Financial Independence comes from Increased Net Profitability. In order to maximize profitability, Paragon recommends that a dentist tries to have a non-dentist overhead of 50%. Frankly, it’s hard to do and you must produce big, collect big – 100% net collections to net production – and you must continue to raise your fees every year. I think every Paragon doctor has the potential to accomplish all three of those.
To achieve a non-dentist overhead of 50% requires a very disciplined approach. At Paragon, we like to break this into five categories:
- Staff Payroll – 25%
- Lab and Supplies – 12%
- Facility, including all utilities, facility insurance and IT – 5%
- General Expenses – 4%
- Marketing – 4%
If one of the numbers is out of whack, it is usually for a certain reason. For instance, if the staff compensation is too high, it’s because you either have too much staff, you pay your staff too much for the performance you are getting, or you just don’t produce enough for that number of staff. It’s up to you to decide what category you fit in.
In the old days we used to separate lab and supplies. Today, I see them put together. If you haven’t joined a GPO (group purchasing organization), you will probably need to in order to keep your expenses under control. We recommend our clients reach out to Christina Tayal from Unified Smiles in Michigan.
Christina Tayal
Unified Smiles
Email: christina.tayal@unifiedsmiles.com
Cell Phone: 734-674-7208
Office Phone: 248-952-9344
Also, if you are using a high-quality lab, then the fees of your crown and bridge must reflect it. It’s the only way that I know to keep those numbers under control.
If your facility costs are too high, it’s either because you haven’t shopped around your utilities and IT or it’s because you have too much of a facility cost for your level of production.
If your general expenses are too high, it’s also usually because you haven’t shopped them. It’s important to consider that some of the expenses in the “General Expenses” category are considered by many to be an investment in your future. So sometimes people will let those numbers float just a little bit.
Finally, if your marketing expenses are out of line, it’s simple to get them under control. Having said that, my experience over the years is that most practices do not spend enough on marketing. Hence, they don’t get the growth they need. It may keep the marketing expense under control, but it ultimately cuts off the new patients that are needed to make all the overhead numbers fall in line.
Sometimes profitability is like flying an airplane. You have all four laws of aerodynamics in play, and you can’t know just one of them. If you know three of the four laws of aerodynamics very well, but don’t know the 4th law, you can still have a bad outcome. Like with so many things, it just takes discipline and a change in mindset to achieve a non-dentist overhead of 50%.
Go for it!
-Ken Runkle, Founder and President