As a dentist, you have a duty to provide dental care to your patients by diagnosing, treating, and preventing oral health issues. However, if you run a dental practice, it is crucial to keep your business healthy by conducting a profitability analysis.
Doing so helps you understand your practice’s financial health, allows you to make informed decisions about generating revenue and cost management, and helps you spot areas in which you can make improvements. It can be a challenge to know where to start, but getting started is critical if you want a dental practice that the members of your community consistently entrust with their dental needs.
Don’t put it off any longer and follow these six steps on how to conduct a dental practice profitability analysis:
1. Gather All Financial Data for Your Dental Practice
Start by gathering all the financial data for your practice, including financial statements that provide profit and loss reports, cash flow statements, and balance sheets. You’ll also want to take a look at production reports to understand the revenue you’ve generated and all your expenses to find areas where you can trim costs.
2. Calculate Profitability Metrics
You’ll then need to determine your profit margin as well as EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization. This will help you learn more about your operational profitability. Overhead rate, revenue per patient visit, and percentage of revenue collected also need to be factored into these metrics.
3. Compare Your Results to Benchmarks in the Dental Industry
With this information in hand, you can now compare the profitability metrics of your practice to the averages in your industry. It helps to focus on the performance of similar dental practices in your local area to see where you fit in.
Additionally, you’ll also want to compare how your dental practice is currently performing compared to previous years. This will help you spot trends and areas that require improvement.
4. Track Your Key Performance Indicators
Your dental practice is a business and it needs to generate profits and manage production in an efficient way to be successful without compromising patient care. By tracking daily, weekly, monthly, quarterly, and annually key performance indicators, or KPIs, you will be better poised to make any needed adjustments and increase profitability.
If you’re not doing this already, you need to start, which involves looking at factors like how many patients have scheduled their next appointments and how many have overdue payments, among others.
Take a look at some of the most important KPIs to track for your dental practice to enhance profitability:
Production Per Provider
It is vital to measure the production for each provider in your dental office to see how much revenue they bring in for the practice. As production is directly linked to revenue and business growth, this is an important KPI.
Collection Percentage
While collecting 100% of your payments is ideal, getting as close to that as possible is seen as a win. Uncollected revenues are a huge loss for your production, and you can determine how much you’re losing by calculating your collection percentage. Divide the production amount by the amount that you have collected to get this number; however, make sure you factor in insurance reimbursement delays.
Dental Hygiene Re-Appointment Rate
If you want to increase your patient retention rate, you need to find your dental hygiene re-appointment rate. While dental cleanings bring in the least revenue, they are an important part of your services, which can also tie into other services you may offer, such as teeth whitening or other forms of cosmetic dentistry.
Appointment Cancellations and No-Show Rates
The more cancellations and no-shows you have for your appointments, the greater the loss. If you discover you’re having a large number of cancellations, it may be time to enact a system to remind patients of your appointment policy. Many dentists put this information on a written appointment reminder card that they give patients before they leave.
Ultimately, there are many other KPIs that you’ll want to examine as you focus on the business side of your practice. Once you do, you can find more ways to improve your dental practice, and your revenue.
5. Look at How You Can Improve Your Dental Practice
In general, there are several ways that you can improve your dental practice:
Generate More Revenue
You may find that you need to increase production by maximizing the number of procedures you perform as well as the value of each one. Expanding your services is another way that you can generate revenue. If you’ve been thinking of offering another service in your lineup, now may be a great time to do it. Generating more revenue is also possible by improving metrics for case acceptance through enhanced communication and treatment planning.
Improve the Patient Experience
When you generate more revenue through improved communications and treatment planning, it also has the added benefit of increasing patient retention by improving their experience at your dental office. Patients who feel welcomed and can trust you and your team are more likely to keep using your services.
Reduce Costs
Along with generating more revenue and improving the patient experience, you’ll need to find ways to reduce costs. You can do this by negotiating with your suppliers to get better prices on the materials and equipment you need as well as reducing waste. One of the best ways to reduce costs is to streamline your operations with more efficient workflows and technologies.
Staffing is always a concern, and the costs can be overwhelming. You may worry about trimming the team and having a less efficient dental practice. It’s worth considering the cost of virtual dental practice professionals who can step in and handle an array of key tasks more affordably.
6. Put Your New Dental Plan into Action
A dental practice profitability analysis can provide the roadmap you need to improve your business as you move into the future. Once you get these key metrics, you can then implement the strategies that focus on improving your profitability.
However, it is also important to consider how things can change. Therefore, you must regularly monitor your progress and be ready to make adjustments as needed. Following the latest industry trends and best practices can help further shape your dental practice in perfect alignment with these changes.
While you’re taking steps in the right direction, you can’t forget to focus on tracking the KPIs for your dental practice. These will help you stay on track with your goals and allow you to quickly see where changes need to be made. It can be overwhelming, which is why you may want to get some additional help ensuring everything is run correctly.
Getting Help with Your Dental Practice
Every dentist has a primary focus of providing exceptional dental care to their patients. Running a dental practice can become complicated more quickly than you may realize.
If you are feeling overwhelmed with improving your dental practice profitability, a virtual dental assistant can be of tremendous assistance. They can ultimately reduce your burden and your costs while improving your revenue and customer satisfaction.
Streamline Administrative Duties
Administrative tasks are the backbone of every dental practice, and you need someone who can step in to manage records, handle billing, and insurance claims. You will relieve yourself of the paperwork while having a smooth operation that ultimately make your practice more productive.
Better Engagement and Communication for Your Patients
Even virtually, a dental assistant can enhance communication through a variety of ways. They can take on appointment scheduling, send appointment reminders, and follow up with patients after their visits.
Patients that are kept informed and engaged feel like they can better trust their dentist. When trust is created, it is more likely that you’ll improve patient retention.
More Cost-Effectiveness for Your Practice
It is far more costly to have in-house staff in your dental office. While you may certainly need some people behind the front desk, using a virtual dental assistant can ease some of those backend costs for salaries and benefits, not to mention free up office space. Virtual assistants provide all of these services for less, and also reduce overhead since they work remotely. If you have a small to mid-sized dental practice, your resources may already be spread thin. This can translate to long hold times on the phone or scheduling issues that can leave your patients feeling frustrated. Bridging the gap through a virtual dental assistant helps solve the problem.
You’ll be able to streamline your operations, improve patient satisfaction, and reduce your costs to maximize profitability, all without sacrificing the high standards that your patients expect. If you’ve conducted a dental practice profitability analysis and have found that you need to trim costs while keeping a full schedule to generate more revenue, this is one improvement you should make to help your practice flourish.