Understand metrics to negotiate a better contract

One of the most common questions I get asked when working with optometry students is, “How much can I expect to get paid?” And it’s a good question! Doctors work hard through school to earn their degree — with many assuming a lot of student loan debt — and are ready to start earning a comfortable wage.

What I find to be the most helpful answer is: “You need to understand practice metrics, and use this information to help calculate your worth.” Then, I discuss with them the common business metrics and how they impact an optometrist’s salary.

KEY FINANCIAL METRICS

There are five main categories commonly used to break down the costs of optometry practice expenses:

1. Cost of goods (COGS) sold. This is contact lenses, edging equipment, frames, ophthalmic lenses and cost of optician labor for lab work.
2. Doctor’s compensation. This is salaries for the owner and employed O.D.s, health insurance, professional dues and profit distributions.
3. Fixed expenses. This is rent, taxes, insurance, utilities and maintenance.
4. Non-O.D. staff expenses. This is insurance, payroll taxes, salaries and miscellaneous benefits (insurance, certifications, CE).
5. Variable expenses. This is marketing, postage, new capital expenditures and office supplies.

COLLECTIONS-BASED PAY

It’s not uncommon to see optometry compensation structures based on percent of collections. For newer graduates who don’t understand practice metrics, this type of compensation package can be scary. A typical range is 14% to 18% of total collections generated by the associate, based on conversations with various practice management consultants and practice owners.

Practices that have high debt or high COGS will have a lower pre-tax net income and, therefore, may offer compensation on the lower end of this range. Practices that have low debt, low overhead or small COGS have a higher pre-tax net income and have more flexibility to offer a higher percent of pay on production.

This compensation structure typically includes benefits, such as health insurance, malpractice insurance, professional dues and CE costs. Some employers will offer a lower production percentage and, in turn, provide their employed doctors with these benefits for tax purposes.

O.D.s can easily improve their compensation by paying attention to metrics, such as average revenue per patient, capture rate, annual supply sales of contact lenses and prescribing premium products. It may be beneficial to ask about these metrics when trying to estimate the value of collections-based pay.

DAILY & SALARY PAY

It’s very common to see optometrists paid based on a daily rate. Depending on where you practice geographically, $350 to $550 is a typical range. Sometimes, this also is coupled with a bonus structure based on an overall monthly or quarterly goal. Additionally, this figure can be used to calculate salary expectations for full- or part-time work. So, if $400/day is typical and you work four days per week, 50 weeks of the year, a salary of $80k is on par with a daily pay rate. It’s common for additional benefits, such as insurance and CE, to be provided along with this type of pay.

One thing to be particularly cautious about is the difference between being an employee and an I-9 independent contractor. An independent contractor is a daily pay doctor responsible for her own payroll taxes, and, thus, is typically not eligible for other additional benefits — something that should be taken into consideration when negotiating pay.

MAKE METRICS WORK FOR YOU

While compensation will vary by practice, pay type and location, understanding the practice’s metrics can be useful when negotiating a contract in a way that’s profitable for both the associate and employer. OM

Special thanks to Dr. Mick Kling for his assistance.

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DR. O’BRIEN is an associate at Vision Source Studio 20/20 in Charlotte, NC. She is heavily involved in private practice student programming with Optometric Insights, the Vision Source MentorOD Program and works with iCare Advisors to help others pursue their cold-start private-practice dreams.