The Basics of Practice Profitability

While daily responsibilities may sometimes obscure the fact, dental practice profitability is of critical importance to maintaining your practice’s value and longterm viability. To remain profitable your practice must manage its overhead expenses wisely. Keeping costs down will not only keep you profitable, but may positively impact your retirement savings.

Keep these four expense categories in mind when thinking about overhead:

  1. Salaries. Typically we recommend general practices employ one full-time staff member per $170,000 of collections and using part-time staff when possible. Overstaffing can drastically reduce profitability. Instead of annual pay raises, use bonuses based off production to reward the staff.
  2. Rent. Rent for the practice should not exceed 6% of collections.
  3. Dental Supplies. Place one staff member in charge of ordering supplies. Keep orders at or below 6% of collections and ask suppliers of reductions for bulk orders.
  4. Lab. Both external and internal lab costs should not exceed 7% of total collections. Sometimes labs will offer a prepayment discount for services.

Keeping overhead costs down now may translate into higher retirement savings later and a higher dental practice valuation when you are ready to sell. Combined with increased income, wise cost management will ensure a profitable future.