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Dental Practice Accounting: The Dental Profit Equation
Introduction
In the fast-evolving dental industry, dental practice analytics are more important than ever before. By focusing on specific aspects of your operations and production, you can find new ways to grow your practice profitability.
By reviewing your practice data, including the number of visits, production per visit, collection percentage, and overhead expenses, you can create specific strategies to significantly increase your revenue. In this blog post, we’ll explore the key areas of dental practice accounting to make targeted improvements, so you can achieve sustained financial success.
The Profitability Formula
The dental practice profitability formula used by Dental Intelligence is separated into four key areas:
- Number Of Visits – the number of patient visits over a certain period (e.g. day, month, quarter, year).
- Production Per Visit – the average amount a patient pays per visit (e.g. $200).
- Collection Percentage – the amount of patient accounts that are paid and collected in full (i.e. 98%).
- Overhead – The fixed and ongoing costs of running a dental practice, i.e. rent, insurance, subscriptions, utilities, wages, and repairs and maintenance.
Profitability = Number of Visits x Production Per Visit x Collection % – Overhead.
To increase your dental practice profitability, you’ll need to focus on maximizing each of the first three areas, while minimizing your overhead expenses.
Number of Visits
When it comes to dental practice accounting, the number of patient visits directly correlates with patient engagement, treatment acceptance, and overall practice revenue. A higher frequency of visits not only fosters a consistent patient-provider relationship, it also allows for more proactive and preventative dental care.
Hygiene Pre-Appointment
Optimizing hygiene pre-appointments can lead to increased patient retention and satisfaction. You can use an online dental practice accounting software like Dental Intel to create automated reminders, create alerts for staff to book re-appointments, reduce no-shows, and track your hygiene revenue.
Answering The Phone
The first point of contact often sets the tone for the patient’s entire experience. Efficient phone handling, effective communication, and customer-centric staff can enhance patient satisfaction and contribute to higher conversion rates. You could also implement an online booking system for certain procedures to help reduce phone wait times.
New Patients
Dental practices need a constant inflow of new patients to sustain their growth. When completing your dental practice accounting, it’s important to review your marketing budget.
- Internal Marketing: You could offer a discount to your high-spending existing patients to encourage referrals to friends and family, request online reviews, and implement loyalty programs to retain long-term clients.
- External Marketing: Investing in targeted external marketing strategies can attract new patients, while retaining existing ones. External marketing strategies include educational blog posts, email newsletters, online advertising, and community sponsorship.
Scheduling for Maximum Profit
Aligning appointment slots with high-value procedures and optimizing chair time helps maximize production per visit.
Production Per Visit
Production per visit measures the average revenue generated during each patient visit. It’s a key component of dental practice accounting. It’s directly influenced by diagnosis, procedure mix, high value procedures, number of procedures, case acceptance, pricing, PPO reimbursements, and fee schedules. By increasing your production per visit, you’ll boost your long-term profitability.
Proper Diagnosing: An accurate diagnosis is essential for treatment planning and revenue generation. Dental practices should aim for hygiene services to constitute approximately 33% of total revenue.
Procedure Mix: You could explore the option of expanding your dental service offerings to include cosmetic dentistry, orthodontics, dental implants, or specialized treatments. This can help you attract a wider patient base and increase your practice revenue.
Training for High-Value Procedures: Investing in staff training for high-value procedures can increase the range of services you offer, while also increasing the production per visit.
Number of Procedures: This is influenced by:
- The number of providers or dentists available to provide treatments.
- The available chairs in your dental practice. By maximizing the output per chair, you can increase your total practice production.
- Operational efficiency: having more efficient processes, streamlined workflows, and advanced software can improve overall staff productivity and reduce idle chair time.
Case Acceptance: By using clear communication and educating your clients on treatment plan options, you can improve your case acceptance rates and profitability.
Price Per Procedure: Pricing your dental services is a balance between fair compensation while also maintaining competitiveness in the market. Pricing should reflect the value of the services provided, while considering factors like PPO reimbursements and fee schedules.
PPO Reimbursements: Negotiating favorable PPO reimbursements and regularly reviewing fee schedules is critical for maintaining a healthy bottom line. It’s helpful to stay informed about dental industry benchmarks and adjust pricing strategies accordingly.
Fee Schedules: These schedules serve as a framework for pricing dental services. By analyzing your operating costs, market dynamics, and competitive landscape, you can put together a comprehensive fee schedule for your practice.
Collection Percentage
When it comes to dental practice accounting, collection percentage reflects the proportion of billed amounts that your dental practice successfully collects. Achieving a high collection percentage (+98%) is vital for improving profitability and long-term practice growth. Implementing a detailed accounts receivable policy can ensure that outstanding payments are addressed promptly.
Collecting Up Front: By encouraging upfront payments for dental services, practices can reduce accounts receivable, minimize the risk of bad debt, improve cash flow, and streamline the billing process.
Patient Financing: Offering your dental patients financing options can help retain customers, while still minimizing bad debts and improving profitability.
Monitoring Accounts Receivable: Keeping a close eye on overdue accounts and making scheduled collection calls is crucial for receiving payments on time and helps to lower the chances of bad debts.
Overhead Expenses
Overhead expenses are a critical aspect of dental practice accounting. Overhead expenses include all operational costs except for dentist compensation. It’s important to strike a balance between providing high-quality patient care, and controlling operational costs.
With dental practice accounting, the target overhead expense ratio typically falls within the range of 50-55%. This provides your practice with the financial flexibility to weather economic fluctuations and reinvest in areas that contribute to improved patient experiences. By regularly assessing expenses and implementing cost-saving measures, you can increase profitability for your dental practice.
Profits
The dental landscape is competitive, so generating consistent profits is not only a testament to effective management, it also enables you to reinvest in your dental practice growth. Dental practice accounting can result in higher profitability, which allows dental practices to attract top-tier talent, invest in cutting-edge equipment, and enhance the overall patient experience.
The target profit margin dental practices should aim for is 45-50%. By reviewing your production data and overhead expenses, you can set targets to achieve this in your dental practice.
Where Can You Improve?
Dental practice accounting can help you find areas where you can improve and grow.
Step 1: Calculate and measure your production data and metrics. You can do this with an online software like Dental Intel and by working with an expert dental consultant like Sherri Hollenbeck, or the dental CPA team here at Drilldown Solution.
Step 2: Review your production and financial data for opportunities to grow.
Step 3: Make a plan and set specific goals and targets for each day, month, quarter, and year.
Step 4: Monitor your results, and adjust as needed.
Conclusion
In the dynamic realm of dental healthcare, the key to sustained success lies in regular evaluation of production per visit, collection percentages, and overhead expenses. Dental practice accounting can help you find ways to reinforce the foundations of your dental practice, while increasing your profits. To get started, you can contact Sherri Hollenbeck or book a free consultation with our dental CPA team here. At DrillDown Solution, we specialize in working with dental practices to create financial freedom and long-term financial success.
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Note: The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
