4 Tips for Cutting Overhead Costs in Your Dental Practice

LOVELYDAY12 / STOCK.ADOBE.COM

One saying has proven to be true time and time again: “You need to spend money to make money.” But there also comes a point when your expenses far outweigh your income – and that’s a recipe for disaster. According to the 2021 Dental Buyer Advocates study, the median practice overhead for 2021 was 61.9% and the average 75%. These numbers are on the high-end for the industry and business operations in general.¹

No matter the size of a practice or accrued average revenue, every dental owner has the goal to reduce overhead and increase profit and savings. The best way to reduce overhead is to become more efficient, while concurrently reducing the cost of your practice. While many expenses cannot be eliminated entirely, there are strategic ways to assess and decrease overhead costs, increase profit margins, avoid fatal cash flow problems, and put a dental practice on track for retirement savings. Below you will find tips and tricks for cutting overhead to regain thousands of lost dollars – without ever sacrificing efficiency or the patient experience.

Review Your Numbers Regularly
A practice cannot accurately assess overhead costs without having a baseline. Spending time each month, quarter and year to review overhead costs helps you establish trends, identify areas you are spending too much, or what may not be getting enough attention. Underlying issues and potential opportunities to become more efficient or cut costs may not be immediately obvious, however, when you consistently review your numbers and evaluate your operation you can better understand where your strengths, weaknesses and opportunities lie within your practice.

Deciphering service prices, equipment prices and overhead in general can be a daunting task. Consider partnering with a financial advisor to accurately assess your practice and the opportunities you may have to reduce costs and grow your margins and retirement savings.

Keep an Eye on Employee Wages
One of the largest overhead costs for dental practices is staff. When combining salaries, worker’s compensation, payroll taxes, medical insurance and more, these items are a necessary expenditure that can add to your overhead. For instance, the median staff costs as a percentage of collections is 33.1%.2 There are numerous factors that go into calculating the appropriate wage for each employee, but traditionally, wages should average approximately 20% of the practice’s total revenue – not production.

Insurance reimbursements can be a headache when evaluating staffing costs as well. Let’s say you’re producing $2 million annually, but the insurance companies take away half of that revenue, it’s going to appear on paper that your employee costs outweigh your revenue by far too much. When dental practice owners see this, they tend to think they are overstaffing their practice. If you are staffed to produce $2 million and have based your employee costs on that production, then your numbers are going to be way off. It’s important to always evaluate staffing expenses in respect to revenue versus production for an accurate and overhead-friendly reference.

Another factor when it comes to your practice’s team is efficiency and performance. Poor performance drains a practice and increases overhead costs, making it critical to hire the right people for the job and provide the tools and training needed for them to succeed. Proper training requires education and experience, and for long-term results, employee training should be continuous, consistent, well organized and informative to foster a well-equipped dental practice.

Evaluate Lab Fees
Lab services are essential to a dental practice and to provide the best possible care for patients, however, lab fees can take a big toll on overhead when left unevaluated. A safe overhead percentage for lab expenditures is 10% or less of a practice’s actual production. If lab fees total over 10%, there is no need to panic, but additional lab options should be evaluated. To reduce lab overhead, consider finding a larger dental lab network with more reasonable fees, investing in new technology that saves the practice more in the long term, or bring lab work in-house.

Dentists looking to improve communication and minimize wait times for dental restorations sometimes opt to hire their own dental technician to create their own in-house dental lab. Talk to your team and evaluate your options. If it costs less to run it in-house than what you’re currently paying, then it may make sense. Because this can be a large undertaking, it’s important to weigh the costs and understand the start-up time required before profit generation is realized.

Assess Budget and Need Ahead of Purchasing New Equipment
While dental practitioners want the best of the best equipment for their patients, there are times when the shiny new toy can wait. When it comes to purchasing new dental equipment, the best path to follow is a budget. Dental equipment costs quickly spiral out of control if one isn’t careful, so running a cost-benefit analysis for each equipment upgrade is integral for staying in budget.

More bells and whistles on fancy equipment do not guarantee a better staff and patient experience. Since many modern pieces of dental equipment offer features that elevate the costs yet are extremely underutilized by end users, it’s important to narrow down choices by determining the features needed for day-to-day practice. For long term savings, consider the quality and longevity compared to the upfront cost with each option. By evaluating upfront savings versus quality you may be able to avoid potential replacements down the road and can make the best choice for your practice and goals.

A startling overhead percentage is a major pain point for many practice owners, but taking the time to evaluate operational strategies is the first step to achieving success and growth for both your business and your retirement fund without sacrificing efficiency or the patient experience. These topics simply scratch the surface of keeping your overhead manageable, so be sure to utilize your team and a qualified financial advisor to get on the path to lasting prosperity.

References

1. Hanks, B. What SHOULD the typical overhead be for a dentist office? Dental Buyer Advocates. https://www.dentalbuyeradvocates.com/what-should-the-typical-overhead-be-for-a-dentist-office/ Accessed July 12, 2022.

2. Hanks, B. Average Staff Costs in Dental Practices. Dental Buyer Advocates. https://www.dentalbuyeradvocates.com/average-staff-costs-in-dental-practices/ Accessed July 12, 2022.