Q: How can I increase profitability? I thought we were hitting good collections numbers, but I’m still not taking home any profit.
A: Thank you for your question! This is a crucial topic right now.
I’ve noticed quite a shift in the last 1-2 years. Before then, it was quite usual for a dentist to come to MGE while doing about $60,000 a month and wanting to increase that to $100,000 or $150,000. The focus was purely on increasing collections because at that level it was pretty easy to make a profit. Even if you didn’t particularly focus on managing your money well or setting up efficient systems, the owner was still pretty much guaranteed to take home good money.
Nowadays, though, the circumstances have changed with things like inflation, rising costs, staffing issues, etc. And in the face of these rising costs, PPO insurances are maintaining the same or even lowering reimbursement!
Now I’m seeing doctors doing $150,000+ a month that are looking to expand because they aren’t making any profit.
So, you can’t just focus on increasing collections anymore. You also need to keep a sharp eye on profitability if you don’t want to see your personal income disappear.
There are four particularly important things you need to do to maximize profitability going forward:
1. Clearly establish what your overhead is—and stick to it
Many dentists simply look at their expenditures after receiving a Profit & Loss Statement (P&L) from their accountant. But your P&L is not the same thing as your “overhead.” A P&L just tells you how much money you spent. Your overhead tells you how much money is required to keep the business operating and growing.
Your overhead should be measured as a percentage of your revenues. You should have set percentages for payroll, supplies, labs, rent, marketing, etc., that you never exceed.
So, the first step is to look at what you’re spending currently and compare that to the percentages that it should be.
Click here to download our free Overhead Worksheet and Overhead Guidelines. The worksheet will allow you to enter your numbers to determine what you’re spending. The guidelines will give you a general recommendation on what the percentage should be for each category.
Then you can work out how to adjust your spending to fit the correct percentages.
2. It’s time to raise your fees and drop PPOs
We’ve always recommended raising your fees incrementally over time to keep up with inflation, but now it’s absolutely mandatory. And if you haven’t already been raising your fees each year, then you may be due to raise them by 10% or more now.
So many costs have gone up that you can’t afford not to. Staff pay, energy costs, labs, supplies, etc., are all going up.
The big problem, though, is that if you’re participating in PPOs, then raising your prices doesn’t matter. You can only charge those patients the fee dictated by the PPO plan. And again, somehow, in the midst of all this inflation and rising costs, some PPOs are actually lowering reimbursements!
So, I think it’s time to look at getting out of PPO plans. It’s not a sustainable business model anymore unless you want to work longer and longer hours for less profit.
And it is absolutely possible to go fee-for-service! Every year, we help hundreds of dentists drop PPO plans while increasing productivity and profit.
Request a free “Fees & Plans Analysis” here to do an assessment of your fee schedule and insurance participation and develop a plan for getting out-of-network.
3. Get the most out of the things you are already paying for
There are a number of things you are already paying for and need to continue paying for. So, if you want to improve the margins, the first thing I look at is whether or not I’m truly maximizing those things.
If you’re already paying an employee, make sure they are well-trained and are getting the job done. Make sure you’ve done everything you can to enable them to be a highly productive and efficient employee.
If you’re paying for marketing, make sure it is making the phone ring and that the staff know how to turn that phone call into an actual patient in the chair.
If you’ve already built up a large number of charts, make sure overdue/inactive patients are being reactivated and coming in for recall—and that they are accepting all the treatment you diagnose.
There may be a lot more production left on the table than you realize. Our average client doing just the MGE Communication and Sales Seminars sees a sustained increase of $288,000 a year (or $24,000) a month! That’s not from adding staff or spending more on marketing—that’s just by better utilization of the resources that they already have. No increase in overhead required (except in material and lab costs commensurate with increased production); just being more efficient and improving case acceptance.
If you’d like to see how much you can increase your productivity without increasing overhead, request a free practice analysis here.
4. Consider the return before spending money or cutting expenses
Anytime you spend money on something for your business, you should be considering what return you’ll get for it and make decisions accordingly.
If you order a new piece of equipment that isn’t truly necessary for patient care—is it really going to increase your revenues?
I’ve seen a doctor that only does four crowns a month buy a CEREC machine. Their lease payment on the CEREC machine was higher than their lab bill would have been! It makes no sense.
I’ve also seen dentists build out a new operatory only to discover that their production remained the same—only now they had to run around constantly between three ops.
So, think before you buy.
And on the flip side of that, think before you cut expenses, too.
If you decide to stop doing marketing because it’s too expensive—will your income drop because you aren’t seeing as many new patients anymore?
If the doctor decides to do their own hygiene because hiring a hygienist is too expensive—how much potential production are they losing because they’re busy doing cleanings? Or alternatively, how many active patients are they losing because the doctor doesn’t have time to do enough recall appointments?
If you decide to lay off staff or neglect to hire people to save on payroll—who’s going to fill up the schedule, reactivate patients, collect payments, etc.? Your staff are the ones who create production opportunities and potential income for the practice.
The point is, in today’s landscape, you can’t just focus on the collections figure anymore. You need to be smart with your money and have a strict overhead.
We’d be happy to help you evaluate your overhead and point you in the right direction. Request a free consultation here.
And if you have any questions for me, don’t hesitate to email me at firstname.lastname@example.org. I wish you the best!
This was spot on! I always feel better reading your blogs after a long day.