Whether you’re a few years into owning your own private practice, mid-career, or seeking to transition, you have most likely asked yourself this question, “Where is my money going?” We all know what the answer to that question was when you were in school: books, tuition, fees, and for a fortunate few, entertainment. But now that you own and operate your own business, where is it going? How do you make and keep more of it? Profitability is arguably the single most important factor in running a successful dental practice. In this issue of Fortune Management E-News, we will share with you three simple steps for increasing your profitability without doing more dentistry.
1. Fee Positioning
Notice that step one does not say fee increase. That is because I do not believe that increasing fees is an appropriate strategy for improving profitability. I have, however, found that the fees of many practices are not consistent with their brand. This sends a mixed message to consumers. You can’t have Nordstrom prices with JC Penney quality and service. Conversely, you won’t be in business very long if you are providing Nordstom quality and service with JC Penney prices. For many practices, fee positioning gets neglected, which results in diminishing margins. Simply positioning fees so that they are consistent with your brand will increase your new patients, maximize your active patients, and increase your case acceptance with those patients to which your brand appeals. Your position should be a direct reflection of your brand. Is your angle convenience, impeccable service, economy? Determine what your brand is, and then evaluate how you have your fees positioned. If you are not positioned appropriately now, simply plan periodic increases of no more than 12% per year, until your fees are where they need to be. Once your fees are positioned appropriately, I recommend an annual increase of 10% to compensate for inflation.
2. Insurance Negotiation
This is an area that is often overlooked, and can be an area of tremendous opportunity. Many practices don’t know that they can renegotiate reimbursements each year. This is also one of the reasons that the fees for many practices aren’t positioned appropriately. If you don’t raise your fees to compensate for inflation, insurance companies have no incentive to increase their reimbursements. Over time, as your costs continue to increase, your margins dwindle away and you’re wondering why your payroll, lab, and supply costs are above your accountant’s recommendations. It’s not because you’re paying too much; it’s because your business model and strategy are not compatible with one another. Although there are some dental insurance companies that will not renegotiate, the vast majority will. If you don’t feel that you or a member of your team is equipped with the skills to negotiate with insurance companies, there are several companies that can support with this process. One in particular is Profitable PPO’s. It takes about six months to complete and can have an extraordinary impact on your bottom line.
3. Cost Containment
When is the last time you looked at your Profit and Loss Statement? Do you have specific and strategic allocations for each and every cost you incur? Do you have a targeted profit margin? For many practices, reviewing the Profit and Loss Statement seems to be an insurmountable task. What goes into each into category, and more importantly, how do I keep them within healthy ranges? The answer is focus, awareness, and individual accountability. The first two steps will naturally bring many of your costs within a healthy range, but that’s not enough. For something to improve, you must monitor it. I recommend reviewing your Profit and Loss Statement each month with your team. That’s right: with your team. They are not just administrative coordinators, assistants, and hygienists; they are Vice Presidents for the departments of your practice for which they are accountable. It’s time they be empowered with sufficient resources, and held accountable for playing the game at a higher level. Most team members will jump at the opportunity, and the few that run are probably not the right team member. Identify different people to be accountable for specific line items on your Profit and Loss. The five to focus on are Payroll, Lab, Dental Supplies, Office Supplies, and Marketing. Leadership is about results. Give them the freedom to achieve your desired allocations in each area, and hold them accountable to the result.
Regardless of where you are in practice, profitability is an extremely important consideration. If you’re just starting out, the additional cash flow will help you market effectively and make the necessary investments to build your practice. If you’re mid-career, it will allow you to keep up with the advancements in technology and make facility upgrades to support your competitive edge. If you’re seeking to transition, it will ensure the financial capacity to compensate an associate as you help him or her build their patient base, without taking a hit on personal income. As the saying goes, “Cash is King”. Follow these three simple steps and I am confident you will not only see an immediate impact on your bottom line, but reduce personal and professional stress simultaneously.