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Chris Salierno, DDS, discussed his approach to reducing overhead within a dental practice at the 2017 Yankee Dental Congress in Boston, Mass. on Thursday.
One of the pressures of being a business owner is the responsibility of managing that business. Unfortunately, not many dental schools teach you how to manage your own practice and not let the overhead monster take you down. However, according to Chris Salierno, DDS, you have to try really hard in order for your dental business to fail.
At the 2017 Yankee Dental Conference, in Boston, Mass., Dr. Salierno noted that the failure or default rate for dental practices was less than 1 percent.
“Those are pretty good odds,” he said.
However, open doors do not equate to profit. Dr. Salierno recommends investing in practice management software to increase profit. He also believes that your accountant is just as important as anyone else on your team. Nevertheless, you shouldn’t rely solely on an accountant to examine the investments and spending of your business. Every business owner must know not only the net income of her or his business, but the gross income as well — and everything in between.
In his continuing education session, Dr. Salierno discussed two key strategies that can increase a practice’s profitability: 1. Cut spending where it isn’t needed; 2. Calculate the gross profit margin (GPM) for your most frequently performed procedures to understand which are the most profitable.
Analyzing your semi-annual income statement is one practice Dr. Salierno calls a must. It’s not just enough to bring in more patients to try and increase your profits. Sometimes you have to crunch the numbers. He advises that some increased expenses are needed, for example, costs of composite material or staff payroll.
Although there is no industry-accepted standard on how much you should be spending on lab fees, dental supplies, or payroll (this number should fall somewhere close to 25 percent of expenses), some numbers are just too high. For example, if you’re spending $30,000 on office supplies, maybe you need to cut back or change your provider. While it’s important to minimize your spending rates, it’s even more important to maximize your performance revenue.
The GPM of a procedure is the incoming revenue after direct labor and direct material costs are deducted. To calculate the direct cost of a procedure, Dr. Salierno uses the following equation:
By calculating this number, you learn which procedures are most profitable and whether you have room to charge less. Since calculating GPM for dental procedures is not common practice, there is no industry standard for how profitable a procedure should be. However, Dr. Salierno notes that 30 percent profitability is quite low.
With this, you will find that some procedures are more or less not worth performing. Nonetheless, when deciding against performing a procedure Dr. Salierno recommends doing it ethically and without mention of finances. For example, patient X needs dentures, which have a GPM rate of 35 percent. Instead of simply refusing to perform the procedure, you can instead refer patient X to a prosthodontist, stressing that she or he will “provide the best specialized care” to the patient.
On the other hand, while high profitability is the ultimate goal of performing procedures, sometimes reducing costs is not a bad idea. Although you will not be turning the same profit from each individual procedure, you will most likely be performing more procedures, thereby making up for that lost revenue.
There are several ways to increase your dental practice’s profitability. Whether you’re cutting expenses or cutting procedures, be sure to be transparent with your staff, since they play an important role in booking procedures and ordering supplies.