Financial KPIs And Metrics For Dentists

Financial KPIs are the foundation of business success for dental practices. By setting and tracking specific accounting metrics and values, you can ensure that your business is continually achieving its objectives. In this article, we explore essential accounting KPIs and metrics that every dentist should track to maximize their business’s financial success.

1. Net Profit Before Owner Compensation

A more precise measure of your businesses profitability is net profit before owner compensation. This financial KPI reflects your profit after accounting for overhead administrative and operating expenses like rent, insurance, utilities, team payroll, discounts and write-offs, and before interest and depreciation. A healthy dental practice should generate 40-50% net profit for the owner and for debt repayment. The inverse is that overhead expenses should be in the 50-60% range.

2. Accounts Receivable

Your accounts receivable balance should be 1-1.5 times average monthly collections. Review your accounts receivable aging report regularly and set goals for regular collection calls to patients and insurance payers. You should be collecting at least 98% of your billings, meaning you should have no more than 2% bad debts.

3. Cash Flow

Monitoring cash flow is vital for handling expenses, investing in growth, and navigating unexpected financial challenges in your business. By regularly reviewing this financial KPI and ensuring you’re maintaining a cash flow positive position, you can safeguard the financial health of your business and ensure all expenses are paid on time. Your P&L alone is inadequate because it does not track debt principal payments, a key element of your cash flow. Good accounting software will generate a cash flow statement, allowing you to see when cash is being used.

4. Production Per Chair

A key accounting KPI is to calculate the collections per dentist chair or treatment room. An average monthly production per dental treatment room is around $25,000 or $300,000 per year. Aiming for a rate above this will help your dental practice succeed over your competitors. If your Patient Management System does not track this metric, divide collections by the number of chairs for the time period of interest.

5. Case Acceptance Rate

Case acceptance rate is an accounting KPI that measures the rate of clients accepting your proposed dental services during a consultation. A higher case acceptance rate (including regular hygiene appointments) translates to increased revenue, showcasing the effectiveness of treatment plan presentations. If your case acceptance rate is too low, you can review your treatment options and sales process, and find ways to help clients understand your services better. First, calculate your current case acceptance rate (e.g. 70%), and then set a new target to work towards (e.g. 85%).

6. Active Patient Count

Tracking active patients or clients is an important accounting KPI that shows the satisfaction of your current client base. It’s calculated by tracking the total number of current active patients in your dental practice or business (e.g. clients that have been active in the last 6-12 months). If your active patient count is decreasing over time, you’ll want to identify the cause so that you can correct it. It’s important to retain your existing clients, while also attracting new ones. You can calculate your active patient rate by measuring the percentage of total active clients within a specific time period, e.g. 1,000 clients were active out of 1,200 in the last year = 80% active patient rate.

7. Marketing ROI

When it comes to marketing, an important financial KPI is to evaluate the effectiveness of your marketing efforts by measuring the return on investment for each channel or campaign. Calculate how much revenue each dollar of advertising spend generates (e.g. $1 of advertising generates $5 in sales). Then you can identify ways to increase this to become more profitable. Track where your patients are coming from and how they are finding you.

8. Average Transaction Value

Another important accounting KPI is to calculate the average transaction value of each customer in your dental practice. By measuring the revenue per patient, you can identify opportunities to increase this by offering add-on services, and increase your overall revenue.

9. Profit and Loss (P&L) Statement

While this is not a KPI, your P&L statement is the tool used to derive other KPIs. It’s important to regularly review your P&L statement, as it provides a comprehensive overview of revenue, expenses, and net profit. Keeping track of your monthly, quarterly, and annual performance helps you make informed financial and business decisions. The right chart of accounts will improve your ability to quickly see KPIs in your P&L statement.

Conclusion

Understanding and regularly monitoring your accounting KPIs empowers you to make informed decisions, identify growth opportunities, and build a financially robust and successful business. By keeping a vigilant eye on your accounting KPIs, you can improve your profitability, cash flow, overall patient satisfaction, and ensure long-term financial success. Contact our expert team of dental CPAs here at Drilldown Solution to find out more.

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