranked the third fastest growing state with natural increase.

Idaho was the nation’s fastest-growing state over the last year. Its population increased 2.2 percent to 1.7 million from July 1, 2016, to July 1, 2017. The next largest percentage increases in state population were; Nevada (2.0 percent), Utah (1.9 percent), Washington (1.7 percent), and Florida along with Arizona (1.6 percent).

The two fastest growing states Idaho and Nevada experienced “domestic migration,” which is defined by the number of residents who move into a state from another, minus the people who moved out of that state. The census showed that the Northeastern and Midwestern states tended to lose population due to domestic migration as more residents moved out of the state than into the state. By region, the Western and Southern states mostly saw gains from other parts of the country. States that saw dramatic increases due to domestic migration were Idaho, Nevada, Oregon, Washington, Arizona, and Montana.

Overall, the southern and western regions led America’s population growth. In 2017, 38 percent of the nation’s population was in the Southern states and 23.8 percent in the Western states.

A number of common factors affect migration patterns throughout the country. Residents move from state to state for economic and educational opportunities as well as quality of life factors and the cost of living. Many of the fastest growing states have midsize cities with quality school systems, low unemployment rates, and offer affordable housing.

To determine the fastest growing and shrinking states, the WSJ reviewed the one-year population change of all 50 states from 2015 to 2016 with data from the U.S. Census Bureau. Below is a list of the fastest growing and shrinking states in the U.S.

Fastest Growing
Idaho
The population of Idaho increased by 1.8% in 2016. Idaho has a relatively high birth rate, and natural growth accounting for about one-third of all new Idahoans in 2016. The remaining population growth was due to the large influx of residents from other parts of the country. A net total of 17,143 Americans relocated to Idaho in 2016, far more than in most states.

Utah
The population of Utah grew by 2.0% in 2016, nearly three times the 0.7% national population growth rate and the fastest pace of any state. Unlike most fast-growing states, the majority of Utah’s population increase was due to natural growth. Utah has the largest average family size in the country. While Utah’s high birth-to-death ratio accounted for most of the state’s population growth, Utah’s population also grew more from inbound migration than many other states.

Nevada
The population of Nevada increased by 2.0% in 2016, The state has sustained strong population growth over the past decade, growing by 16.5% from 2006 to 2016, nearly twice the 8.3% national growth rate.

Florida
Like many of the fastest-growing states, Florida’s rapid population growth was largely due to migration. About 9 in every 10 new Floridians either moved from another state or from another country.

Washington
Washington state’s population grew by 1.8% in 2016, more than twice the 0.7% national population growth rate. The state’s strong population growth over the past decade was accompanied by a large increase in their GDP. The states information sector such as industry giants including Microsoft, Amazon, and Expedia ignited the growth.

Oregon
Since 2006, Oregon’s population has grown at an average rate of 1.1%. Approximately 3 in every 4 new Oregonians in 2016 moved to the state from another state (domestic migration), with the remaining population increase due to natural growth. Many new residents likely came to Oregon for economic opportunity.

Colorado
Colorado’s population grew by 1.7% in 2016, among the fastest pace of any state. Like many of the fastest growing states, domestic migration contributed the most to the states rapid population growth. A net influx of 50,216 Americans relocated to Colorado in 2016.

Arizona
Arizona’s population grew by 1.7% in 2016, more than twice the 0.7% national population growth rate. Most of the state’s growth was again due to new residents migrating from another state. A net total of 61,544 Americans relocated to Arizona that year in 2016.

Fastest Shrinking States
West Virginia
West Virginia was one of two states to see both negative natural growth and net migration loss in 2016. West Virginia, which has one of the oldest populations of any state, has the highest death rate and one of the lowest birth rates in the country. Approximately 2,700 more West Virginians died than were born in 2016, accounting for one-fourth of the state’s total population loss. Most of the population loss was due to people leaving the state. Major factors causing people to migrate out of West Virginia were the high unemployment rates and poverty. In total, West Virginia’s population decreased by about 10,000 residents in 2016, the most of any state relative to population size.

Illinois
While the population of Illinois has increased nearly every year in the past five decades, the state’s population declined in 2014, 2015 and 2016. The state’s population shrank by 0.3% in 2016, the second fastest pace of decline of any state. A large share of the population loss was due to residents leaving the Chicago-Naperville-Elgin metro area. In a survey conducted by the Chicago Tribune, residents who had moved out of the city in recent years cited high taxes, unemployment, poor weather, and violent crime as primary reasons for leaving Chicago. The population decreased by over 37,508 residents with the majority of them being from the city of Chicago (19,570).

