Ep. 263: Incentive Plans for Your Practice
A great bonus system can motivate your team, increase productivity, and put more money in everyone’s pocket. In this week's episode, Jeff breaks down how to structure staff incentives that reward real results without eating into your practice’s profitability.
EP 263 Handouts - https://www.mgeonline.com/ep-263-podcast-downloads-form-page/
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Questions From This Episode
Why does Jeff say patient financing fees are one of the most common ways bonus systems break down?
Financing fees, which can run 7 to 15 percent, typically don't show up on a day sheet or monthly collections report, so a practice can look like it collected far more than it actually received in spendable cash. He shares an example of a client who paid bonuses on a reported $600,000 in collections when $60,000 of that was financing fees, leaving only $540,000 genuinely available.
Why does Jeff recommend using an overhead sheet instead of a P&L to figure out a practice's real bonus threshold?
A P&L only reflects whatever period you happen to pull it from, so quarterly or annual expenses can be missed depending on timing. He recommends building a dedicated, thorough overhead sheet instead, and says the owner doctor's own salary needs to reflect what they actually need to live on, not just what they're currently paying themselves, before any bonus threshold is set.
How does Jeff structure a basic general staff bonus system?
Once collections exceed the bonus threshold, he subtracts roughly 30 percent for variable expenses to stay conservative, then allocates a set percentage of what's left (his example uses 20 percent) into a bonus pool split by shares, typically one share per staff member and two shares for the office manager, with longevity-based weighting as an optional variation.
Why does Jeff say treatment coordinator incentives shouldn't start the moment collections exceed overhead?
He recommends setting the incentive threshold meaningfully above overhead, not right at it, so the practice has already proven it's viable before individual commissions kick in. He also warns that a treatment coordinator's incentive can be manipulated if an associate quietly discounts a diagnosed case to close it, so the office manager needs real oversight to catch discounts that aren't being properly accounted for.
How does Jeff recommend calculating a hygienist's incentive threshold?
Divide their daily pay by the target incentive percentage (28 to 30 percent, depending on whether they count the exam in their production) to find the breakeven production level, then set the actual incentive threshold a bit above that. He recommends structuring payouts weekly or monthly rather than daily, so a single strong day doesn't get rewarded in isolation from otherwise inconsistent performance.
Episode Transcript
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Let's start off this week's episode with a little bit of math. First number: what's your average monthly collections, roughly? Got that number? Now take that number and add 22 percent. So if you're doing $100,000, that would be $122,000. If you're driving or doing cardio right now, don't worry about the exact figure, just estimate it.
How would you feel if that new number, that 22 percent increase, rapidly became your new average? I'm guessing you wouldn't complain, because that's roughly what shows up in major studies reviewing incentive and bonus programs across workplaces. When you tie pay to real results, performance goes up on average by about that much, 22 percent. And as you'd expect, it also tends to improve staff morale, retention, and job satisfaction.
With that in mind, having a solid incentive or bonus system in your practice matters more than you might think. Done right, it's one of the better tools you have for raising productivity and morale, and for putting more money in both your pocket and your team's. Done wrong, it pays out when you genuinely can't afford it, or it trains people to chase things that don't actually help the practice.
So for this week's episode, we're going to cover the benefits of a solid bonus system, the pitfalls worth avoiding, how to build an overall office bonus off your real overhead and real collections, and how to set individual bonuses for key positions, treatment coordinator, office manager, hygienist, and so on, without getting played. My name is Jeff Blumberg, and I'm your host.
Let's start by looking at why you'd even bother with this in the first place. Maybe things are going fine already, why add this to the mix? The honest answer: to increase service, productivity, and overall growth. Let's run through the pros and cons quickly. On the benefit side, you're essentially sharing the profit, so your team takes a real stake in the practice, doing their job well starts to mean more than individual pride, it becomes tied to something concrete. Productivity tends to become more consistent. You'll typically both make more income. In a tight hiring market, it's one more reason for someone to stay, or to say yes when you're interviewing them, and it's a way to help turn a job into more of a career. Done correctly, the overhead increase is minuscule compared to the productivity and revenue gains, you're not just giving money away.
