By Ken Runkle
Do you want to put more money in your pocket every month? Reducing overhead is essential to maximizing the profit in your practice.
Question: What’s the quickest way for me to get my overhead under control?
Answer: I often tell doctors that the first thing they can do to get their overhead under control is to make sure their fees are in the 80th percentile in their area. There are many tools out there to help dentists accomplish this, but the lower their fees, the harder time they’ll have managing overhead.
If you lack the confidence to raise your fees, you may need to raise your dental skills. For your own sake and the sake of your patients it is important that you have the level of dental skills necessary to support your fee level so you don’t feel like you’re taking advantage of people. Raise your fees, but raise your skills to justify your fees.
Question: Where should my overhead percentages be?
Answer: There are four main expenses in a dental practice. Staff expenses should be no more than 20% to 25% of your total expenses. Elevating per staff production will keep your percentages down in this area.
Lab costs should be kept to 10%. Shop around and remember to charge patients about five times your lab cost. Supply expenses must remain at no more than 5% of total expenses. Again, shop around to maintain quality at a good price.
Facility expenses should not exceed 5%. If your facility is part of your marketing approach, it can be a little higher. But the principle is to keep it near 5% in order to keep your entire expense ledger within the parameters necessary to get it down to 50% overall.
If your numbers are currently far from these percentage guidelines, begin now to set goals and make changes to bring these four main areas into alignment.
Question: What’s your best piece of advice when it comes to managing overhead?
Answer: Produce big! The more you produce, the more expense percentages fall.
Let’s look at a quick example. One dentist with two front office staff, two dental assistants, and two dental hygienists produces $600,000 of dentistry a year. His overhead, as a percentage of his net production, will fall somewhere close to 65%. Dentist number two has the same staffing configuration, 2-2-2, but produces $1.2 million a year. Her overhead will be more ideal, falling closer to 50%. Dentist number three is an overachiever who produces $1.8 million a year with the same staffing configuration. His overhead will plummet to an astounding 40%. At the same time, he’ll have the highest paid staff members in the county. It’s not magic. It’s just producing big.
Here’s to a profitable life and practice.
Ken Runkle, America’s Profitability Expert™, is the founder and president of Paragon Management, Inc., and has been helping dental practices reach peak profitability for 24 years.
By Ken Runkle