I get a lot of emails and social messages from dentists who are beyond frustrated. They work hard, long hours in their practice and have nothing to show for it. They miss family events, haven’t exercised in months, and still can’t get ahead.
Worse yet, many times, these dentists haven’t taken salaries in months, haven’t taken a vacation in months or years, and barely come up with the money to pay their team. They’re desperate. They need help. They need a better way.
Many times, when dentists are struggling, the issue isn’t that they aren’t great at what they do. It’s that they’re losing money on a lot of the services they perform and have no idea. That means they’d be better off financially by closing the office for the amount of time it takes to perform those services instead of bringing in revenue by performing them.
This is because they don’t consider the true cost of performing each of their services before setting their prices. They set their prices based on their zip code or by asking other dentists in the area, and then open for business. They accept every insurance plan that’ll have them no matter what the fee structure is. Inevitably, they lose money.
You can’t set your prices based on zip code, what some other dentist charges, or by feel. Every dental practice is different. Some have practice loans. Some dentists have student loans. Some practices own their real estate. Others rent. Each practice has different suppliers, supply costs, team-member salaries, and more.
One way to avoid becoming one of those desperate and overworked dentists is to know three numbers.
It’s critical that you understand three numbers for each procedure you perform. By calculating these three numbers, you’ll know exactly how much it costs you to perform each of the services you provide and can evaluate your fees accordingly. You may find out you’re spending hours each day barely breaking even, or worse. You may find that a PPO you accept is costing you money and you’d be better off without it.
By calculating just three numbers, you can know your true cost per procedure and make sure you’re making money on everything you do.
In the Delivering WOW U community, one of the trainings walks you through exactly how to set your fees and calculate your margins. I even share my margins template and calculator with the Delivering WOW U members. It walks you through calculating each of the three numbers I explain here: materials costs, fixed-practice costs, and labor costs.
Calculating Materials Costs
The first number you need to know is the costs of the materials you need to use for each procedure. Here’s now to calculate that number.
1. List every service you provide in a spreadsheet.
I recommend you have a team member create a spreadsheet for each service. For example, you might have a sheet for fillings, crowns, hygiene procedures, and whitening.
2. Have a team member list the materials you use for each procedure.
I recommend having your dental assistant who knows the process for each procedure list all the materials you use for each procedure. If they aren’t sure, have them list them the next time you perform the procedure. You’ll be surprised how much material you use, even for a simple procedure.
For example, here are all the materials listed for composite fillings in my office: topical gel, 1 or more carpules; 12 gauze, 2 cotton rolls, peak or pq1, etchant, flowable, wetting resin, composite, articulating paper, floss, needle polisher, football polisher, acorn polisher, jiffy white points, jiffy yellow points, jiffy green points, high-shine jiffy polisher blue, Fisher 556 bur, blue micro tip, red inspiral tip, black micro tip, bib, suction tip, saliva ejector, mouthwash, long or short needle hub, facial mask, cup, gloves, and tray covers. If you have any lab costs for a treatment, make sure they’re listed here, too.
As you can see, materials add up. You need to list everything you use to have an accurate materials cost.
3. Have a team member pull and enter the costs for the materials from your supply company.
Once you have those numbers, calculate the cost per procedure based on the volume purchased and the amount used for each procedure.
4. Add up how much you’re spending on the materials for one procedure.
That is your materials cost per patient per service. In my practice, my materials cost for a composite filling is $25.27 per patient.
Once you have your number, you’re one-third of the way to understanding how much it costs you to perform that service.
Calculating Fixed Costs
The next number you’ll need to calculate is your practice’s fixed costs per hour. This includes things like power, water, internet, alarm, phone, cell phones, marketing, rent or mortgage, maintenance, property taxes, loan repayment, shipping, office supplies, promotional products, equipment, etc.
Because some of these numbers fluctuate, I suggest taking the average of the last three months.
Once you have the average total fixed costs, divide that number by the number of hours your practice is open. This lets you know how much you spend on fixed overhead items for every hour you’re in business. For my practice, that comes to an average of $67.37 per hour.
Calculating Labor Costs Per Hour
The final number you need is your labor cost per hour. Although you could make this calculation very complicated, I suggest simply adding up the hourly rates for the team members working at your practice. In my office, I average $67.00 per hour that I’m open.
Calculate the True Procedure Cost
Once you have your three numbers, calculate your procedure cost based on the time it takes you to perform the procedure. It takes me 30 minutes to do a composite filling, so my true procedure cost looks like this:
Materials Costs: $25.27
Fixed Overhead (30 minutes): $33.64
Labor Costs (30 minutes): $33.50.
That means the total cost for each composite filling in my office is $92.41. If I charge anything less than that, I’m losing money.
Set Your Fees and Evaluate Your Relationships
Once you know your costs, it’s time to set your fees and evaluate your insurance relationships.
It’s important to notice there’s no Doctor’s pay in those numbers, so anything under $92.41 per composite filling, and I’m losing money. The amount above $92.41 per composite filling is my pay.
If my PPO pays me only $115 to do a composite filling, I’ll make $22.59 for the 30-minute procedure, or $45.18 per hour.
Once you have your number, you’re ready to set a fee that protects your profit.
If you need help and support from me, including a detailed training and template spreadsheets for this, the support and guidance of the Delivering WOW Community, and a whole lot more, consider signing up for Delivering Wow U, right here. If you join now you can even get full access for 14 days for only $7.
Dr. Anissa Holmes, a Dentist, and Business Groth Strategist teaches dentists and their TEAMS how to build a profitable practice through her online Facebook course FBMastery for Dentists and Delivering WOW U.