Growing Your Dental Practice
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Minimizing Supply Costs

7/22/2016 7:37:39 AM   |   Comments: 0   |   Views: 152

How do I find my supply costs?

If you are a dentist who owns your own practice, your supply costs should be readily available to you. Whether your financials are prepared by you, or by a book keeper, this is a cost that you need to be aware of at all times! If you are not keeping track of supply costs you are likely loosing thousands of dollars from your bottom line on a yearly basis. If your bookkeeper is not breaking out supply costs, ask them to do so immediately. This article called Keeping Supply Costs in Line can shed some more light on why this number is important to know.

How you can save money by keeping track of supply costs

When I worked as a dental consultant for Dental Intel, I was able to analyze the numbers of hundreds of practices. I worked personally with over 70 of these practices which gave me greater insight into their numbers. When we brought on new clients, their average supply costs were 10.3% of collections. Our goal was to help our clients get into the 5%-7% range which we almost always accomplished as long as we had good cooperation from the staff. Now, you may have just read that last line and thrown in the towel already because cooperation from the staff can be difficult. Let me assure you that it is worth the effort of putting systems in place to get supply costs to where they need to be.

Let me give you an example of why it is worth the effort. I had a client who was consistently collecting about $850,000 per year. This client had discussions with me on a regular basis about how he didn't have enough money to support his lifestyle. Part of this was a lack of discipline in the area of personal finance, but part of it came because his costs were much higher than they should have been. As we analyzed his numbers his supplies were at about 9.5% of collections. I told him there was money to be saved there and he told me that he "really liked his supply rep". So I decided that I needed to break it down a little more for him to show him how much he liked his supply rep.

I told him that I was confident that he could get his supply costs to 5%. I was confident in this because he was not placing implants and I had gotten to that point with dozens of clients before him. So I ran the numbers. Savings of 4.5% on $850,000.

$850,000 x 0.045 = $38,250

So I asked him, "do you like your supply rep enough to give him $40,000 per year"? His answer was no and we started implementing cost savings strategies for his dental supplies.

Is it worth the hassle?

To put this cost savings in perspective for this dentist it was important to look at the other options that would give him an additional $38,250. This particular dentist was 28% profitable when he started working with me. I explained to him that if he wanted to make the same amount by increasing production, he would need to produce an additional $136,607. Based on his average yearly collections per patient he would need to increase his active patient base by 390 patients without increasing his marketing expenses. After reviewing a few of his other options to save this money (reducing wages, reducing staff, etc.) we decided that this was a good place fro him to start.

What steps do I need to take

Step One: Minimize Waste
Spend a few hours auditing all of the areas in your practice that utilize supplies to determine if there is any wasting happening. Streamline these processes to minimize supply usage without slowing down workflow or compromising sanitation.

Step Two: Keep Inventory
Come up with an inventory system that works for your office. Assign someone to be in charge of keeping inventory and ordering in advance! I made that bold because rushed supply orders will always cost you more.

Step Three: Get Discounts
Sign your person in charge of inventory up to get discount notifications from any supply site possible. When a good deal comes across, stock pile! I know, you may be saying "but this will increase my supply costs for the month". To which I would respond, yes it will, but if that makes it so you can't make ends meet for a month you probably have some work to do with your personal finances as well. Believe me when I say that your total supply costs will be down for the year if you order this way.

Step Four: Price Match
If you are not loyal to a company, price shop. If you are loyal to a company, your person in charge of inventory should make a list of what all of the major distributors charge for supplies and price match. Your supply rep wants to keep your business and if you can show them that you could get the supply for cheaper somewhere else they will often match the price. If they will not, don't be afraid to go somewhere else to get it. Remember, you don't like your supply rep enough to give them $40,000 extra per year.

If you are not already doing these four things, do them! They will save you money! Likely a lot of money!

Does it really work?

I know you are probably asking if this is really going to work for you. The answer is yes. I have done this with dozens of clients and they can always get their supply costs in that range if they are willing to put in the effort. At our dental practice we have been sticklers on this since day one. Our supply costs have not exceeded 6% for any quarter since we purchased the practice. This includes quarters in which we have stock piled supplies. If your supply costs are out of line, this process will be very lucrative for you. I have included a screen grab from May for our supply costs from our income statement for the month just in case it gives you more incentive to put in the effort.

Supply Costs Sample
Category: Supply Costs
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