Keeping your practice’s overhead under control

The old saying goes, it takes money to make money. However, when you look to reduce your dental office overhead sometimes it’s hard to tell which dollars are working for you and which are actually inhibiting you from turning a greater profit.

In today’s hypercompetitive landscape, every percent you can shave off your overhead can add thousands to your bottom line. For example, in a $3 million practice, the difference between a 5% supply spend and an 8% supply spend is $90,000! Just think of how many hygiene exams it would take to net $90,000.

In our new webinar, How Does Your Practice Compare: Beyond the Balance Sheet, CPA Judson Crawford shows how to take a deep dive into your direct and fixed expenses to maximize practice profitability. His insights are based on years of industry experience and data from CWA’s latest dental practice comparison report. Take a look and see how your practice’s overhead compares to averages by specialty from across the country.

My overhead is too high. What now?

Unravelling the overhead knot is never easy, so we reached out to a professional for a few tips on how to reduce overhead costs. Brett Pierce, President and CEO of Elite Dental Alliance, works daily with practice owners to help them tame the overhead beast. Elite Dental Alliance helps independent practices compete with corporate behemoths by negotiating corporate-level pricing on supplies and services that its doctors use every day. After years of analysis on each major overhead category, Brett has developed unique insight into how top performing private practices keep overhead in check.

Here are his key areas for optimizing your dental practice overhead expenses:

Collections. Collections. Collections!

Sorry to be redundant, but you can’t talk about overhead reduction until you understand what percentage of your collections they represent. If your accounts receivable is abnormally high or low, it will skew that percentage and give you an inaccurate picture of your overhead. A good rule of thumb is that your accounts receivable should equal one month of collections. If your number is significantly higher than that, it may be time to take a hard look at your collection process.

Maybe you’re up-to-date on collections. The next question is: are you getting paid appropriately for the time you spend with patients? Here is where your insurance fees could use a good look. Negotiating fees with providers can be tricky, but you absolutely need to do it. Current regulations only allow you to negotiate every two years, so when the time comes, make sure you’re armed with the appropriate information as not to waste your opportunity. This may take some time, but there are companies that can help if you’re unsure about the process. Let’s put it this way, you spend a lot of time producing, so it’s worth it to spend a little time making sure you get compensated for it.

Re-Marketing vs. Marketing: It’s not just about new patients

Every business is a marketing business and dental practices are no different. The myth is that marketing is meant to only focus on new customers.

Most practices allocate the majority of their marketing dollars on acquiring new patients. While it’s true that attracting new patients is critical to the long-term success of a practice, it can be expensive. Along with the costs of media and creative that are necessary to drive interest, there are numerous onboarding costs associated with new patients. There is more paperwork, exams take longer, and administrative costs increase. The goal with every new patient should be to provide an optimal patient experience that creates a lasting relationship. As far as profit and loss is concerned, new patients become truly valuable when they become regulars.

New patients are necessary to grow a practice, but the number that really matters is “net new patients”. The formula is simple:

Net New Patients = New Patients – Lost Patients

Obviously, a practice needs to bring in more patients than it loses each month to grow. Not exactly a ground-breaking statement, but you’d be surprised how often this is overlooked as practices tend to focus primarily on new patients. For example, if a practice is getting 55 new patients each month and isn’t growing, there is likely a retention and/or treatment acceptance problem.

Here are Brett’s top 4 ways that you can maximize your current patient base:

1. Understand your “net new patient” number
2. Measure and increase the hygiene re-appointment percentage
3. Follow up on unscheduled treatment (text or call)
4. Follow up with inactive patients (text or call)

If your marketing efforts are solely focused on patient acquisition, you may have droves of new patients coming in the front door while just as many are leaving out the back door. By marketing to existing patients with electronic appointment reminders, unscheduled treatment calls, special offers, and information on new services, you can see a greater return on your marketing spend.

Lab and Dental Supplies

Outside of staff costs, lab and supplies combine to be the biggest expense in your practice. Separately, they may not seem like a major expense, but when you add them together you should be looking at an expense equal to 12-15% of your collections. Controlling these costs is not about being cheap, (and it’s certainly not about using inferior products), it’s about making careful, smart purchases. Keeping track of inventory, ordering monthly based on a consistent budget, comparing suppliers and avoiding financing purchases are all smart ways to keep your supply and lab costs in check.

Often a rep will entice you with a low price that mysteriously creeps up over time. Finding a supplier you can trust beyond the initial honeymoon phase of a sales relationship is not easy. Couple that with the fact that prices vary wildly from region to region, supplier to supplier, and even practice to practice, it can be hard to know a good price when you see it. That’s why contract pricing is key and where a group purchasing partner like ELITE can make a huge impact. By combining over $1.5 billion in annual production, they help independent practices with pre-negotiated, contract pricing with trustworthy vendors.

Above all, Brett stressed while controlling overhead costs is critical, it’s not always the best use of a doctor’s time. Every minute spent haggling with a supplier or hunting down a collection is time not spent with a patient. That’s where outsourcing non-dental functions to a trusted partner can pay huge dividends.

With accountants like CWA watching the books and purchasing partners like Elite Dental Alliance getting you the best deal on everything from floss to X-ray equipment, you can focus on the single most important practice asset—your patients.

If you are interested in having one of our advisors review your overhead costs, reach out to our team for a complimentary consultation at cainwatters.com/contact or info@cainwatters.com.