By Director and Practice Integration Advisor Thomas Bodin, CFA, CFP®, TPCP®
In our last article, my colleague Brian Roemke discussed what single-doctor practice owners should consider before hiring an associate dentist. Here, we’ll go deeper into the economics of that decision.
The Impact of Adding an Associate
Hiring an additional dentist is not simply a staffing move. It is a financial decision that changes how revenue flows through your practice. Done intentionally, it can expand profitability. Done without clarity, it can quietly compress it.
To understand the effect an associate may have on your business, we first need to clarify two concepts that are often misunderstood: profit margin and marginal profitability.
Profit margin is straightforward. It is operating cash flow as a percentage of total revenue over a defined period, typically annually. For a single-doctor general dental practice, average profit margins often hover around 35%, with strong practices approaching 40%.
Marginal profitability is different. It reflects the profit on the next dollar in the door. And that number is often dramatically higher than your overall profit margin.
The Reason Lies in Fixed and Variable Costs
Fixed costs are those that are difficult to adjust in the short term such as lease expenses, software subscriptions, service contracts, and insurance. These expenses are incurred whether you collect one dollar or one million dollars this month. Variable costs fluctuate more directly with clinical activity—lab fees, supplies, and portions of staff compensation related to patient volume.
When the first dollar comes in each month, it goes towards covering fixed costs. There is no marginal profitability. But once fixed costs are covered, incremental revenue is primarily subject to variable costs. In a general dental practice, lab and supplies may average roughly 13-15% of collections. That means each additional dollar collected after fixed costs are covered can carry marginal profitability exceeding 80%.
The Distinction Between Average Profit Margin and Marginal Profitability Becomes Critical When Evaluating an Associate Hire
Most associate compensation models fall into two structures: guaranteed compensation or a percentage of collections. A guaranteed model may be expressed as a daily rate or annual salary, while a collections-based model directly ties compensation to revenue produced. In general dentistry, market benchmarks for collections-based compensation typically range from 30-35%, with specialists often slightly higher depending on payer mix and structure.
When a guaranteed base is used, owners should reverse-engineer the implied collections target. If an associate earns $250,000 and the compensation benchmark is 30%, they must produce approximately $833,000 in collections to align with market norms. That calculation should include the full compensation package—payroll taxes, benefits, retirement contributions, and paid time off—not just base salary.
Are You Hiring to Expand Production or to Replace Your Own?
In an expansion model, the practice has excess demand. Schedules are full. Hygiene is strong. Existing providers are booked out. The associate absorbs overflow and increases total collections. Because fixed costs are already covered, the incremental revenue largely flows through at high marginal profitability.
If lab and supplies average 13.5% of collections and the associate is compensated at 30%, the owner retains roughly 56.5% of each incremental dollar before considering any modest additional staffing or marketing costs. In this scenario, the associate can meaningfully increase operating income.
The Economics Look Very Different When the Goal is to Replace Owner Production
Many clinicians eventually want to reduce clinical days or improve work-life balance. That is a healthy and legitimate objective. But financially, owner production is typically the most profitable production in the practice.
Remember the distinction: your overall profit margin may be 35%, but your marginal profitability on your own production—once fixed costs are covered—is often significantly higher than that. When you replace your clinical production with an associate compensated at 30-35%, you are introducing a substantial variable cost to revenue that previously flowed through at a much higher effective rate.
This is not incremental revenue. It is substitution revenue.
In that case, overall profitability will typically compress. The associate is not adding new high-margin dollars; they are converting high-margin owner production into lower-margin associate production.
That does not make the decision wrong. It simply needs to be intentional.
If your goal is to expand capacity and grow income, your systems and patient flow must support incremental production. If your goal is lifestyle improvement—fewer clinical days, more flexibility, and reduced burnout—then a measured reduction in profitability may be an acceptable and worthwhile tradeoff.
The mistake occurs when owners expect expansion economics while executing a replacement strategy. An associate does not automatically create growth. They amplify the financial structure that already exists in your practice. If you understand your fixed costs, your variable costs, your profit margin, and your marginal profitability, you can predict the outcome before making the hire. Without that analysis, you are simply hoping the numbers work.
Final Thoughts
Ultimately, hiring an associate is less about whether you can afford the salary and more about whether you understand how the decision will reshape your profitability. It’s important to determine whether the reframing aligns with the financial goals for your practice and the life you want to build outside the operatory.
Source: American Dental Association, Health Policy Institute: Income, Gross Billings, Expenses, Characteristics: Selected 2023 Results from the Survey of Dental Practice
About the author
Thomas provides comprehensive financial advisory services to dental and medical offices, including tax, pension, and retirement planning. He leverages the practical application of his talents into wealth-generating and wealth-preservation strategies tailored to his clients’ individual needs and goals.
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