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How to protect—or even grow—profit margins during times of high inflation

Jan. 19, 2023
Inflation, dentistry, and ... lemonade? Learn how this author's first lessons from childhood about running a business can help you make prudent choices now.

At the beginning of each year, our natural inclination is to start thinking about how we can grow our businesses. In most years, that involves identifying systems, processes, marketing, and other strategies we can somewhat control. This year, however, there’s an elephant in the room that has many practice owners stressed. Yes, I’m talking about inflation. It’s no secret that costs have gone up around us and our businesses. Supply costs, payroll, material costs … all up. Do we just have to accept that costs are up so profits need to go down? Of course not.

I want to help you understand the truth about how you can not only survive, but thrive—even during times of high inflation. Having helped hundreds of dental practices build multimillion-dollar businesses, I’ve discovered a collection of proven, premium, and powerful strategies to help them thrive in any environment. And the foundation of all those strategies to protect profits in any environment includes two parts: knowledge and what you do with that knowledge.

As inflation started eating into profits and insurance reimbursements started declining, I began hearing from more and more colleagues concerned about how they would be able to continue to grow or survive. Some were tremendously profitable. Others were barely breaking even. And others had already been struggling.

The common denominator among the owners was they understood they needed to invest in taking a more strategic approach to running their practices if they wanted to hit their goals.

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As I began working with them, I first shared the good news that the most consistently profitable practices are almost always the ones that work smarter, not harder than the others. That’s been true for years. And I’ve confirmed that remains true today.

So what knowledge do you need to combat inflation? And what do you do with that knowledge to work smarter, not harder?

You can learn everything you need from my childhood experience of buying a doll.

What I learned from selling lemonade

When I was seven years old, I asked my mother if I could get a Rainbow Brite doll. She said I could get it for Christmas, but I wanted it sooner. I asked her if I could open a lemonade stand to earn the money fast. She agreed.

The next day, people lined up to buy my lemonade and we sold out fast. I had $17 in my pocket and was ready to buy that doll. My mother was so proud of me and told me so. “You had a great business idea. You had great marketing. People came. You had a great product. But you didn’t make $17 today. You made $3.28. The sugar, cups, lemons, and ice cost $13.72.”

The lesson in this story reflects one of the most common and powerful truths about running any business: we need to know our costs per procedure before we can control profits.

Even the best-run practices fail to know their exact costs per procedure, especially with payroll and supply costs rising and all the PPO write-offs.

The good news is calculating your true costs is not that difficult.

Calculating your true costs

When I ask doctors in my workshops how much it actually costs to do an occlusal filling, very rarely does a doctor or team member know the answer. Imagine that. The most common procedure in most practices and most doctors and teams have zero idea how much it costs. Fortunately, calculating the true cost is simple:

(Fixed monthly and labor expenses per hour x time needed for the procedure) +
variable costs to perform the procedure =
total cost per procedure

Basically, you need to know the percent of your fixed costs that can be attributed to each procedure, and then add the actual additional costs to perform the procedure. Here’s how to calculate those numbers.

Fixed monthly and labor expenses per hour: First, divide fixed monthly expenses by the number of hours you work. Include utilities, rent, and other bills that don’t fluctuate meaningfully on a monthly basis. Add those up and divide by the number of chair hours your practice has available. That’s your cost per hour.

Then multiply or divide that number by how much time it takes to perform the procedure. For example, if an occlusal filling takes 30 minutes, divide your hourly cost by two. That’s your fixed expense for occlusal fillings.

Next, do the same with team member costs that don’t fluctuate with procedures, such as front desk team members and one dental assistant. That’s your fixed labor cost for that procedure.

Procedural variable costs: Next, calculate your cost for supplies (and lab) to perform each procedure. Continuing with occlusal fillings, what are your supply costs per filling? You might be surprised at how many materials we use, including anesthetic, filling materials, etchant, burs, plastic around our chair handles, tips, polishers, adhesive, and more. We probably use more than 20 items per filling. Prior to summer 2022, supply costs averaged between $20 and $30.

Total procedural costs: Add your fixed and variable costs together. That’s your total cost per procedure. Notice anything missing? No doctor pay. That’s because doctors don’t get paid unless everyone else does.

What were your total costs? Before summer 2022, doctors in my workshops averaged around $125. This number has gone up to $135, $145, and sometimes higher.

Making inflation-defying choices to protect or even grow profits

With that knowledge, I typically ask doctors how much they actually get per procedure. If they’re in-network, I often hear numbers like $88.20 or $110. That can be scary because you realize you’re upside down. The more you produce, the less you make. However, with better information, you can make better decisions now.

You might change how you schedule. Instead of scheduling four fillings across multiple appointments, you schedule them in one to use only one needle, one plastic chair cover, and so forth. You might choose to go out-of-network for insurance companies that no longer serve you. You might increase your fees. And you might choose to invest in more knowledge for you and your team to improve your clinical skill set, communication skill set, or create better systems for increasing profitability all around.

The key to thriving in any environment

Inflation will happen. Change will happen. But for doctors who are aware, knowledgeable, and proactive, it can be the impetus to make decisions that will impact the profitability for your practice positively.

But it all starts with the right knowledge and then making decisions with that knowledge to create a premium, powerful practice that serves patients well while helping you excel. Only then can you create the practice you were truly meant to create … for you, your patients, and your team, in any economic environment.

Editor's note: This article appeared in the January 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.  

About the Author

Anissa Holmes, DMD

Anissa Holmes, DMD, founder of the Delivering WOW Education, helps practices grow by focusing on leadership, profitability, effective case presentation, schedule and systems optimization, and implementing high-return marketing. Dr. Holmes has been named one of Ultradent's Female Icons of Dentistry, Dental Product Report's Top 25 Women in Dentistry, and has been featured in top publications such as Dental Economics, DentistryIQ, Dental Products Report, and Entrepreneur magazine.

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