Q. How can I determine if my practice is underproducing? I feel like we’re not meeting our potential, but I don’t have anything to compare it to.
A. Great question. And believe it or not, you’re actually looking at two different issues here – depending on how you define them. A practice that is underproducing versus one that isn’t meeting potential are not one in the same.
For our purposes, let’s define “underproducing” as: not meeting the level of production necessary to be economically “viable,” (i.e. working or functioning at a sustainable, acceptable level). I’ve seen plenty of economically sound practices that could do more (i.e. have more potential). So, let’s start with the first part of the question – how do you know if you are underproducing? While there are a number of formulas for this, let’s use a simple one – your payroll as a percentage of overall collections. It’s a pretty simple formula:
(Related: 4 Profitability Killers in a Dental Practice)
- Calculate your average collections for the past four months.
- Now, calculate your staff payroll, including payroll taxes. Little exception here though; DO NOT INCLUDE DOCTOR/OWNER OR ASSOCIATE DOCTOR PAY. You WOULD include everyone else (Office Manager, Hygienist(s), assistants, etc.) But not the doctor/owner and or any associate doctors. Instead of just grabbing a P&L, you may wish to try this:2a. List out all of your staff.2b. Take the staff member’s hourly rate and multiply it by the average hours they work a week (ensure you factor in overtime compensation in this figure if they regularly put in overtime). Now you have their average weekly pay. If this is a salaried employee, you would just list their weekly salary.2c. Add up the total payroll for all of your staff.2d. Now multiply the figure from “2c” above by 52 (weeks in a year) and then divide by 12 (months in a year). People often make a mistake when doing this. For example, let’s say someone has a receptionist that they pay an average of $500 a week. If I were to ask them “How much do you pay your receptionist per month?” Nine times out of ten – they will say: “$2,000.” You know, four weeks in a month multiplied by $500. But this is wrong. Four weeks multiplied by 12 months is 48 weeks. There are 52 weeks in a year. And I would think that your staff expect to be paid for all 52 of them!If you pay a receptionist $500 a week. You’re actually paying them: $500 x 52 weeks = $26,000 divided by 12 (months) = $2,167 a month.2e. Now, add the employer payroll taxes – for example in the US we have FICA (again I am not an accountant or tax attorney, just giving you an example), which is 7.65% of an employee’s pay that you as an employer match (and there’s more to this – but let’s keep it simple). There’s also your Unemployment Insurance percentage. Our Canadian clients have things like the Canada Pension Plan and Employment Insurance. In any event, if you have trouble with this, simply take your total payroll amount and call your accountant and he or she can give you a ballpark estimate of how you’ll have to pay on a monthly basis for employer payroll taxes.2f. Add the total from “2d” and “2e” above. You now have your total payroll costs (less the doctor/owner and associates.)
- Now, your payroll, including taxes, less doctor and associate pay should not exceed 22.5% of your average gross collections. (For all overhead percentages go to Jeff’s overhead blog here.) So, to see where you are, take the figure from “f” and divide it by the figure you came up with in “1” above (average collections). This will tell you your actual payroll percentage. If it’s above 22.5% you are underproducing.
- If you want to get a little fancier, let’s figure out how much you SHOULD be producing based on how much you are paying your staff. Take your payroll figure from “f” and divide it by 22.5 and multiply it by 100. This will give you what you SHOULD be producing (really collecting) based on your payroll figure. Now, why you would be underproducing, Jeff answers this in a previous blog post that can be found here.
(Related: Is Your Dental Practice Overhead too High?)
Let’s look at an example:
- Average Collections are $83,000 a month.
- Total payroll, including taxes, less doctor and associate doctor pay is $28,000 per month.
- We divide “2” by “1”: $28,000 divided by $83,000 = .337 or 33.7 percent. This doctor’s payroll percentage is way high, and this office is underproducing.
- Now, let’s look at how much this office SHOULD be producing. We divide that $28,000 payroll by 22.5 = $1,244.44 and then multiply by 100 = $124,444.4 a month. This office is underproducing based on what they pay staff by a little more than $41,000 a month!
