We work with a lot of smaller dental practices; that is, practices with a turnover of less than £500k. I have always been fascinated by the variation in profitability of these practices and within our client base, past and present, we have seen practices deliver net profit that varies from 5% to 45% of turnover!
Practices that are bigger than this generally have more critical mass, enabling them to get past their cost base more readily and create a more reliable profit. However, as so many practices in the UK are around this size, I thought it would be interesting to highlight what has to happen to make these practices ‘super profitable’.
So, let me paint you a picture of my perfect £500k turnover general dental practice, which makes the sort of profit that would bring a smile to even the most cynical dentist’s lips!
- 2 Surgeries.
- A list of between 1,600 and 1,800 Adult patients.
- Fees set at the equivalent of £200/hour.
- 12-20 new patients a month.
- 2 Dentists, each working 4 days per week, 46 weeks per year, grossing a minimum of £1,100/day, that is £200k per year with a occupancy of approx 85%, doing simple, general dentistry.
- 75% of the adult patients see the hygienist…
- Who works 5 days per week, 46 weeks per year, grossing a minimum of £550/day, £125k per year with occupancy of 85%.
- The gross fees are therefore, circa £525k.
Now for the costs.
- If there are associates, pay them no more than 45% of their gross (and preferably 40% at £1,100/day gross). Pay them a higher percentage if their gross increases. Better still don’t have an associate, have a profit sharing partner.
- Pay the hygienist(s) a maximum of 33% of the hygiene gross and only when they are treating patients.
- Spend no more on materials, than 8% of total practice gross.
- Spend no more on Laboratory bills than 10% of total practice gross.
- Spend no more than £14k per month on everything else, that is the fixed costs. Of these, spend no more than 20% of the total practice gross on staff (excluding hygienists).
In this model, the profit will be in the region of £220k to be split between the two dentists. If you want the model to create more profit then:
- Increase the daily gross figures of the fee earners
- Maintain the same percentages of gross fees for, Laboratory Bills, Materials, and Staffing
- Don’t increase the fixed costs
Interestingly, If you were to own a practice like this and not work in it, simply employing associate dentists to do the work and paying them 45% of their gross fees after laboratory costs, the profit will circa £50k. Now that is compelling.
if you were to open 5 of them, you could create £250k/annum profits without putting on a pair of surgical gloves and with plenty of time to do all those enjoyable things that being a dentist has taken away from you!
So, why don’t more dentists either create this model for themselves to enjoy working in, or to own, whilst others work in it? Well, I believe that it’s because they don’t do these simple things:
- Track all of the numbers I have mentioned. Review at least every month with the core team.
- Negotiate hard on all costs.
- Don’t work with associates who gross less than £1,100 per day.
- Don’t work with Hygienists who cannot maintain in excess of 80% occupancy or who gross less than £550, or who want to be paid more than 33% of the gross hygiene fees.
- Keep it simple. Don’t go shopping for too much in the way of new kit or go on too many courses.
Marketing. Focus on:
- Word of mouth referrals.
- Walk by clients who see your signage. Banners etc.
- Website and Internet marketing.
- Reactivating dormant clients and dormant treatment plans.
- Have front desk team scrupulously and reliably record all lead information and new patient information.
- Train all team in ethical selling skills and practice these with role play every month.
- Set targets for everything, review and reward.
Practice Operations and HR:
- Don’t pay people for just turning up, use performance pay to remunerate the whole support team.
- Increase the range of your opening hours so that as a minimum you offer early morning, late evening and a Saturday morning.
In summary: A practice that runs this model can create a significant profit (40%) if it is well run! Unfortunately, many practices I visit and talk to fall far short of this and seem unable or unwilling to implement the tactics I have outlined. Many are stuck with a team who simply refuse to embrace change and are frankly poor at what they do.
In the new financial reality that is the UK in 2011, I believe that both small and large dental practices have to change and implement successful strategies such as these, or risk not being around in 2012.
Simon Hocken Director of Coaching, Breathe Business
If you would like help starting, building, growing and managing your practice, contact the Breathe team on 0845 299 7209 or firstname.lastname@example.org