As an associate candidate, have you ever asked yourself various scenarios under which you need to make enough income or generate enough revenue as an associate to meet your budget? Compensation schemes are discussed in the next section. But, for now, if you have a yearly budget requiring $80,000 in net/take-home income, then your guaranteed salary must be in the broad range of $100,000 to $110,000 to cover estimated taxes.
If you are going to be paid ONLY on a percentage of collections, the revenue you need to generate in the practice becomes more complicated. Let’s assume you are going to make 32% of collections, the owner-dentist will cover 100% of the lab bill, and the practice collects 98% of billable production. With a take-home annual budget need of $80,000, the numbers look like this:
Billable Production = $350,000
Collection (98%)= $343,000
Collection ($343,000) x Compensation rate (32%) = $109,760
$109,760 x .25 for taxes = $27,440. Estimated take-home: $82,320.
So, if you as an associate realize $350,000 in billable production annually, you would slightly exceed your budgetary needs by $2,320.
Another approach to determining needed production to meet income needs is this formula:
Production Needed = Pretax Income/Compensation Rate (33%)/Collections/Production Ratio (CP) (98%)
$100,000 divided by 33% = $303,030 divide by 98% = Production needed of $309,215
Necessary (after tax) Income: $80,000
Necessary Pretax Income: $80,000 + 25% (for taxes) = $100,000
The lower the CP ratio the higher the production needed to attain the same compensation.
The Production necessary at various CP ratios for $100,000 of pretax income at 33% of collections as compensation.