How to Calculate Production

Many practices pay associate veterinarians “on production.” Commonly, production pay consists of a base salary, plus a production check when the associate’s production earnings exceed the amount they have already been paid in salary. On an annual basis, the associate on base salary with production receives either their base salary OR the % of their production earnings, whichever is greater. 

Production calculations can be confusing. Some practices have negative accrual, and some don’t. Some calculate production monthly, and others calculate it quarterly. 

A member of the Vet Financial Summit Community recently asked how to calculate production monthly vs. quarterly, so I decided to expand on that here.

In the examples below, we will use 25% production to make the math simpler to follow. In reality, a production percentage of 20% to 23% is more common in small animal practice. 

I am including examples of monthly and quarterly production, with and without negative accrual. If you are on production with negative accrual, any time you have been paid more (in salary) in a certain time period than your calculated production earnings, that amount is counted against your future production earnings until you make up for the “negative” accrual. 

In other words, with negative accrual, you don’t get a production check until you generate enough revenue to make up for the previous low-producing month(s) or quarter(s). 

Example #1 – Monthly Production without Negative Accrual

Dr. A has an annual base salary of $108,000 and is on 25% production. 

Her production was $40,000 in July and $40,000 in August. She had the audacity (!!) to go on vacation in September and only brought in $20,000. In October, she was back to producing $40,000.

 

In July, her production earnings at 25% were $10,000.

In August, her production was $10,000.

In September, her production was $5,000.

In October, her production was $10,000.

 

Since Dr. A is paid $9,000 (gross income) per month, any month her production is greater than that, she will get a production check.

 

In July, she received a $1,000 production check.

In August, she received a $1,000 production check.

In September, she received no production check.

In October, she received a $1,000 production check.

 

As an aside, a few lucky vets have managed to negotiate their contracts so that vacation does not affect their production negatively.

 

 

Example #2 – Monthly Production with Negative Accrual

Dr. B has the same annual base salary of $108,000 and is on 25% production. 

Her production was also $40,000 in July and $40,000 in August. She had the nerve (!!) to go on vacation in September and only brought in $20,000. In October, she was back to producing $40,000.

 

The resulting production checks are the same, with a notable exception: 

In July, she received a $1,000 production check.

In August, she received a $1,000 production check.

In September, she received no production check.

 

In October, she did NOT receive a production check, because she was still $3,000 “in the hole” after October. ($4k behind in September, minus $1k ahead in October = $3k)

So Dr. A, WITHOUT negative accrual, would receive $3k total in production checks after October. But Dr. B, WITH negative accrual, would be considered to be $3,000 BEHIND on her production after October.

 

 

Example #3 – Quarterly Production

Dr. C has the same pay situation as Dr. A and Dr. B. He has an annual salary of $108,000 and is on 25% production. 

Since he is paid $27,000 (gross income) per quarter, any quarter his production is greater than that, he receives a production check. In this example, quarterly paychecks are in March, June, September, and December.

 

In July, he received no production check because the quarter isn’t over.

In August, he received no production check because the quarter isn’t over.

 

After the end of September, he received no production check. His production was $40k + $40k + $20k = $100k, multiplied by 0.25 (25% production) equals $25,000 in production earnings. 

Since he had already been paid $27,000 that quarter, he did not produce enough to receive any additional money.

 

WITHOUT negative accrual, a new quarter would start in October, and Dr. C would get a clean slate.

WITH negative accrual, he would have to make up for the fact that he was “in the hole” the previous quarter before he would be eligible for a production check.

 

So, Which is Best?

Calculating production can be tricky. Mathematically, the most favorable scenario for the associate is monthly production without negative accrual. That way, the associate is rewarded for high-producing months and not penalized for low-producing months. Next best would be quarterly production without negative accrual, followed by negative accrual. 

How your production is calculated is among many factors to consider when negotiating your contract and comparing job offers. 

Want to get more of your compensation and negotiation questions answered? Register for the Virtual Vet Financial Summit! 

Meredith Jones, DVM