On the pitfall side: you might end up paying a bonus you don't actually have the money for, because things were set up incorrectly, which I've seen a lot, and I'll get into why shortly. You could tie the bonus to something other than actual revenue, since the bonus itself is paid in money, so it needs to be tied to collections, not production, since you can produce a ton and not collect it. The one exception I'd make is a dedicated new patient coordinator, where I'd tie their incentive to new patient numbers specifically, since if the office is even halfway decent at conversion and retention, that tends to translate into revenue over time anyway. Another pitfall is people gaming the metric, say you reward a full schedule, so your scheduling coordinator fills the book completely, but that full schedule has zero production on it. That doesn't work. And the last pitfall worth mentioning: the plan can become so complicated that people simply don't understand it.
So, benefits, pitfalls, now let's get into how to actually build this. I'll start with the general staff bonus, which I touched on years ago, back around episode 30 or so, then we'll get into incentivizing specific positions.
First: how do you define what you're actually bonusing off of? The first thing you need to know is what it actually costs to run your practice. A lot of people think, great, I'll just grab a P&L. I wouldn't. Use an overhead sheet instead, you can use your P&L to help build it, but a P&L depends heavily on when you happen to pull it, some expenses are quarterly, some annual, and pulling just the last quarter's worth might miss costs you already paid earlier in the year. Building a proper, thorough overhead sheet is the better approach. We have one available, a spreadsheet built out over years to account for essentially every category of expense you might run into, and I've done other episodes specifically on how to use it and what the target percentages should look like by category.
Here's something I really need to hammer home, since I've seen it repeatedly. I'll be looking at a client's statistics, their office reported $300,000 in collections that month, but the doctor tells me they have no money and can't figure out why. My first worry is always embezzlement, but in most cases, it's something else entirely: a large share of that revenue came through patient financing. I genuinely like patient financing companies, but some of them come with a steep price tag, and if you don't account for that, you'll get into trouble fast. If my overhead is $250,000 and the office reports $300,000 collected, but I actually only received $270,000 after patient financing fees, which can run anywhere from 7 to 15 percent, I'm already starting behind the eight ball, since I only have $270,000 in genuinely spendable money. People sometimes ask if I'd do the same adjustment for credit cards, not really, since the worst you typically get hit with there is around 3 percent, that's just a normal cost of doing business. Three percent versus 7 to 15 percent is a huge difference.
So if you set your bonus system up assuming you collected $300,000 when you only actually have $270,000 spendable, that's not going to work, and you definitely don't want staff waiting at month's end while you sort out how much of it was real. You want them able to track their progress in real time, which we'll get to. But this is something you absolutely have to factor in, and it really comes down to how your office handles data entry, which varies a lot practice to practice. If I bring this up at a seminar, it sparks a huge conversation, because everybody does it differently, and I'll say plainly, there's no single good way to handle it, just less-bad ways.
Here's an example. Say you sell a patient a $10,000 treatment plan, and they choose two-year, no-interest financing, and you're eating 15 percent on that arrangement. As far as the patient's concerned, they signed paperwork agreeing to pay you $10,000. What did you actually receive? $8,500. Your day sheet at the end of the day will typically show $10,000 collected, since that financing write-off usually isn't baked in anywhere on that report. Your monthly collections report will often show the same $10,000, when you really only received $8,500. This becomes a real problem anywhere else in your practice that depends on these numbers, say you're paying an associate doctor a percentage of what they produce, you'd better be factoring in that financing fee. You shouldn't be paying them 30 percent of $10,000, you should be paying them 30 percent of $8,500. I've seen offices handle this correctly, and I've seen others enter it as $8,500 collected plus a separate $1,500 "merchant fee" or write-off line. There's no universally clean way to do it, I'll give you some approaches as we go, just understand they're all less-bad options, not perfect ones.