Vermont
The population of Vermont declined by 0.2% in 2016, the third largest contraction of any state. Most of the population decline was largely due to outbound migration. Approximately 2,000 more residents moved out of Vermont in 2016 than moved in, nearly the largest loss of any state when adjusted for population size. Vermont’s population growth was also impacted by the state’s low birth rate.

Connecticut
The state’s population shrank by 0.2% in 2016, the fourth largest decline in the nation. Connecticut’s population has declined substantially in recent years, with approximately 20,000 residents exciting since 2013. Unfortunately, many of the residents leaving the state are young, college-educated professionals. The population loss will likely hurt the state’s economic potential.

Wyoming
Wyoming was the only state to grow more from natural growth than the United States as a whole in 2016 and still have population loss overall. Approximately 2,800 more new Wyomingites were born than died in 2016, however, heavy outbound migration led to negative population growth in Wyoming overall. Overall 3,823 more residents moved out of Wyoming in 2016 than moved in, more than in any other state relative to population size.

Pennsylvania
While the U.S. population grew by 0.7% in 2016, the population of Pennsylvania shrank by 0.1%. The change was largely due to residents who moved out of the state; approximately 45,600 more residents exited the state than moved in making it one the largest domestic outflow states in the nation. Pennsylvania’s population loss was also partially due to the state’s low birth-to-death ratio. Overall, Pennsylvania grew less from natural growth than any state other than New Hampshire, Maine, and West Virginia.

Mississippi
The population of Mississippi declined by approximately 660 residents in 2016. The population loss was largely due to outbound migration to other states. Roughly 7,500 more Mississippi residents moved out of the state than moved in during 2016. While Mississippi had positive natural growth in 2016, the state’s death rate was relatively high, and the natural population growth was lower than the national average. Many residents exited the state due to the state’s low quality of life, and depressed economy. Today, over 20% of state residents live in poverty, the largest share in the country.

New York
New York is one of many Northeastern states whose populations are rapidly declining due to outbound migration. While the state gained a net total of 118,478 new residents from other countries, over 190,000 residents moved out of New York to another state in 2016 than moved in.


This article was featured in the August 2018 edition of The InSight, our monthly email published for orthodontic residents and doctors seeking practice opportunities. This monthly email provides news and information focused on the fast-changing orthodontic industry and its relation to current and future orthodontic careers, highlight commonly asked questions that are timely to the young orthodontic community, and provide a current list of available practice opportunities. Click here to sign up for the email. 

A Modern Day Business Tale of David vs. Goliath: What Orthodontists Can Learn From Dollar Shave Club vs. Gillette

A Modern Day Business Tale of David vs. GoliathIn 2006, Proctor & Gamble made a $56 Billion, with a “B”, investment in the razor blade market, purchasing the Gillette products and brand. With a 70% market share in the razor blade market and the advantages that Proctor & Gamble had in research and development, branding/advertising and distribution – who would or could compete with them?

Well…over cocktails at a holiday party in 2010, Michael Dubin, then 34 years old, found himself next to the father of one of his friends’ fiancée in a discussion that somehow meandered into complaining about what a rip-off $4.00 and up razors were and was there a better way. A year later, with Michael Dubin as pitchman and his now partner Mark Levine in operations, the two launched Dollar Shave Club (dollarshaveclub.com); selling razors on the internet for $1.00 plus $2.00 shipping and handling. Hardly a threat to the formidable Gillette brand that had recently launched the three blade Mach3 after spending $750 million in research and development on the product.

Dubin invested his life savings, about $35,000, to build a website that was launched in July of 2011. Working tirelessly, the early going was slow. He spent six months driving around trying to connect with media to spread the word and signed up the first 1,000 members without spending any other money. Then came the idea to create a goofy video to promote the brand and product at a cost of around $4,000, which launched in early 2012. The slightly irreverent video went viral – extolling convenience, price and featuring two cheeky slogans: “Shave Time. Shave Money.” and “Our Blades are F***ing Great.” In the two weeks following the initial YouTube post, over 12,000 new orders flowed in, and that was after the website crashed due to volume in the first hour and was down for twelve hours.

The rest is history. Dollar Shave Club gained subscribers, or as they like to call it “members,” for its razors with blades imported from Korean manufacturer Dorco. In 2015 sales surpassed $150 million and 2016 sales are on pace to surpass $200 million in razors costing about a quarter to buy and package and selling for a dollar. The punch line is this – two weeks ago Dollar Shave Club was purchased for over five times sales for one billion in cash by Unilever, Proctor & Gamble’s largest competitor.

Yes, David can take on Goliath in today’s business world. What are some takeaways from the story?

1. There are new ways to sell old products – Dollar Shave Club went to the consumer.

2. A form of guerrilla marketing is available today that can neutralize the advantages of older established brands. Dollar Shave Club content is hosted on Amazon Web Services (launched in 2006), YouTube (launched in 2007) made it easy and inexpensive to view their video, and Facebook (launched in 2004) made it possible to share the video to millions for free.

