“How is my practice doing compared to other practices out there?” A common question that we are often asked particularly by dentists looking to sell their practices. Sometimes the answer is “not as good as it could be, but nothing that a few tweaks couldn’t fix.” The real question of course is how do we know; how could you know if your practice is doing well or not? The answer to that question should be important, not just to dentists who are looking to sell a practice, but to all dentists who own a practice. Fortunately, there are a few metrics that are easy to calculate and that will tell you a lot about how your practice is doing, at least from a financial and service provision standpoint. Note that what you want to determine is whether or not you are providing all of the services that your patients need and want. Be careful to make the distinction between “the services that they want and need” and “the services you can get them to buy.” What we want to measure is the ethical provision of services that your patients want and need. In a pressured sales environment it is possible to sell people things they neither want nor need, which is not what we are talking about.
It should go without saying that the more services a practice can deliver, the more fees it can charge, so its gross revenue will be higher as will its net profit. Not only does this provide the owner dentist with a more robust net income but it also has a huge impact on the value of a practice. You will have to trust me on this but in most cases because of the fixed / variable mix of expenses, a 15% increase in gross revenue will increase the net income by about 45% and thus the value by 45%. The very best news is that most practices have the resources to increase their gross revenues by 15% or at the very least 10%. How then can you tell if your practice is one that has the capacity to increase its services and fees, and of course this is where the Magic Metrics come into play. Magic Metrics alone will not tell you how to increase deficient revenues, rather they will let you know which ones could be increased.
The Magic Metrics are as follows:
1.Active Patients: The very first Magic Metric is the active patient count where an active patient is defined as any patient (barring non-one-time emergencies) who has received treatment from the practice within the last 24 months (See Blog The “Active Patient” Conundrum for this rationale). We can use this metric to provide us with a host of information. Most computer systems can give you this number however, if not, and if you have a non-ethnically skewed practice, you can use the “B” method. Count how many active patients you have whose last name starts with “B” and multiply by 12, and you will be close.
2.Revenue per Active Patient: This is where the metrics start to get interesting. Take your total gross revenue and divide it by your number of active patients. The result will give you the average annual gross revenue per active patient. This is a number which should be reasonably comparable across a wide sample of dentists in your geographical area. Fine tune the process by dividing your dental gross and your hygiene gross by your number of active patients. Currently (2018) in the province of Ontario your average hygiene revenue per patient should be about $250. The average dental revenue per active patient is a little harder to compare because it is very dependent on the procedures that a dentist prefers to do and what he/she prefers to refer out, however in general terms, on average the number should be somewhere between $450 and $550 per active patient. If your Average Revenue per Patient (ARP) is materially lower than the metrics suggested above, then your practice has room to grow.
3.Number of Hygienists: Using statistics collected over the last 40 years, an average practice with a well-run hygiene and perio program will see 80% of its patients 2.5 times per year. In a practice with 1,000 patients, this means 2,000 appointments per year. If each appointment is an average of 45 minutes that is about 1,500 hours per year or about 32 hours per week. All and all, for every 1,000 active patients the practice will need one full-time hygienist.
4.Dental to Hygiene Fees Ratio: If a practice is generating approximately $250 of hygiene revenue per patient per year, hygiene fees should be 37.5% to 42.5% of total gross revenue. Another way to look at it is that dental revenue should be about 150% of hygiene revenue. This assumes that dental production is more or less normal. If the practice is generating disproportionately high dental fees, then of course the hygiene percentage will be lower.
To summarize consider the following:
- Get a count of your active patients.
- Calculate your revenue (dental & hygiene) per patient.
- Calculate your optimum number of hygienists.
- Calculate your dental to hygiene fee ratio.
If all of your metrics align as suggested above, then you are doing quite well. If they do not, then at least you will know where you should focus your energy.