Once you know your real overhead and your true usable collections, your bonus threshold needs to sit well above that overhead, there has to be enough room for variable costs and for you to actually be profitable. One more thing worth mentioning about overhead, and I say this as a general principle, not accounting advice, talk to your own accountant about your specific setup. Say you're an employee of your own practice, paid a salary, $12,000 a month, $6,000 every two weeks. If that $12,000 doesn't actually cover your bills at home, and you're depending on pulling additional profit out of the practice whenever it's available to cover the rest, then your overhead calculation is incomplete. You can't start calculating bonuses until your baked-in salary actually reflects what you genuinely need to live on, your bills, your retirement contributions, your kids' school, being able to take a vacation, all of it belongs in your overhead. So if a doctor genuinely needs $20,000 a month personally but is only paying themselves $12,000, with overhead otherwise at $80,000, I'd add that missing $8,000 into overhead, bringing it to $88,000. You have to bake in what you actually need to live on before bonuses even enter the conversation.
So how do you actually set the bonus level? We have a downloadable bonus plan ideas handout, I'll put it on the episode webpage. Say your real overhead, including everything, your own proper salary, debt service, all of it, is $80,000. I wouldn't set the bonus threshold right at $80,000, or even at $95,000 or $100,000 exactly, I'd want a real buffer. So overhead's $80,000, and let's say we're doing $100,000, that's fine, no bonus territory yet. Anything over $100,000, we can start talking bonus, since that extra $20,000 buffer gives you room for debt service, unexpected expenses, and building practice reserves.
Let's build the actual system. Overhead's $80,000, bonus level is $100,000. Say we collected $120,000 this month, so we're $20,000 over our bonus level. For a general staff bonus, I'd subtract 30 percent right off the top for variable expenses, your actual variable costs on that extra revenue probably won't be a full 30 percent, but we want to be conservative here, better to overestimate expenses than underestimate them when real money's involved. So $20,000 minus 30 percent leaves $14,000. Twenty percent of that $14,000 goes into the bonus pool, that's $2,800. You could skip the two-step math and just say 14 percent of the original $20,000 overage, same result, whichever's easier for you to track.
That $2,800 gets split among the team. A basic split: staff each get one share, the office manager gets two. Say you have six total staff including the office manager, that's five staff at one share each plus two for the office manager, seven shares total. $2,800 divided by seven is $400 a share, so staff get $400 each and the office manager gets $800.
If you don't have any bonus system in place yet, I'd implement something like this as soon as you can, it's a simple system to get started with. A couple of things to keep in mind: you'll want some kind of minimum tenure requirement before a new hire joins the bonus pool, check with your employment attorney on the specifics, but I wouldn't put someone hired last week onto the system immediately, since it just dilutes everyone else's share without changing the total payout, which stays fixed at that 14 percent (or 20 percent of what's left after variables) regardless of headcount. Second, if anyone in the practice is already on a separate percentage or incentive plan, a hygienist on commission, say, or an associate on percentage, they shouldn't also be part of this general pool, otherwise they're effectively double-dipping. The same applies once you set up separate treatment coordinator or office manager plans, keep those people out of the general staff pool too.
You can also weight shares by longevity if you want. Say you give your office manager four shares, a long-term, genuinely productive team member two shares, and everyone else one share each. With that same six-person team, that works out to ten total shares. Splitting $2,800 across ten shares gives $280 per share, so the office manager gets $1,120, the long-term staffer gets $560, and everyone else gets $280. Same total payout, just targeted differently based on tenure and contribution.