3. The established market leader could not change its model to compete. Proctor & Gamble simply wasn’t structured to drop their price on the Gillette razor line to compete with the new competitive threat. Their built-in overhead and delivery model ended up costing Gillette an 11% drop in market share to 59% of the razor market, down from a commanding 70% share in 2006.

4. Gillette essentially over-engineered the razor market. It turns out that two blades were enough to satisfy customers. After the launch of the three blade Mach3 came the five-blade Fusion from Gillette; which had a 40% premium to the Mach 3, but was met with slower than expected sales. No worries for Gillette, customers still purchased the Mach3, but the concept of more blades for more money was challenged.

5. Proctor & Gamble thought their market position was unassailable.

Questions for Orthodontic Practice Owners:

  • How are you speaking to the consumer?
  • Are you leveraging the social media products like Amazon, YouTube and Facebook to your best advantage?
  • Can you exploit your competitor’s weakness with disruptive strategy? Or, if you are met with a disruptive strategy in your market, are you able to adapt quickly?
  • Are you offering too much by over-engineering your services to meet customer needs and wants?
  • If you are the market leader in your drawing area, are you studying how the disruptions in dentistry could affect your business?

Food for thought from a modern day David and Goliath business tale.

Residents’ Skewed View of the Orthodontic Industry

Chris Bentson had the opportunity to spend some extended time with the first and second year residents attending two Mid-western programs a while back. Prior to the visit, he requested each resident complete a basic questionnaire regarding general information for U.S. orthodontic practices. Here is a list of the resident questions:

1. Approximately how many private orthodontic practices exist in the U.S.?
2. What is the average annual collections of a single doctor practice in the U.S.?
3. What is the average overhead of a private practice in the U.S.?
4. What percentage of practices in the U.S. are using Invisalign?
5. Name a ratio of revenue of collections per full time employee in the orthodontic industry.
6. Name some common rules of thumb used to express a practice value.
7. How much money will a lender loan to purchase or start-up a practice?
8. What are the expectations of income for a first year, full-time associate?
9. Would you consider using a practice management consultant in the first two years of practice ownership or start-up? Why or why not?
10. Name some considerations that need to be examined when considering a long term partnership.

It was fun to compare the residents’ responses before and after the presentation. Chris compiled answers to all the questions given prior to the lecture. Using the extreme answers, below is a radical, fictional description of the U.S Orthodontic market from the mouths of residents:

There are 1,000 practices in the U.S., having average annual collections of $300,000 and an overhead of 75%. One-hundred percent of the practices in the U.S. currently use Invisalign. The average revenue per employee is approximately $50,000, and I’m planning to employ six employees in my practice that grosses $300,000 per year. I will pay about 30% of annual collections to purchase an orthodontic practice. A lender will loan up to $2,000,000, and I expect to take home $250,000 within my first year of practice. I would consider hiring a consultant because they only cost about $100 per day and probably have some good ideas. If I go into a partnership arrangement, my biggest concern is tracking vacation time.

Obviously everyone in the orthodontic industry has a lot of work to do when it comes to residents’ knowledge of the industry.

Dentistry Going Corporate

There was an interesting article featured in the April 9, 2012 issue of the ADA News.  The cover story, “ADA Explores Growth of Large Group Practices” caught my eye. The article sites a recent study conducted by the Health Policy Resources Center of the American Dental Association (ADA), which concludes that the rate of solo practitioners is falling. In 2010, 69% of dentists were solo practitioners compared to 76% in 2006.

Certain states and areas of the country are experiencing the expansion at a faster rate than others. For example, the Minnesota Dental Association reports more than 12% of dentists in the state are employed in large group practices.

The American Association of Orthodontists (AAO) surveyed new graduates in 2009 and 2011 and found that 16% of respondents are practicing in a non-traditional setting, defined as either an interdisciplinary practice or a practice where they are employees or independent contractors. Chris Vranas, AAO Executive Director says, “Overall our membership is still at 69% in solo practice, 16% in partnerships, 6% in associateships, 4% interdisciplinary practice and 5% in large corporate practice.

We ask the question – what is driving the trend? The ADA article references educational debt of young doctors and the growth of Dental Service Organizations who need employee doctors to grow.

This trend of dentistry going corporate is something Bentson Clark & Copple has been watching for several years and one that you may have noticed in your drawing area. It will take some time to have a major impact, but understanding this trend will help you as you think strategically about your brand and identity as you communicate with new patients and referrals.

To learn more about the trends of today’s orthodontic residents, check out Bentson Clark & Copple’s 2011 Annual Residents Survey Results.