Monitoring and increasing net profit, or EBITDA, in your dental practice is key in improving owner doctor income and is often the difference between receiving a premium valuation for your practice or settling for less than you deserve. So, why is it that so many practice owners are not intimately familiar with this KPI? Well, the short answer is it is hard to be a practicing dentist and a business owner. Often doctors are so entrenched in the day-to-day of being a “wet finger” dentist that they don’t have a true understanding of their practice metrics, and, even when they do, struggle creating a plan that will move the needle in the right direction. EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, has become the go-to KPI for banks, Private Equity, and other stakeholders in determining the value of a practice. So, with doctor income and future transition on the line, demonstrating net profit growth is a must. There are two approaches to growing net profit: Cost Reduction and Increasing Revenue. Simply put, we must spend less and generate more- but that is easier said than done, right? Aligned Dental Partners focuses on these key areas to provide the most value to its clients. In order to evaluate where costs-savings or overspend may exists on our P&Ls, doctors need to review financials on a monthly basis. Is your spending in line with the industry recommended targets?
Overhead Targets for Group Practices as a Percentage of Overall Practice Revenue:
- Doctor Compensation: 20%
- Staff Compensation: 22%
- Dental Supplies: 5%
- Lab Costs: 7%
- Marketing: 2-4%
- General & Administrative: 7%
- Facilities: 8%
- Corporate: 7%
Aligned Dental Partners supports our clients in their cost reduction initiative to bring their P&L in line with industry standard. This could include the common practice of outsourcing systems including (but not limited to) insurance verification, patient reactivation and marketing to balance staff costs until there is enough structure and revenue to systematically bring these tasks back in house. Other areas for consideration in your cost reduction strategy should include leveraging economies of scale, specifically in the areas of dental supplies and labs and measuring the ROI on specific marketing strategies.
Inversely, to compliment a cost reduction strategy, practices should improve processes to maximize efficiency and grow revenue. Key areas to consider are the New Patient Appointment, Case Presentation, Scheduling and a team bonus system.