Refocus to 55% overhead

May 1, 2011
This is the New Economy. Those who have embraced a new way of conducting business can discover a 45% net again.

Bill Blatchford, DDS

For more on this topic, go to www.dentaleconomics.com and search using the following key words: New Economy, practice efficiency, overhead, net return, Dr. Bill Blatchford.

This is the New Economy. Those who have embraced a new way of conducting business can discover a 45% net again. When the economy was booming, dentistry could perform at a good enough margin, so we were able to relax and not be as efficient and effective as possible. Dentistry was in a “business as usual” comfort zone.

In the New Economy, consumer confidence level has dropped for all goods and services. People are hesitant to spend, and the media continues the campaign of “10 new ways to save on your grocery bill.” Even with some reports saying a recovery is on the way, it will be much longer before patients view dentistry as an important priority.

How to make the New Economy your friend

It is essential to make the decisions for an overhead of 55% now. In competitive areas, some clinically competent dentists are not making it. Hope is not a good business strategy. Hoping it will get better only avoids the tough decisions necessary to stay in business. If you move your overhead to 55% during these tough times, think of the opportunity when times become better.

Many dentists continue to operate under the old rules with an overhead of 75%. When your production drops 20%, your overhead is now 90%. With just a 10% drop in production, that is a 30% to 40% drop in net. Pressure mounts to pay bills and continue your chosen lifestyle. There are better choices with much less pressure.

Net return is a choice. It takes a strong plan and action to make 55% happen. Tough decisions are required. If net is the thing creating the most frustration, do something about it.

Your largest variable cost is your team. When production drops, you need to make the tough decisions to stay in business and be profitable. It is possible to produce more than $1.5 million with three very effective team members who are cross-trained in sales conversations, communication, and block scheduling to goal. Of course, strong systems that each team member understands and embraces are essential to making their contribution effective.

Making the bigger decisions to have a 55% overhead in the New Economy will bode well for you in the years to come. Blatchford doctors tell us they are very pleased they reduced their overhead during the first signs of an economic downturn, and now they are happier and more effective in mastering sales and making marketing work.

Efficiency is an important key in reaching a 45% net. A smaller team must have efficient systems. We do not have the time or energy to waste on projects that are redundant or nonessential. We must look at every system and ask, Why do we do it this way? Is there a better way? Can we be more efficient?

Once your overhead is at 55%, master the sales conversations where you ask patients questions about their values. In the old economy, patients accepted treatment sometimes, in spite of our skills. In 2011, commit to devoting more time to mastering today’s patient by writing scripts, reading sales books, and considering a coach to teach you and your team to be effective without pressure.

Everyone struggles with overhead, but it is the smart dentist who does something about it. There is a reason you are in business and you are the one who makes the decisions. This is not a committee project.

If you used to produce $100,000 a month, yet in 2010 you averaged $75,000, your frustration is understandable. But this trend does not need to continue. You can be very healthy at $800,000 by staffing effectively and efficiently with three top team members who understand the bigger picture.

If there is downtime in your schedule, do you need two assistants? Do you need an office manager and a receptionist during this time? If your hygienist has open time, do you need a hygiene assistant? Staff your office now for your present production. When the economy and demand improve, your overhead can continue at 55% and the three people with you will be grateful and rewarded.

The New Economy is your friend. Embrace it with strong systems and a team of three with excellent sales conversations. Making the tough decisions to bring your net to 45% with your current production will make you a happy dentist.

Dr. Bill Blatchford is America’s premier dental business coach. A solid net return is a cornerstone of his coaching success. Blatchford In A Box is a recent product and Blatchford’s Bu$iness of Hygiene is arriving May 1. He has published two best-selling books and can be reached at (888) 977-4600, www.blatchford.com, or www.blatchfordinabox.com.

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