Is Your Dental Practice Controlling Costs Effectively? Profitability Benchmarks for Dentists

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Copyright © 2009 Peter Gopal, Ph.D.


Overhead is taking a bigger bite out of a doctor's compensation. According to the ADA, the average practice has a profitability of 32.7%. That falls short of what it can be. At many dental practices, high overhead is a persistent problem that goes undiagnosed and unresolved. Often, doctors don't become aware of their overhead numbers until the year is over and the accountant provides a historical review of the data.

With average profitability of 32.7%, overhead is consuming a whopping 67.3% of all the revenue a dental practice is bringing in. Based on our experience, however, an optimized dental practice is able to achieve and sustain profitability of 45% or more, with overhead just 55% or less. This is after allowing for continuing education and investment in new equipment.

It is important to know the primary sources of costs in a dental practice as well as benchmark figures for these categories. This allows you to compare your practice with figures from some of the best practices.

Facility costs such as rent or mortgage are fixed. Once a lease is negotiated or an office building is purchased, there is not much that can be done to alter that. Therefore, we focus on variable costs. Here are some benchmarks to help you figure out where you may be overspending.

Overhead Benchmarks for Dentists

Assuming you did not make any big equipment purchases (Section 179 items), here are the three biggest contributors to variable costs:

1. Payroll and benefits. This is the single biggest cost in dental practices. Here are some benchmark figures for a practice located in the Northeast U.S.

Without considering FICA/Medicare or benefits, gross staff payroll should be less than 22% of revenue.

All-inclusive total staff compensation (including FICA/Medicare, bonuses, and benefits) should be less than 26% of revenue.

Each hygienist should produce three times her gross pay. Normally this means that each hygienist should generate revenue of at least $150/hour. Optimally, it should be $172/hour. These are figures for year 2009. From what I've observed, only 30% of hygienists deliver on this benchmark. The rest are underperforming.

2. Dental Supplies. This should be less than 5% of revenues.

3. Dental Labs. Lab costs should be less than 8% of revenue. Use a quality lab that you are comfortable with and do not make the mistake of going with a cheaper lab without confirming the quality of their work.

Three Other Causes of Low Profitability

1. Case Acceptance. If you meet those benchmarks, the practice still may not be as profitable as it could be because of low case acceptance. If that factor applies, consider improvement in these areas:

Relationship Building Skills

Non-Aggressive Case Presentation

Verbal Skills for Case Presentation

Hygienist Pre-Diagnosis

Financial Presentation at Front Desk

Use of Intra-Oral Camera so the patient can see what the dentist sees

Study Models

2. Facility. If you have space, consider adding an extra chair. It is one of the best investments you can make.

Let's assume it costs $25,000 to install a chair and the necessary equipment for a new treatment room. That's about $425/month on a 5-year loan. On a 16-day month, it only takes increased production of $30.00 per day to justify and cover the cost of this additional chair.

The extra chair allows you to seat emergency patients, or start an impulsive procedure like tooth whitening. It also gives you options if you are running behind. This chair may be used only 10% of the time, but will boost your production 3-5%, most of which will fall to your bottom line.

3. Fees. Low fees can contribute significantly to reduced profitability. Rebalance your fees every year, and periodically evaluate your participation in PPOs. Wrong decisions in this arena have a tendency to keep profitability significantly short of where it could be.

After you consider these benchmarks and other profitability busters, you should have a clear idea of where the potential lies for reducing costs and raising the profitability of your dental practice.




About the Author:
Peter Gopal, PhD, together with his wife, Hema Gopal, M.B.A. and D.M.D., consults with dentists who are intent on building a more profitable practice. Whether you are leaving money on the table due to broken patient appointments, improper scheduling, poor case acceptance, low hygienist productivity, excessive overhead, or unnecessary reliance on PPOs, they can pinpoint your weaknesses and prescribe remedies. Receive a free, realistic assessment of the earning potential of your dental practice by going to: http://www.visionary-management.com/assessment.php


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