I recently polled a group of dentists and asked them to define the most pressing issue in dentistry today and the answer by an astonishing margin was, ‘Overhead Control’. That came as no surprise to me since that is also the dominant topic of conversation from dentists approaching me at seminars.
Surveys in dental journals have reported that the typical office overhead for a solo dentist is now 72%. That is pathetic! If your office overhead is 72% or higher, you are working too hard for too little. Your overhead should be 60% or less.
Overhead control is all about expenses and income. First we will address the expense side of the equation and then we will address the income side. While your Profit & Loss Statement will include many line item expenses, there are 5 primary expenses that are your core expenses. Get these right and your overhead will fall in line. Below are the 5 primary expenses and ideal percentage benchmarks (NOTE: The %’s listed below are % of practice income):
Staff Wages
This is your single largest expense. The ideal benchmark is 28% and that is an all-in total that includes every expense related to your employee costs.
Lab
This should be your 2nd largest expense and the target is 8%
Consumable Supplies
The target is 6%
Facility
The target is 5%. This is also an all-in total that includes all costs associated with your office facility (rent or mortgage, property taxes, condo dues, building repairs and maintenance, etc…)
Marketing
The target is 5%
The total of these 5 expenses in percentage terms is 52%. That leaves another 8% for all the miscellaneous expenses to meet our goal of practice overhead of 60% or less.
On the cost side, the first step to gain control of your office overhead is to carefully evaluate your own expenses against the targets provided above. This exercise will allow you to identify where your financial ‘boat is leaking’. Once you identify the specific expenses where you are over spending, you can then make the necessary corrections.
On the income side of the equation there are two common issues that can radically impact your overhead. One is that you are not producing enough and the second is that you have too many insurance adjustments in your income. Let’s take each one individually.
Producing more with the same team and the same hours is a solution to increasing your profit because of the relationship between fixed and variable expenses. If you produce more with the same team and hours, none of your fixed expenses go up. The profit on your top, or growth, dollars is very attractive and can serve to significantly reduce your overheard percentages.
Next, take a close look at the insurance adjustments within your practice. Many dental offices today are virtually overrun with PPO plans with horrible fee schedules. You need to look at these insurance adjustments as ‘Marketing Expense’, because that is precisely what they are! You are ‘paying’ the insurance company to provide you new patients. When you look the insurance adjustments from this perspective you will likely find that you could spend significantly less to develop a comprehensive marketing plan that you are currently paying in insurance adjustments!
Let me encourage you to make 2012 the year that you bring your overhead under control! You deserve it! Keep Smiling!