In our example above, there’s a good chance that – despite underproducing – this doctor is still paying their bills. Profit on the other hand is probably terrible. And that makes sense because who would see most of this $41,000 a month or $492,000 a year that this office should be producing? Yes, you guessed it – the doctor.
Now let’s take the other angle of this question:
How would you know if your office is not meeting its potential? Sure, you might be doing OK, but you know you could be doing more.
To keep things simple – let’s have a look at what I consider to be the “top three” potential “killers,” for the average general dentist.
We’ll start with…
When we have a client collect $50,000, $20,000, $30,000 more per month (and this is pretty routine) the 30 days following their first MGE Communication and Sales Seminar, what does that tell us?
For starters? This office should have been collecting this all along. The increase was simply the result of learning how to effectively present patient’s treatment plans. Prior to doing the seminar, these clients just weren’t converting these treatment plan presentations as well. The patients were always there. The treatment was always there to do. The difference now is that patients are doing the treatment as opposed to putting it off.
And I can guarantee that well over 90% of dental offices have this problem. Of course, it’s all wrapped in various justifications – i.e. “Insurance companies are the problem,” or “My patients have a low Dental IQ,” or “My patients can’t afford the treatment they need,” and any other “reasons,” we might wish to advance. But bottom line for most doctors – this lack of communication ability and trouble with case acceptance is costing them hundreds of thousands of dollars in lost profit per year, not to mention potentially higher levels of career satisfaction by being able to do the treatment they enjoy doing most.
So, yes – case acceptance or lack thereof is a definite “potential killer.”
For some reason, a poorly organized, underproducing Hygiene Department is ubiquitous in dentistry. It’s difficult to comprehend why. It’s easy to fix and if you were to ask the average American consumer “How many times are you supposed to get a dental checkup every year?” the majority would say “two.” (Of course, this does not account for three and four month recalls – but whatever.)
I can’t tell you how many times I’ll see an office with 4000 active charts and three days of hygiene per week (as a point of comparison, a practice with 400 charts should have between 12-16 days of hygiene a week – not including perio treatment (S/RP, etc.) or new patients).
Consider this: your practices’ long-term value, future treatment, new patient referrals, and truthfully what should be 30% of your production rides on your Hygiene Department.
Other than that it’s no big deal.
(Related: 5 Simple Ways to Boost Hygiene Production)
But again, consider a practice with 3 days of hygiene a week at an average of $1,250 a day (we’ll be conservative here) would be $16,000 a month in hygiene production. That same practice with 12 days of hygiene a week is seeing $65,000 a month in hygiene production! And that doesn’t take into account the sheer volume of hygiene patients coming (100 +/- a week) in that will need some kind of dental treatment. And add to that a doctor that is halfway decent at treatment presentation. I think you see the potential here.
And our third Potential Killer?
Lack of a properly trained Office Manager (OM).
You might not have an office manager. You might have one that is not well-trained or trained at all. And by trained, I mean trained as an executive. We cover this in the article What Exactly IS an Office Manager (And Why You Absolutely Need One!)
As a doctor, you’re most valuable to both your patients and your business chairside. Well, who’s “minding the store,” or “steering the ship,” while you’re doing that root canal? You? Nope. A doctor and well-educated OM form a dynamic partnership to manage and create expansion in a dental practice.
Who trains the new receptionist, so they don’t blow off the potential new patients calling in from your marketing? Yeah… your OM.
I could go on. But I think I’ve made my point.
I’ll end off by noting that in some instances, it’s easy to look at the physical features of your office and see the sheer potential. Maybe you have six chairs and could produce what you’re doing now out of three. Sure, you have more potential. But where are the patients going to come from to fill the chairs and the staff to take care of the patients?
I’ll end off here. But there is so much more I could cover. If anything, I’ll leave you with this. It’s rare to see someone who doesn’t have the potential to do better. But that’s not enough. Real improvement begins with drive and determination. And if you have those two qualities, we’re here to help. Give us a call today at (800) 640-1140 or fill out this form to set up a phone call.
Hope this helps!