One more note on the finance-fee issue as you build this: a lot of offices post some kind of visual tracker in the break room, a thermometer graphic or a board, so staff can see where the practice stands against the bonus level in real time, and how much is coming in per day. The idea isn't just to sell more, it's to help patients actually get what they need. If a patient mentions Invisalign, a staff member can either flag it for the doctor or just let it pass, and one of those choices has a real impact on the practice. So what I've seen some offices do, especially those running a lot of patient financing, is subtract 13 to 15 percent from gross collections before posting the number for bonus tracking purposes. I'm not saying you need to go that high, look at your own situation, but here's the idea: say actual collections for the month are $160,000. What gets posted on the board is 15 percent less, $136,000, since that's the real, net number the bonus is actually based on. You could even post both, gross and net, if you want full transparency.
I've seen this go wrong. I had a client running a genuinely productive practice, collecting $600,000 one month, with $60,000 of that coming through patient financing. He didn't account for the difference and ended up paying bonuses as though the office had collected the full $600,000, when the real spendable number was $540,000, a $60,000 gap that just quietly vanished. Not fun. Do what works for your practice, but with money, it's always better to build in a margin of error than to underestimate, and you can explain to your team why you're doing it, they'll understand, it's not some obscure 2.8 percent credit card fee, 15 percent is a real chunk of money in some cases.
On the payout side, people often ask whether taxes should come out of a bonus. I'm not an accountant, that's exactly why you have one, but I'll tell you how we handle it here at MGE: we run bonuses through payroll taxes properly, the way you're supposed to. That covers the general staff bonus system. Some offices split payouts, half one month, spread over a few months, or just run it as a straightforward monthly cycle, I'd lean toward keeping it simple, don't overcomplicate it for your team, we're already adding some complexity with the financing-fee adjustment. You can also layer in jackpot-style bonuses, a shopping spree, a cruise, whatever, on top of the standard system, just structure those as something extra the practice has to earn above and beyond the regular bonus threshold.
Now let's get a bit more advanced: individual positional bonuses. Very few offices actually do these, but the ones that do tend to perform well. Let's start with the treatment coordinator. What is a treatment coordinator, really? A salesperson. The main difference between them and someone selling a typical product is that a treatment coordinator can't determine what the patient actually needs clinically, that's the doctor's call. You see a similar split in other industries, if I call a software company, there's a salesperson and a programmer, the salesperson knows pricing but can't tell me how long development will take, that's technical versus sales. Most salespeople work under some kind of commission structure, and there's nothing wrong with applying that here. I wouldn't start with this early on though, get your general staff bonus running first. As your practice grows and you're adding a second or third treatment coordinator, that's when I'd start thinking about individual incentives.
The most important requirement for a treatment coordinator incentive plan: overall practice viability has to be established and met first. Say your overhead is $150,000, and the practice only collects $135,000, I wouldn't be paying commissions to a treatment coordinator in that scenario, it doesn't make sense, regardless of how well any one person performed individually. Here's a wrinkle worth understanding: say you have two treatment coordinators, total collections are $135,000 against $150,000 overhead, and one coordinator personally closed $100,000 of that while the other closed $35,000. The first one had a genuinely great month individually, and you'll want to find some way to recognize that, but they still share some responsibility for the practice's overall performance. I wouldn't turn on any incentive payout until collections clear that $150,000 overhead by a real margin, say $175,000, before treatment coordinator incentives kick in at all.
Whatever percentage you pay a treatment coordinator, work the numbers first, game it out with real scenarios: here's what we collected, here's our expenses, here's what's actually left, does this payout structure genuinely work? I've made the mistake myself of agreeing to a structure and then realizing afterward I'd forgotten to factor something in. Run it through real numbers before committing. And remember, if your treatment coordinator and other individually incentivized staff are on their own plans, you'll likely need to reduce the percentage going into the general staff pool accordingly, otherwise you risk paying out more in total bonuses than the practice can actually sustain.
Here's a fuller example. Overhead's $150,000, and let's say treatment coordinator incentives, along with the general staff bonus, both start at $175,000. The office collects $200,000, that's $25,000 over. Subtract 30 percent for variables, leaving $17,500. Staff get 15 percent of that, $2,625 (note this dropped from the earlier 20 percent example, since we're now also paying treatment coordinators separately). Treatment coordinators get 5 percent, $875.
