Stop Worrying and Start Tracking these Five Essential Metrics
If there was ever a reason to kick start the engines it surely is now. It’s a new year, we have new vaccines – it’s a new beginning! What are you waiting for?!
Let us start by exploring what we call the “Magic Metrics” of successful practice growth and operation – metrics that we have been teaching for years. Hill Kindy is in the brokerage business but in the past, we also provided clients all across North America with very successful practice enhancement strategies. Part of our brokerage strategy for securing the best possible value for our clients is to ensure that their practices are functioning at full potential before they are sold. We know that small changes in the right places can result in huge changes to the bottom line and to the value of the practice. Now let’s dive in.
Metric #1 – Active Patients
Dental practice revenue basically comes from one source, patients. This makes knowing your active patient “count” extremely important when it comes to planning any kick start strategies. An active patient is a patient that can reasonably be counted on to contribute to the ongoing revenues of the practice. After more than 40 years of analysis, we have determined that a good definition of an active patient is a patient who has received a billable treatment in the past 24-months – not the last 12 months. The reason you should use 24 months is that a 24-month count will include patients who may miss a 12-month cycle for a variety of reasons that have nothing to do with their long-term relationship with the practice. Now the reality is, predicting the future is never a sure thing, however, after 40 years of statistics we can quite accurately predict the future dental requirements, or revenue potential, of the group of patients who have been into the practice within the last 24-month period.
So, the first Magic Metric that you need to know is how many active patients you have. Hopefully, your computer system can give you this number if you run the right report. You want the number of individual patients who have received treatment within the last 24 months. This not the number of appointments you have provided, it is the number of unique patients that you have seen. If you don’t have a computer, give us a call, there are some easy shortcuts to figure out your active patient count as well.
Metric #2 – Hygiene Revenue per Active Patient (HRAP)
The next Magic Metric is the amount of hygiene revenue each active patient is contributing to the gross revenue of the practice on an annual basis. This is a measure of the ability of the practice to generate revenue. At the time of this writing, the average well run practice in Ontario will generate around $275 per active patient per year. If you have 1,000 patients your hygiene revenue should be about $275,000. Calculating this metric is easy if you know two things: your active patient count (Magic Metric #1) and your annual hygiene production. Divide your annual hygiene revenue by the number of active patients and you will get your Annual Hygiene Revenue per Active Patient. If your HRAP is over $250 there may be room for improvement but not much. If your HRAP is between $200 and $250 there is some reasonable room for improvement if you chose to go after it. If your HRAP is below $200 then not only are you leaving revenue in the charts, but you may also be under treating your patients. In this case, you should look at your hygiene and perio programs to see where there is room for improvement.
Something that still catches me off guard is how often practice owners overlook the advantages of hiring someone to help improve the hygiene program. Consider for a moment the concept known as “Who not How”. What this alludes to is that you will most likely waste your time and money trying to learn how to fix any shortfall and additionally how to execute the fix – this will certainly be the case the first time you try your practice DIY. For almost every challenge that you can imagine and certainly every dental office management challenge, there is someone who already knows how to fix it. Rather than wasting your time trying to figure out how to fix something that you may actually never be able to do, why not hire someone who has already fixed that same problem somewhere else. The solution to most challenges in life is not “How” but “Who”.
There are a couple of things to watch out for and I want to address the major one. Some practices, for tax or other financial reasons, will have many of the diagnostic fees billed under a hygienist’s name. This can mislead the calculation by overstating true hygiene services. We recommend using the hygienist fees from the Preventative and Periodontic codes only as your “Hygiene Fees” for the purpose of this calculation.
Metric # 3 – Dental Revenue per Active Patient (DRAP)
The process of determining your Dental Revenue per Active Patient is the same as in Metric #2 with the exception that in this case rather than using hygiene revenue we use all of the dental revenue. The main difference between HRAP and DRAP is that while hygiene treatment is fairly consistent and the same, dental treatment is usually all over the map depending on what kind of treatment you are providing to your patients. A true “country” dentist will likely be providing totally different core services than a dentist located in an upper-class suburb of any of the major cities in the province. Suffice it to say that while some dental offices will generate totally legitimate fees at the rate of over $800 – $900 per active patient per year most will be significantly lower.
