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Keeping Dental Supply Costs in Line

Keeping Dental Supply Costs in Line

Keeping Dental Supply Costs in Line

As a dental consultant, I get to work with dentists in every different financial situation you can think of. I have worked with dentists on the verge of bankruptcy, and I have also worked with dentists who take home over $2,000,000 per year from a single practice.

Each time I begin consulting for a new client, we go through a period of goal setting. The dentist puts together a list of goals that he or she would like to accomplish, and then we evaluate them together. Regardless of their financial position, most dentists tell me that one of their goals is to increase production. Although, as we dig further into the goal setting process it becomes apparent that increased production is actually not their goal at all.

When a dentist tells me that they want to increase production I have found that they are often equating increased production to increased net income or take home pay. As we continue our discussion, I am easily able to show them that increased production and increased take home pay are not the same. For example, I once worked with a dentist (let’s call him Dr. A) in Colorado whose practice produced over $1,500,000 per year. In the eyes of someone who is focused only on increasing production this is phenomenal! Now, what if I told you that Dr. A only took home $120,000 after expenses were paid? All of a sudden $1,500,000 in revenue does not seem so great. Yes, those are actual numbers! 

On the opposite end of the spectrum, I once worked with a dentist (let’s call him Dr. B) whose practice produced $380,000 per year. This number is nothing to write home about if you look at the practice from a production standpoint. However, this doctor was taking home $180,000 per year! He was working three, sometimes three and a half days per week while taking home more money than dentist number one. After looking at these two scenarios, the goal of increasing production seems to quickly morph into increasing take home pay.

As a consultant you realize that increasing take home pay requires one of three different scenarios. You can either increase collections without equally increasing expenses, decrease expenses while keeping collections constant, or increase collections and decrease expenses. Obviously we would all like the third scenario to happen, but for the fastest increase in take home pay, I always approach the second scenario as the starting point. Cutting costs efficiently is the fastest way to increase take home pay.

Here is some advice that will almost always provide you with thousands of additional dollars in your pocket. CHECK YOUR SUPPLY COSTS! Having worked with over 100 practices during my time as a dental consultant, I’ve regularly seen supply costs that were out of control. The optimal range for supply costs as a percentage of income is 5%-7%. The average starting percentage for practices I worked with was 10.3%. The highest that I saw was 16% while the lowest that I saw was 4%. Let me emphasize that you can get your supplies on the low end of that optimal range! I have seen it done over and over again.

But is such a small percentage really worth the additional effort? YES! Let me break it down for you. If you collect $700,000 per year and your supply costs are 3% higher than they could be, that is an additional $21,000 you are spending each year. To put that in perspective, the average dental practice that started working with me was 27% profitable. That means to take home that additional $21,000 without lowering your supply costs, you would need to collect an additional $77,777! I can assure you that it will require less effort to decrease your supply costs than it will take to increase collections by $77,777.

I have since retired from dental consulting and am now part owner of Oxford Dental Care in Idaho Falls. While we are a small practice, we operate at over 40% profitability and our supply costs are 4%. We owe this in large part to Safco. While many dentists have to shop around to get their supplies to that level, keeping proper inventory and ordering through Safco has our supplies right where we need them to be.

Adam Smith Oxford Dental Care

Note from Safco: We’re proud to say we pay nothing for these kind words. This customer received zero compensation from Safco, nor has any paid consulting relationship with us.

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