Overhead control

Helping build dental practices is something I enjoy. That was my motivation for founding The Levin Group. There are many management approaches to growing dental practices. However, the most successful method I have found for improving dental-practice management is one I call the push-pull method.

Roger Levin, DDS, MBA

Helping build dental practices is something I enjoy. That was my motivation for founding The Levin Group. There are many management approaches to growing dental practices. However, the most successful method I have found for improving dental-practice management is one I call the push-pull method.

The push

The push side of the equation is to expand the practice by:

(1) Creating written manuals for each management system.

(2) Implementing these management systems.

(3) Increasing the number of new patients.

(4) Increasing patient case acceptance for both traditional and elective procedures through a multi-step selling system.

(5) Improving other factors, such as office decor, inventory control, laboratory control, and team motivation.

The push side of the equation builds practices and helps them become more productive.

The pull

The pull side of the equation involves overhead. Some practices have high gross revenues, but they also have significantly high overhead percentages. When I say significantly, I mean from 82 to 92 percent overhead, despite those high revenues. At first glance, these practices look vibrant. After reviewing the numbers, it becomes evident that the dentists in those practices are working extremely hard for a very low return.

General dental practices should have a profit-margin return of approximately 38 to 40 percent. In general, specialty practices have a profit-margin return of approximately 45 to 48 percent, while endodontic practices have a profit-margin return of approximately 60 to 61 percent.

Unfortunately, many practices in each of these categories are running 5 to 10 percent or more too high in their overhead percentages. No matter how hard you push for practice growth, high overhead will decrease profit margins. In the end, you will have built a very fine practice, but you will have bought your growth.

Buying your growth refers to having high levels of investment to build a bigger practice that must be regularly fueled with increased numbers of patients and revenues. The reason that you must constantly have an increase in revenues and patients is because you are feeding the overhead or pull part of the practice continually. In this scenario, it often takes most of the month`s revenues to pay the general expenses.

Getting out of the trap

Once you are in the overhead trap, it is very difficult to escape. Once you have established a high-overhead structure, it is as difficult to change as it is to try to change your personality. Spenders tend to be spenders. Savers tend to be savers. Can spenders become savers? Absolutely ... but only through a constant and diligent effort to fight their own natural tendencies.

Begin by identifying a series of overhead categories, including:

Y Staff labor

Y Lab

Y Equipment, supplies, materials

Y Rent, telephone, gas/electric

Y Accounting, legal

Y Marketing

Y Continuing education, dues, subscriptions

Once you have identified these categories, determine your current overhead percentage for each category. Then, examine national standards and information such as what you should expect once your practice is systemized and running according to your systems. After that, set goals for every category and begin to measure your monthly variances. This is what we do with our clients.

By measuring the monthly variance in each category, you have a great opportunity to evaluate specifically where overhead may be eating into your profit margins. Then, address each of these areas separately and thoroughly to understand why they are higher, and make the necessary modifications. This constant monitoring of your overhead categories will allow you to lower your overhead and achieve the profit you desire with lower stress and higher productivity.

Roger P. Levin, DDS, MBA, president and CEO of The Levin Group and the Levin Advanced Learning Institute, provides worldwide leadership in dental management and marketing for general dentists, specialists, and dental-products companies.

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