If your DRAP drops below $300 per patient you are likely not providing your patients with all of the treatment services that they need. Dental disease is largely consistent within the average North American community therefore it is reasonable to be able to predict the minimum amount of dentistry that most people will require. If you are below $300 per patient it is likely time to call in a “Who”.
Metric #4 – Revenue per Hour
This is a very commonly used metric particularly by American consultants however it is important to understand what it really means. When consultants are working with a practice to enhance their profitability, they often talk about the need to increase a dentist’s hourly production. This is a measure of how fast someone is, not of how much revenue the practice can be producing. Let’s take an extreme example. Suppose you have 100 patients and that is all you will ever have. On an annual basis, you are providing them with $60,000 of dentistry, which is all the dentistry they need and want, at about $600 per patient which is actually not too bad. You work 30 hours per week, and you take 6 weeks of holidays. You are working about 1,380 hours per year and so you are producing at a rate of about $43 dollars per hour – not so good. A consultant shows up and tells you that they can increase your productivity by 10-fold to $430 per hour, which initially sounds pretty good, so you proceed with their recommendation. Sure enough, you start producing dentistry at the rate of $430 but what is it that has really happened? Well, before the consultant showed up you were producing about $1,304 in a week, in 30 hours. Now you are producing $1,304 a week in about 3 hours. Working faster does not increase your profitability unless you have an unlimited supply of new patients or patients who develop new dental needs at an alarming rate. Increasing your speed is good if you have more work than you can get to, but only then will it increase your bottom line. A higher revenue per patient will always increase your bottom line.
Metric #5 – Practice Growth
Nothing in life is static – nothing stays the same. Everything in life, in the universe for that matter, is constantly changing, sometimes slowly but always changing – the world is dynamic. This also goes for dental practices; they are either getting bigger or smaller. Over the years we have worked with countless offices which have at some point been “closed” by the owner. A common comment went something like “We were just getting too big, we couldn’t handle all the new patients, so I closed the office so we weren’t so swamped.” These were dentists who had called us in because they now only had 2 or 3 days of work per week, and could not understand why. The reason was simple, the day they stopped taking new patients, their practices started to shrink. At the very least, every practice has patients that move away, find a new dentist, or pass away and with no new patients to fill the void, the practice shrinks. It may not be noticeable at first, maybe even welcomed, but over the years it starts to add up to the point the practice becomes a shadow of its previous self.
Your practice always needs to be in some state of growth. At the very least you need to be replacing those patients that leave. If you want your practice to grow, you need to do more than just replace leaving patients. It is easy enough to keep track of new patients, but what most dentists do not think to track is attrition. Attrition is not always easy to keep track of until such time as you reach out to a patient and they let you know that they will not be coming back for whatever reason. You need to try and track patient attrition and the best way to do that is with an active and well structured prebooking recall system. An active prebooking recall system will tell you who is coming back and who is not. Everyone in your practice, if they are not just emergency patients, should have a booked recall appointment whether they know it or not (more about that another time). This is the best way to get a running handle on the actual size of your patient base. In addition to keeping this running estimate of active patients, you should purge your charts at least once every other year but preferably annually. After you have completed your purge make sure you count the remaining charts which presumably will all be active charts.
Once you have a baseline to work with and you can monitor your patient base’s natural growth or attrition, you can determine how many new patients you need to either maintain your patient base or to make it grow. I would suggest that at a minimum your objective should be about a ten percent net new patient growth or more if you want to grow the practice. Also, if you get the chance to buy charts from a nearby practice and if structured properly, this is also a very cost-effective way to grow your practice.
These are five essential metrics that will help you guide your practice into a great post-COVID experience. There are certainly more metrics that you can monitor but these ones are some of the foundational metrics that every practitioner should be aware of. If you would like more information about key metrics that you need to be familiar with, please contact me at firstname.lastname@example.org for a no obligation discussion around these matters.