Now say the office collects $230,000 instead, that's $55,000 over the $175,000 threshold. Subtract 30 percent, leaving $38,500. Staff get 15 percent of that, $5,775. For treatment coordinators, instead of holding steady at 5 percent, we bump it to 6 percent at this higher performance level, that's $2,310. That extra one percentage point only cost an additional $385, and the practice is still sitting on over $30,000 in genuine profit after variables and payouts, remember, incentives didn't even start until $25,000 above overhead. If you have an associate doing a large share of the production feeding into a treatment coordinator's incentive plan, that eats into your margin more heavily than if you, the owner doctor, are producing it yourself, so dig into your own numbers carefully before setting this up.
What about refunds? They should come off total collections for bonus purposes, for both the general staff pool and treatment coordinator incentives, work through your own numbers before finalizing this. And you need real oversight to prevent gaming: a treatment coordinator shouldn't be the one determining what gets diagnosed, that's the doctor's job, but they can still influence outcomes in ways that distort the numbers. Say a $30,000 case gets diagnosed, and the associate who diagnosed it walks out and, in an effort to get the patient to commit, knocks $5,000 off unofficially, leaving $25,000. From the outside, it looks like the treatment coordinator just closed a $25,000 case, great, except nobody accounted for the discount that was given away. The office manager needs to actively oversee this, confirming no one is handing out discounts they shouldn't be, and honestly, that oversight matters whether or not you're running an incentive plan at all.
Now, hygienists. Hygiene incentive plans have been around for a long time. The traditional structure, going back decades, was 30 percent of production if the hygienist didn't get to count the exam in their number, or 28 percent if they did (even though the doctor performs the actual exam, some offices let hygienists include it in their production count). I used to see hygienists paid entirely on that kind of straight incentive, no hourly base at all, that was their full pay plan. I haven't seen that structure in at least the last fifteen or twenty years, but you can still build an incentive layer on top of a normal hourly rate.
Here's an example. Say you're paying a hygienist $55 an hour, working eight clinical hours a day, four days a week. That's $440 a day, $1,760 a week. Say their average daily hygiene production is around $1,500. At $440 a day against $6,000 a week in production, you're already effectively paying them around 29 percent of what they produce, assuming that production is genuinely collectible, meaning you're charging your real fee schedule, not something like a $114 private prophy fee that actually nets only $55 through a plan, that kind of gap breaks the whole model.
To figure out where their incentive should actually start, divide their daily pay by whatever percentage factor you're using, 28 or 30 percent depending on whether they count the exam. In our example, not counting the exam, using 30 percent: $440 divided by 0.30 is about $1,467 a day, that's the breakeven production level needed just to justify their pay without becoming a financial drag on the practice. I'd set the actual incentive threshold a bit above that breakeven point, say $1,600 a day. Anything produced above $1,600, I'd pay 30 percent of (or 28 percent if they're counting the exam).
I wouldn't apply this daily for a hygienist, since day-to-day production naturally swings, you don't want to reward one great day immediately after a slow one with no consistency requirement. Structure it weekly or monthly instead. Weekly example: four days a week at a $1,600 daily threshold is a $6,400 weekly baseline. If they produce $8,000 for the week, that's $1,600 over baseline, paid at 30 percent, $480. Monthly example: $1,600 a day across a typical 17 working days in the office is a $27,200 monthly baseline. If they produce $35,000 that month, that's $7,800 over baseline, at 30 percent that's $2,340 in addition to their regular hourly pay. And as always, no clinical games, no recommending unnecessary restorative work just to inflate numbers, patient care and quality always come first.
