In his latest article on dental practices in Dental Economics, Roger Levin talks about dental practice overheads. The point of his article is that overheads are too high and dentists should do more to reduce them. His survey shows that GP overheads run just north of 75%. He asserts that if a dentist could reduce their overhead by only 5% on a $1,000,000 gross revenue practice they could increase their profit margin by $50,000. This is true, whatever you don’t pay out to others, you put in your pocket. However, the question becomes, where do I find $50,000 per year to cut out of my expenses? That amounts to just over $4,000 per month. If your practice is like most, the largest expense is personnel, 30%-40% as a percentage of revenue. So do you layoff someone? How well will your office function without them? Do you cut back on their benefits? Will you have happy employees that are willing to work hard for you and go the extra mile when it is needed? I don’t think so. I believe that a dental practice runs best with well paid, and thus happy, staff. So where does that $50,000 come from? There is not a lot to pick from. I think that an easier way to increase your profit margin is to increase your production. I believe that it is easier to increase your production by $5500 per month than to decrease your expenses by $4000. If your practice sees 300 patients per month then by increasing your production by only $18 per patient brings in that $5500 you are looking for.
So how do you do that? You could raise your fees, most practices are not raising fees now, but look at your fees carefully, are they truly representative of what you think they should be? I have another whole article on fees that I will publish in the future, but let’s just say that you should review your fees and be comfortable with them, they should make sense to you and you should be comfortable quoting them to patients. If you don’t believe in your fees, then you can’t justify them to patients. Believe in how much you should receive for a procedure and be prepared to explain to a patient why it costs that much to deliver the service.
Likewise you shouldn’t be undercharging for a procedure. Here is Arizona I see desperate dentists charging $50 for a prophy in an effort to bring patients in the door. I don’t believe that kind of marketing brings in the kind of patient who wants to develop a relationship with a dentist. How can you pay a hygienist $40 per hour and only charge $50 for the prophy. It only works if you are competing on price not on differentiation of service. That discussion will also be addressed in a future article.
Another way to increase your production by $18 per patient is to be sure that you’re billing out all of the procedures that you are doing. How many times do you hear your hygienist say that they root planed an area on a patient during a periodontal maintenance because it was needed and they didn’t charge the patient? It happens all of the time. How about keeping your FMS and panoramic radiographs up to date? The ADA says that they should be taken every 5 years, I would bet that many of your patients are due for a new FMS.
A third way to increase your production is to increase your new patient flow, easier said than done you might say. True, but not insurmountable. Be focused on what you should do as a dentist. Care for your patients, treat them right, let them know that you are concerned most with their oral health and not their dollars. People know when you are looking for money. Run a true patient-centered practice and you will find that your new patient flow will increase. Learn to communicate with people. Improve your emotional IQ.
So the bottom line is this. Watch your overhead, examine it regularly and try to keep it in line, but don’t worry if your overhead is 70%, a 30% profit margin is good. Compare that to a physician’s overhead. According to Merritt Hawkins in their 2008 Survey of Primary Care Physicians 70% of GP physicians had an overhead from 50%-70%. A physician doesn’t need nearly the staff or equipment/supplies that a dentist needs.
Dental office overheads are a hotly discussed topic. I believe that in these days of OSHA and HIPAA compliance, with the complexity of taking care of our patients and with the quality of training that we need to provide our staff, a 70% overhead isn’t unreasonable. I believe that if you want to improve your bottom line, increase your production, don’t decrease the quality of your service. Rather than slashing your expenses, work to bolster your production, you’ll have a happier staff, a healthier patient base and an easier life.