Coping with high gold prices

Ah, the good ‘ole PFM: the staple of fixed prosthetics since the 1960s. Even in this new age of all-ceramic restorations, gold alloys are still used in a significant percentage of the cases done in most labs.

IdentAlloy/IdentCeram, which certifies materials used in dental restorations, reports that in 2008 high-noble and noble alloy certificates comprised 69% of the certificates shipped by the organization. Final figures for 2009 are not available yet, however early indications are that this figure will be down but not as much as you might think.

That means even at today’s prices, gold alloys of various compositions are going to be around for a long while, and you will need to cope with the capital expenditures involved. High gold prices impact two main aspects of a laboratory’s operations.

Impact: Lab finances

High gold prices mean the lab requires more operating capital. It costs more to buy and inventory alloys to use in your daily operations. Because laboratories pass the cost of gold on to their dentist clients, it means labs must carry higher accounts receivable. It also means higher costs for work loss and increases the potential for theft.

Take action 10

Don’t let the current volatility of gold pricing get the best of your business. Follow these 10 steps to ensure the high price of gold doesn’t beat you up.

1. Order smaller amounts of alloy more frequently

2. Make sure the credit limit with your alloy supplier or on your credit card is high enough to cover costs

3. Review accounts receivable for any slow-paying clients

4. Review pricing structure to accommodate fluctuating alloy prices

5. Review lab procedures to minimize remakes

6. Make sure you have a good scrap recovery program in place

7. Communicate with clients

8. Take a look at alternative alloys that may be less expensive and more price stable

9. Market to clients that you have alternate products to offer if higher invoices are making them nervous

10. Prospect for new accounts

Impact: Sales

As the total invoice for each case creeps higher because of increased gold costs, clients may be more susceptible to try another competitor lab. That could lead to a loss of business. This loss sometimes gets hidden if you are only looking at the total sales generated for an individual client. Total dollars may be the same due to the higher gold charges, but in reality that client may actually be sending you fewer cases.

Action: What to do
1. Aggressively manage your cash.

• Order smaller amounts of alloy more frequently from your alloy supplier, reducing the amount of alloy you inventory.

• Speak with your alloy supplier regarding the credit limit on your account. Be sure it’s high enough to accommodate your needs. If you pay with a credit card, check on that, too. You don’t want late cases because gold shipments are held up. 

• Stay on top of your accounts receivables. The habitually slow payer that was marginally profitable before may be unprofitable now. 

• Review your pricing policy. If your unit price includes gold, review your pricing structure each time you buy alloy. Some labs add a surcharge to cover gold prices over a certain level. However you handle your pricing, be sure you cover all your costs plus an add-in PROFIT. 

• Review your daily lab operations to be sure good procedures are in place to minimize work loss. How close to the unit are sprues cut off? Do you have a tracking system for gold in the lab?

• Be sure you have a good scrap recovery system in place. Most refiners are happy to help you with suggestions for maximizing scrap returns. Send scrap in more frequently to free up cash for the business.

2. Stay close to your customers.

• This is no time to be a stranger to your accounts. If they are getting nervous about invoice totals, encourage them to talk to you about it. Closely track not only dollar sales to each account, but the number of cases or units they send.

3. Act quickly if you see a fall off.

• Research alternative products. Palladium, a popular element in dental alloys, is now much less expensive than gold and has remained relatively stable in price. Offering alloys with higher palladium content and lower gold content can significantly lower the cost for the dentist while maintaining many of the physical properties and working characteristics of higher gold alloys.

• Direct your marketing efforts to communicate the fact you have a variety of products available. 

• This is a good time to prospect for new accounts. If your competitor is not coping with the high gold prices as well as you, their accounts may be willing to try you.