The Numbers Behind Your Dental Practice’s Performance
Prepared by:
Marcia Lewis, CPA/PFS, CFP
Director
Blue & Co., LLC
500 West Jefferson Street
Suite 1600
Louisville, Kentucky 40202
Ph 502.584.1101
mlewis@blueandco.com
www.blueandco.com
The Numbers Behind Your Dental Practice’s Performance
When you submit your dental practice’s tax return, you may feel you have completed your essential
financial analysis for the year, but you are not finished yet. While you need to know your practice’s net
income for the year, you also need to know the meaning behind the numbers so that you can take
action, if necessary, to improve your profitability and financial performance.
The first step in maximizing your dental practice’s financial performance is to accurately compare your
practice’s performance to that of your peers throughout the region, and to established benchmarks. A
trusted professional financial analyst can help you make that comparison, and more importantly, they
can help you identify what you should do if your practice underperforms in one or more of the
benchmarked indicators. Knowing the strengths and weaknesses of your practice can help you
improve both your bottom line and patient care.
One revealing area of comparison is how the various expense categories stack up as percentages of
net collections. Analysis in this area has been conducted by the Blue & Co. LLC 2010 Dental Survey of
dentists in our region, which is supplemented with information from the Dental Economics Levin
Group Practice Survey.
Labor expense is the highest line item cost of doing business. Your practice will not be profitable
unless you are controlling and monitoring your total labor costs, which include salaries, payroll taxes,
worker’s compensation, medical insurance, disability insurance, and retirement plan contributions. The
benchmark for personnel costs is 27 percent of net collections. If you exceed 30 percent you will want
to take some time to analyze labor costs in various departments. It is also important to monitor the
productivity of each doctor, hygienist and support staff member. When inefficiencies are identified
corrective measures, such improved training, should be considered.
The productivity and performance of your staff has a huge impact on your profitability, but measuring
and evaluating productivity can be a difficult task. To assess productivity you may need to ask
questions, such as do you have the right size hygiene department to handle your practice? Are there
open slots in your hygienist’s schedule?
The table below summarizes a few important ratios, industry benchmarks, and the results from Blue’s
2010 Survey.
Productivity Analysis
Indicators
2009 Average
Doctor Productivity
(Dentist Production/Days Worked)
Hygiene Production Ratio – (Hygiene
Production/Hygiene Pay)
Avg. charges per dentist per day worked
Benchmark > $2,750
Number of times hygienists cover their pay
annually
Benchmark > 3.0 times
Percentage of total charges hygienists
produce
Benchmark > 30%
Avg. charges per hygienist prophylaxis
procedure
Benchmark > $120
$2,289/day
Hygiene % of Revenue – (Hygienists
Production/Practice Revenue)
Hygiene Treatment Rate
(Hygienists Charges/# Hygienists
Procedures)
1
$3.19 times
29.9%
$109.13
The Numbers Behind Your Dental Practice’s Performance
(Continued)
If you are trying to grow your practice are you measuring your patient inquiry rate and your new
patient conversion rate? Do you know how many new patients you need to provide the growth you
are seeking in your practice?
The average percentage of net collections is 8 percent for facilities and equipment, 8 percent for
dental supplies, and 10 percent for lab fees. The average percentage of net collections for other
expenses is 16 percent, resulting in an average of 69 percent total cost of overhead and a net profit or
owner’s compensation of 31 percent. Obviously any practice may vary a bit from these average
percentages, but if you find that your practice varies considerably from one or more of these
benchmarks, further analysis may be necessary. This will include reviewing the various components of
your practice to determine what should be done to improve your profitability.
Another component of a dentist’s revenue is the breadth of the clinical service mix. Are you running
the reports needed to monitor your service mix and to know what additional services you could be
providing? The average practice performs 93 discrete procedures. The wider the scope of service mix,
the less patient flow required for a given production level. Your revenue is going to be affected by the
intensity of the treatment rate. How many crowns, fillings, or implants are you doing per 100 patient
visits?
Your revenue is also going to be affected by your case acceptance rate. Are you tracking your rate and
is your staff trained to assist you with improving the rate? The higher your acceptance rate the lower
the new patient flow you will require.
It is also important to monitor your billing and collections. Do you know whether your staff is
reconciling the fees collected per your financial records to the amount received in your billing system?
Do you have a daily production log, which is balanced to your software system at the end of each
month?
You should strive to keep your accounts receivable greater than 60 days at 20 percent or less.
According to Blue & Co’s 2010 Dental Financial Survey the average days outstanding was 39.3 days. If
a high percentage of your accounts receivable are older than this, your billing and collection
procedures should be reviewed to see what can be done to accelerate collections. The chart below
summarizes the aging of accounts receivable for General Practitioners:
Days Outstanding
0 - 30 Days
31 - 60 Days
61 - 90
91 - 129 Days
> 120 Days
Percent
52%
12%
6%
24%
6%
As you can see, the average accounts receivable greater than 60 days is 36%. This means that
practitioners could improve profitability by better monitoring their receivables.
In a recent article in Dental Economics, it was estimated that it costs your practice between $7 and
$10 per account per month in administration and mailing expenses. So, speeding up your collections
will not only put money in your pockets sooner, but can drastically reduce overhead expenses to help
you become more profitable.
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The Numbers Behind Your Dental Practice’s Performance
(Continued)
It is not enough to simply identify areas in your practice that need improvement; you must set
objectives on how to reasonably accomplish these improvements. Consider creating a simple monthly
report to measure each objective and communicate the objective with your staff. You can create
excitement by including incentives for your employees who meet their goals.
A growing, profitable, patient-centered dental office does not happen by accident. You can facilitate
the improvements you want by accurately assessing your practice’s needs and establishing clearly
defined goals and objectives.
For assistance in meeting your financial goals, contact Marcia Lewis at mlewis@blueandco.com.
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