AudiologyOnline Phone: 800-753-2160


Oticon - More - January 2021

Compensation: Salaried Employee to Percentage of Profit

Granville Y. Brady, AuD Jr, FAAA

August 31, 2009

Share:

Question

I've worked in an ENT office for many years as a salaried employee and they are now considering changing our status to independent contractors so that we would take a biweekly draw from everything that audiology brings in. Do you know of the specific formula that is used to determine profit? How much of the overhead is assigned to audiology etc.?

Answer

Since the question does not address the legal ramifications of a contract consultant as opposed to an employee, the issue is how the consultant would be paid based upon a profit margin formula. Although there are no absolute formulas, a guideline that can be used is to set the profit margin around 65%. This assumes that the cost of hearing aids would be 1/3, the fixed expenses of the office are 1/3 and the profit is 1/3. For example, if I purchase a hearing aid for $500 and want to make a 65% profit margin, the cost of goods ($500) is divided by .35 (100%-35%=65%). The hearing aid that cost $500 would then sell for $1428. Another way to look at it is the selling price;in this case $1428 minus the cost of goods sold ($500) divided by the selling price is the profit margin ($1428-$500=$928 net profit). The $928 is divided by $1428 to get a profit margin of 64.99%. This pricing strategy can be used for all but the highest end hearing aids that might be priced too high for the market.

The plan calls for a draw based upon profit. The consultant needs to look at what costs are directly attributed to the audiology/hearing aid part of the ENT operation. There are two constant or fixed costs that comprise most of the overhead: rental and labor. Rental costs are determined by taking the amount of square feet for the entire ENT office and determining the number of feet that would be dedicated to audiology. To determine the cost per foot, take the annual expense for rent and divide it by the total number of square feet. For example, a 1000 square foot office that leases for $1800 a month has a square foot cost of $21.60. That figure is arrived at by taking the monthly rent and multiplying it by 12 months. Then divide that figure by the number of square feet to determine the cost per foot.

Labor costs can be determined by the number of hours ancillary staff are devoted to the audiology part of the practice. Divide that into the compensation for all employees involved (receptionist, secretary, biller, etc.) to arrive at an hour labor cost which is charged against the audiology service.

There are other costs for liability insurance, janitorial services, shared telephone etc. that can be calculated on a square foot basis. Be sure to exclude ENT's malpractice insurance and any other costs that are not related to audiology.

Granville Y. Brady, Jr., Au.D. (AZ School of Health Sciences) has over 40 years experience in audiology. Dr. Brady owns a private practice in New Jersey and teaches the business development and accounting course at ASHS, Mesa, AZ.


granville y brady

Granville Y. Brady, AuD Jr, FAAA

licensed audiologist and speech-language pathologist with offices in Clifton and East Brunswick, NJ

Granville Y. Brady, Jr., Au.D., F.A.A.A. earned his Au.D. from Arizona School of Health Sciences. He is a licensed audiologist and speech-language pathologist with offices in Clifton and East Brunswick, NJ. Dr. Brady teaches business development and accounting at A.T. Still University. In addition to his clinical experience, Dr. Brady has served as councilman and finance chairman for the Borough of Somerville, NJ and was responsible for the budget, insurance and retirement operations of the municipality. He serves as treasurer of the Audiology Foundation of America.


Related Courses

Understanding Privilege, for Healthcare Professionals
Presented by Esther Clervaud, EdS
Recorded Webinar
AudiologyOnline

Presenter

Esther Clervaud, EdS
Course: #36096Level: Intermediate1 Hour
  'It was very much needed in this day and age'   Read Reviews
Systems of privilege have created a wide division of inequality. This course will help hearing care professionals identify their privilege and determine how to make a difference in their places of employment.

View this Course for FREE.
Need CEUs? Become a AudiologyOnline member to get unlimited CEUs.

Only $99/yr

Learn More

Using Patient-Reported Outcome Measures (PROMs) to Improve Patient-Clinician Communication and Enhance Treatment Efficacy
Presented by Carren Stika, PhD
Recorded Webinar
ReSound

Presenter

Carren Stika, PhD
Course: #35841Level: Introductory1 Hour
  'This was one of the best courses SI have taken'   Read Reviews
Due to the recent increased focus on providing patient-centered healthcare, use of patient-reported outcome measures (PROMs) have become an essential component of assessing whether the services provided improved patients’ health and sense of well-being. This course will discuss the role of PROMs in healthcare and how using these measures in clinical practice can enhance treatment efficacy, improve patient-clinician communication, and assist clinicians in providing better person-centered care.

View this Course for FREE.
Need CEUs? Become a AudiologyOnline member to get unlimited CEUs.

Only $99/yr

Learn More

Learn to Earn the Salary You Deserve: Negotiating Like a Boss
Presented by Natalie Phillips, AuD
Recorded Webinar
AudiologyOnline

Presenter

Natalie Phillips, AuD
Course: #32770Level: Introductory1 Hour
  'The charts will be very helpful with negotiations'   Read Reviews
The ability to negotiate your income displays immediate knowledge and confidence in your skillset and worth. In this course, we will examine a revenue and pay justification method to put into place as audiology business owners, employers, and employees.

View this Course for FREE.
Need CEUs? Become a AudiologyOnline member to get unlimited CEUs.

Only $99/yr

Learn More

Building a Sustainable Private Practice
Presented by Chelsea Diles Treseder, Bill Diles
Recorded Webinar
AudiologyOnline

Presenters

Chelsea Diles TresederBill Diles
Course: #27141Level: Introductory1 Hour
  'Extremely informative, open & transparent'   Read Reviews
The landscape of our profession is changing, and it’s becoming harder to stay competitive and independent. This webinar will use case studies to demonstrate how to build and grow your private practice sustainably so you can thrive now and in the future. This course is open captioned.

View this Course for FREE.
Need CEUs? Become a AudiologyOnline member to get unlimited CEUs.

Only $99/yr

Learn More

Highlights from AuDACITY 2016: The Sky Is Rising - Integrating Hearables into Patient Centered Care
Presented by Brian Taylor, AuD
Recorded Webinar
AudiologyOnline

Presenter

Brian Taylor, AuD
Course: #28677Level: Intermediate1 Hour
  'good information'   Read Reviews
This course is a recording of Dr. Brian Taylor's presentation at the Academy of Doctors of Audiology's AuDACITY conference in November 2016.

View this Course for FREE.
Need CEUs? Become a AudiologyOnline member to get unlimited CEUs.

Only $99/yr

Learn More