Incremental Revenue – A Series – Part 9 – In Summary
This summary will be the last installment in the Incremental Revenue series, at least for now. I want to briefly touch on the various topics we have addressed over the last couple of months. I will number each of the summary points so that you can easily find your way back to the specific detailed articles. I am also going to suggest an easy way to get an assessment of the existence and status of your personal low-hanging fruit.
The Proposition for this installment is easy – Incremental Revenue means greater profits and increased practice value. If you know where to look, you can find Incremental Revenue in various places in your practice. Finding hidden Incremental Revenue is only the first step. The second step is actualizing it. The finding and the actualizing activities are likely a lot easier than you would think once you know what you are looking for. If you send someone into the forest to find King Bolete mushrooms, they may be easy to find, but only if you know what they look like and if they are actually there, but good luck if you don’t even know what they look like. Over the last few months, we have learned what Incremental Revenue looks like, where you can find it in your office and how to make it work for you.
There is a unique relationship between the value of your dental office’s services and the cost of those services. As you increase the dollar value of the services you provide, your costs do not increase proportionately. For example, if you increase your revenue by 20%, the cost of providing those services does not go up by 20%. Your costs may go up as little as 10% however, the exact amount will be a unique function of each practice. As outlined in the first session, increasing your revenue by 15% could have the effect of increasing your net profit by 40%. This is the Incremental Revenue Effect.
You can find the roots of Incremental Revenue in the results of these four basic actions:
- Billing existing patients for additional services
- Adding more patients and billing them the same as existing patients
- Adding more patients and billing those patients for additional services
- Adding more patients and billing the new and the existing patients for additional services
Any of those four actions will result in Incremental Revenue however, the 4th activity will result in the most Incremental Revenue. Your most profitable activity will be to actively source incremental new patients and provide your whole patient base with incremental services.
There are two fundamental factors in the Incremental Revenue formula, new patients and additional services. In order to make the most of the Incremental Revenue phenomenon, you need more new patients. We considered the value of a new patient over their first ten years in the practice to be about $6,500, with 66% of that revenue going straight to the bottom line. We also reviewed the various ways a practice can obtain new patients. Finally, we determined that you could afford to pay $500 pr $600 per patient for a block of new patients and that this amount was materially below the current market value of new patients in a block.
One of the best sources of dental practice incremental revenue is the hygiene department. Most hygiene operations function at a level well below optimal. General practices in Ontario should be generating about $250 to $300 of hygiene revenue per active patient (the number of patients who received treatment in the last 24 months). If you find this metric in your practice is lower than the suggested level, then you should consider a review of:
- Your recall protocols
- Your reactivation strategies
- Your COE protocols
- Your Soft Tissue Management program
Incremental hygiene revenue has a relatively low incremental cost other than the occasional need to add an extra hygienist. If a practice with 1,000 patients is producing $75 less than optimal, then increasing its production to optimal levels could increase its gross production by $75,000 or its net profit by at least $60,000. At a 5.5 multiple, an extra $60,000 of net profit equates to over $300,000 of increased practice value. For more information about incremental hygiene revenue, refer to Session 4.
In Ontario, somewhere between 2 and 3 million people avoid going to the dentist because of concerns over cost, which means that over 22% of the people who could go to the dentist don’t. If active patients spend even $500 per year at the dentist, even 2 million people would equate to $1B of lost revenue per year. Conservatively assuming 50% of that $1B would work its way to the bottom line, that would represent increased practice values at a 5.5 multiple, of $2.75B. We all believe that credit cards have eliminated the cost factor of uninsured dentistry; however, this is not the case.
Session 5 will give you some very useful strategies for dealing with ways to mitigate the perception of high-cost dentistry. For example, learn about the perceived difference between a $1,200 procedure paid for upfront and the same procedure paid for $100 per month for 12 months. Understanding that there is a difference between what a dollar can buy and the value that different people put on a dollar is important in determining how to talk to patients about money.
While incremental hygiene revenue may be the easiest to access, incremental dental revenue has the potential to yield the most incremental revenue for your practice. Finding and accessing incremental dental revenue is more complex because there are so many more dental options than there are hygiene options. Dental revenue will also be determined by the procedures that each dentist enjoys and choose to pursue. It stands to reason that all general practices should be able to provide a full range of basic services, it is in the area of discretionary dentistry that there is room for such significant variations.
Notwithstanding the potential for variables, there are some core protocols that all general offices should be fully conversant with. In very general terms, these protocols would include the following:
- Diagnose the disease, dysfunction, or dissatisfaction.
- Prepare the right Treatment Plan.
- Present the Treatment Plan to the patient
- Provide the service.
If you are not totally sure that you are fully conversant with any of the topics above, review Sessions 6 & 7. The good news is that if you are not, there are a lot of resources available to help you become more comfortable with these protocols. After helping dentists achieve and exceed their objectives over the past 40 years, I am totally sure of two things:
- I have never seen a perfect office
- I have never seen an almost perfect office that has not used the services of coaches and consultants.
One dentist with two hands can only do so much, and if you do not have enough time to do all the dentistry you could do or want to do seriously, you should be thinking about an associate. The reward for running a patient-driven practice is more patients. You will get more new patients until your ability to provide them with the services they need and want falters, and then you will start to lose patients because of poor service – this strategy makes no sense. Many dentists will tell you that their experience with associates was not great; however, that does not mean that utilizing associates is not a good strategy, it just means that the process was not done properly. If someone not schooled in mathematics concludes that 2 + 2 = 5 it does not mean that the theory of mathematics is wrong, it means that someone didn’t do the math correctly.
Associates do work, and they can be a great source of incremental revenue. The key to finding successful associates is knowing what to look for in the first place and then knowing how to integrate them into your office. If you are not comfortable with that process, the good news is there are resources that can help.
Incremental Revenue unquestionably adds disproportionately to the bottom line and practice value. With the information that we have provided in this series, you should be able to harvest a good deal of your own low-hanging fruit. We are passionate about ensuring that our clients have accessed as much of their low-hanging fruit as possible, such that we designed an Estimate of Value appraisal which in addition to determining practice value, will highlight the areas within the practice that could contribute to Incremental Revenue. Our regular fee for this Estimate of Value appraisal is $2,700; however, we will happily extend a 25% courtesy discount if you mention this publication. Our sister organizations include a team of dental coaches (HD Dental Coaching) and a team dedicated to recruiting and integrating associates into your practice (Associates On Demand). It is not unrealistic to increase the value of almost any dental practice by 50% through the utilization of Incremental Revenue.
For information about coaching services specifically designed to help you capture all of your incremental dental revenue, please get in touch with Linda Anderson at firstname.lastname@example.org. Linda heads the dental coaching team at HD Dental Coaching. If you would like more information about recruiting and integrating associates into your practice, please get in touch with Kimberly Pacula at email@example.com.
Finally, if you would like more information about this or any other articles in the Incremental Revenue series, please contact Derek Hill at firstname.lastname@example.org or email@example.com. For other articles by Derek Hill, you can visit the Hill Kindy Practice Sales website at www.hillkindy.com.