Analyzing your practice is one of the most important pieces of the puzzle, especially when we’re doing so much work on the front end to keep it running. If we can’t step back and look behind the scenes, much of our hard work may be for naught.
You work hard and you deserve to be paid for the work you’re doing. So, let’s get into it. What are the five metrics that can make or break a dental practice, and what should your numbers look like?
1. “Adjusted” production.
Adjusted production is your production adjusted to be a more realistic tally of what you’ll actually be receiving out of your overall earnings. You need to take a few factors into account when calculating the amount of money you’re actually going to bring home. There’s no “ideal” amount to pin to this metric—adjustments vary widely from practice to practice—but you can stay on top of your numbers by being aware of where money comes out of the backend.
First off, insurance companies are always going to want some of our pie. If you’re like many dentists in America, you have (or will have) a practice that is taking PPO insurance. You may charge, say, $1,500 for a crown but an insurance company may only pay you $1,000 for that crown. Automatically, you’ve just taken a pay cut.
Additionally, it’s not uncommon for dentists to offer a membership plan where their patients get free services—cleanings, whitenings, etc.—and/or discounts on treatment in exchange for regular payments. So, stay on top of those numbers! The same goes for whether you offer discounts for your staff. For example, you may only charge them for the lab bill and make a fraction of what you’d make from a normal patient.
Last but not least, take into account how much you can actually produce vs. what you hope to produce. Perhaps you’re a new dentist working with a seasoned dentist who has been practicing for 20 or 30 years and is able to bring in $2,000,000 a year. After you finally get up to pace with all the pieces that come with running a dental practice, you may find that you can only bring in half of what they can produce.
2. Collection percentage.
Every month you’re producing a certain amount. That’s your collection percentage.
Whether a portion of patients abide by a subscription plan or they always pay up front is up to you but, hopefully, you’re robust in ensuring patients are paying what is due. If they’re paying a subscription plan, you need to stay on top of your accounts receivable (AR), which is essentially where the money that is owed to you goes. Also, it’s very important to note that your collections percentage ought to be based on your adjusted production vs. your overall production
So, what’s an ideal collection percentage on a month-to-month basis? Well, you should be collecting at least 98% and as much as 104%. We spoke about adjusted production, and so earning less than 100% shouldn’t come as a surprise. However, it might sound confusing to be collecting more than 100%.
So long as you stay privy to your balance sheet, then any membership plan payments that have gone to accounts receivable won’t be coming in as one lump sum—they’ll trickle in over time. Thus, you get the > 100% collection percentage. That’s why dentists use the subscription plans, after all; it’s like icing on the cake to the production you’ve done for each month. You won’t be seeing 104% over and over again, it’ll definitely fluctuate but—hopefully—that fluctuation won’t vary outside of the 98% to 104% range.
3. Hygiene percentage.
This is as passive an income as we’re going to get in dentistry, and it requires a bit of digging in order to find out. If you haven’t already guessed it, this is the amount your hygiene department produces as compared to the total production of your office.
Let’s use round numbers to keep things as simple as possible and say your office produced $1,000,000 in one year. When you do the math, you discern that you produced $700,000 of that $1,000,000 while your hygiene department produced $300,000. In that case, your hygiene percentage would be 300,000/1,000,000 which would give you an even 30%.
Optimally, your hygiene percentage should be somewhere in between 20% and 30%. Again, this is based on your adjusted production instead of your overall production. The question is, however, whether you want your hygiene percentage to be on the higher or lower end of that range.
It might sound like an obvious question to some of you—don’t we want higher numbers? That means we’re helping more patients and making more money! But that may not be the case, per se. If your hygiene percentage is higher, that means the production that you’re personally producing—as the dentist—is lower. And, typically, the procedures you’re doing are going to bring in more dough than those that your hygienist is doing.
A higher hygiene percentage may indicate that you’re not doing as much dentistry as you could be doing. It goes both ways, though; if the hygiene percentage is low, then it could mean your hygienist isn’t sitting as many patients in their chair as they ought to be.
4. Reappointment retention rate.
Patients often come in for treatment and then leave without rescheduling. This boils down to something called “reappointment retention rate.” Your reappointment retention rate is a percentage that’ll largely come from your hygiene department. They have the most routine procedures after all—cleanings, whitenings, etc.—whereas your procedures, as the dentist, are typically one-and-done kind of deals. So, make sure your patients aren’t showing up every six years but rather are showing up every six months for their annual cleaning.
Optimally, you’re looking for a reappointment retention rate of 80% or higher. This means 80% or more of your patients are returning to your office more than once a year. If this percentage isn’t around 80%, then you’re likely losing patients to the practice next door. That, or they’re simply falling off the train. Your bottom line is suffering as a result and, worse, many of them may be letting their teeth decline and decay without your guidance.
5. Fixed cost.
The last metric, fixed cost, is “fixed” in the sense that it won’t be as much of a rollercoaster as the other four. These are costs that you know you’re going to pay, and they’re usually pretty predictable. You’re looking for a fixed cost that is—at maximum—less than 40% of your expenses. Some offices will have a fixed cost that is way lower than this—usually due to differences in their geographical location.
That’s because your fixed cost mostly depends on three variables: your staff, your rent, and your utilities. If you’re in downtown San Diego, you’re going to have a high rent and a higher wage to pay your workers than if you were in rural Ohio.
Many dentists are surprised to hear that utilities are counted in your fixed cost, as they often change from month-to-month and don’t amount to heaps of cash. But, no matter what, you’re paying utilities on a regular basis. You can average them over the course of a year and, voila, you have a fixed cost.
Don’t shoot yourself in the foot.
A successful dental practice isn’t just about the work you do in the chair—it’s about running a business. If you fail to do the work behind the scenes then you’ll be clipping your own wings. It’s so important to analyze your practice to see where you can improve and what challenges you’re facing. From there, you can make necessary pivots.
I run a community full of dental professionals just like you. So, join the Nifty Thrifty Dentists Facebook group and reach out! People from all across the globe will be happy to tell you about what metrics they take into account when running their dental practice.