One more hygiene scenario worth flagging: say all your hygienists are on a production-based incentive, and one of them is particularly great with new patients, and you're running a $99 new patient special, full exam, X-rays, perio charting, in a one-hour visit. If that hygienist sees eight of those patients in a day, that's only $800 in raw production, which looks like a rough day under a straight incentive plan, even though they're doing genuinely valuable work for the practice. In that case, I'd build in a separate reward structure, maybe tied to how well they support the treatment plan conversation, rather than attaching their pay purely to raw daily production when a chunk of their schedule is intentionally discounted new patient visits. At the same time, you don't want hygienists avoiding those appointments out of fear it'll hurt their bonus, patients come first. If you've only got one or two new-patient-special visits on a given day's schedule, and the rest of the day includes higher-value work like scaling and root planing that gets diagnosed along the way, that balances out reasonably well on its own.
Now the office manager. This one's harder to give a single formula for, since office manager setups vary enormously depending on how the role is structured in your practice. I'd generally point toward profit sharing as the right framework, monthly or quarterly, and if you want to individualize it, build it as a sliding scale: at this profit level, no bonus, at this level, a modest payout, at a higher level, a larger percentage. That structure keeps them pushing not just for revenue, but genuinely for profitability, since it doesn't help anyone if collections are high but money's quietly leaking out the back door through poor spending discipline. A genuinely strong office manager who sees themselves as responsible for overall practice profitability can easily earn six figures running a highly productive, well-managed practice, I know plenty who do. But this one really does need to be worked out individually for your practice.
Here's a general rule I use when building any of these plans: say you hire a new patient coordinator, and your practice currently averages 50 new patients a month. You're paying them $3,000 to $4,000 a month just to have them in the role. If they come to you and say, "you're getting 50 now, if I get you to 60, you should bonus me," the answer is no, their base salary is already meant to be covered by roughly that ten-patient improvement, you have to earn your own salary through the work itself before incentive kicks in. In that case, I might not start their incentive until they're consistently hitting 75 new patients a month, since I need to see a real, additional lift attributable to them being there, not just performance the practice would have gotten regardless.
And one last note on the office manager and layered systems generally: if you started with a general team bonus paying out, say, 20 percent of the overage, and you've since added an office manager on profit share and treatment coordinators on commission, you'll likely need to reduce that 20 percent down to something like 7, 8, or 10 percent for the remaining general staff pool, otherwise you risk paying out something like 30 percent combined across all your bonus structures, which isn't sustainable. It really comes down to running your own specific numbers.
I won't get into associate doctor compensation here, since that genuinely deserves its own full episode, and I actually did one, episode 10, along with a YouTube video that includes diagrams. How you pay an associate depends heavily on how you're actually utilizing them. But I'll leave you with one rule of thumb that applies broadly: if you're paying an associate a flat per diem and also want to layer in a percentage-based incentive, you first need to figure out what that per diem effectively represents as a percentage of production. Say you're paying an associate $12,000 a month flat, regardless of whether they produce nothing or $100,000. If your target incentive rate is 30 percent, figure out what $12,000 is 30 percent of, that's $40,000. So their incentive wouldn't kick in until they're producing meaningfully above that, maybe $45,000, since you're already paying them a solid flat salary. Beyond that threshold, they'd earn 30 percent, or whatever rate you've set, on the excess. But please, listen to the dedicated associate episode if you're building this out, since how you're actually using that associate should drive how you structure their pay, far more than any single formula can capture.
I know that was a lot of math, I apologize if it was a lot to digest in one sitting. But the bottom line is that incentives genuinely work, that 22 percent figure we opened with is real, and it's grounded in actual research, you get more of what you reward. Reward real collections and genuinely indicated treatment, and you'll get more of both. You've got the general staff pool as your foundation, and commission-style systems you can layer in for individual roles as your practice grows. But notice that every piece of this comes back to the actual numbers, and the most important step before implementing any of it is making sure those numbers genuinely work for your practice.
I hope this helps. I mentioned two downloads earlier, the overhead sheet and the bonus plan ideas handout, both available on the episode webpage. If you have questions or want help with any of this, feel free to email me directly at jeffb@mgeonline.com, or for any other kind of help, call us at (800) 640-1140 or find us online at mgeonline.com. Have a great week, and we'll see you at the next episode.