High overhead is choking off profitability in many practices. Let’s start with the numbers. Levin Group recommends the following overhead percentage targets for general and specialty practices:
- General Practice – 59%
- Orthodontics – 49%
- Pediatric Dentistry – 49%
- OMS – 50%
- Periodontics – 51%
- Endodontics – 49%
- Prosthodontics – 64%
Most practices run 8-15% too high and don’t fully understand what that means to their bottom line. Look at these examples.
- If a practice has overhead that’s 1% too high, it’s losing $1,000 of annual profit (take-home income) for every $100,000 of production.
- If a practice is 1% too high and has $800,000 annual revenue, it’s losing $8,000.
- If the practice is 4% too high, which is quite common, with $800,000 in revenue, it’s losing $32,000.
Imagine what you could do with that extra income each year! How about going on a dream vacation or maxing out your retirement accounts?
Overhead control alone can contribute heavily to a doctor’s financial independence.
So how do you get overhead under control? Here are three tips that will make a difference:
- Measure every category of office expense against comparative information. The ADA and other associations publish relevant statistics to measure against your performance.
- Analyze the largest expense, which is usually staff labor. For example, if it’s over 25% in a general practice, the office isn’t getting the proper return on investment. This could be either due to waste or under-producing, but either way it’s costing the practice.
- Identify opportunities to reduce costs. Most practices fall into spending habits for supplies. Examine all costs and question sales representatives about how to lower your costs. These conversations often lead to cost reductions. If a sales rep is unhelpful, look at other manufacturers and suppliers.
Additional Resource
Want to get your financial house in order? Check out the Finance Reference Set by clicking here.
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