Make no mistake; dentistry is one of the most overhead-intensive professions. According to Dental Economics Magazine, overhead as a percentage of practice revenue runs upwards of 73 percent for the average American dentist.
Untamed, this “cost of doing business” can take a big bite out of net profits, making practice owners feel they are not earning enough for their efforts.
Of course, you could ramp up production. But that requires working harder.
Or, you could take steps to tame your overhead. Here, the idea is that a dollar saved in practice expenses is a dollar earned. With that in mind, consider how you can reduce costs in these key expense categories:
Supplies – If you look, you’ll probably find the overhead beast lurking in your supply room. Are you using disposable safety glasses and bite blocks for X-rays? Supplies that can be sterilized and reused might be a more cost-effective alternative. At the same time, review supply costs in terms of a desired percentage of production. For example, if you want to keep dental-supply costs within a range of 4 to 5 percent — and you produced $30,000 last month — your cost of supplies should not have exceeded $1,200. Use $1,200 as your target amount for the next month, and track your progress.
Lab Costs – Cost isn’t the only factor in working with a dental lab. The critical question really is whether the lab provides quality products that you don’t have to send back for adjustment again and again. Likewise, are the lab fees reasonable in terms of the revenue you generate for the procedure?
Staffing – Nothing drains overhead like poorly performing staff. Make sure you’re getting value for the salaries you pay. That starts with investing time and money in the training your staff needs to perform at the top of their game. You can also look at shifting some portion of salary (which is a fixed overhead expense) and making it a variable, performance-based expense. With a production-based bonus system, for example, salaries increase only when staff members work harder and more efficiently.
Occupancy — Are you paying rent at a reasonable rate for your location? With communities and demographics changing so rapidly, it might be smart to only commit to a lease for 5 years or less — and negotiate for extension options. At the end of the lease you could determine if the location of the office is still attractive.
The bottom line is that when you cut overhead, you increase your take-home profit — day after day, year after year. Take the time to review your financial statements and analyze overhead costs at least quarterly and annually.
Contact our office today for help in getting a handle on your current practice overhead, as well as establishing target overhead percentages.