Understand your most profitable procedures to improve earnings

Do you know which procedures make the most money for your clinic? You can probably make an educated guess: cosmetic dentistry, root canals, Invisalign but with some simple financial analysis you can identify, with certainty, where you make the most profit per hour.

Restrictions imposed by governments to reduce the risk of spreading Covid-19, such as longer intervals between patients, have reduced the hours in a day that you can have a patient in a chair. So it makes sense to maximizing earnings for each available hour. Production does not always equal profit so I recommend a segmentation exercise so you can focus on what makes the most money for your clinic.

In industry we call this product segmentation. Below is an example of an actual product segmentation exercise that found that 20% of the products generated 80% of the gross profit. A classic example of the 80/20 rule.

This was in an industrial company, in your dental practice the curve will almost certainly look different but it will be enlightening. However our objective is not to record the position today but to map a path to improved earnings.

As I mentioned in my post on using KPIs time is the rate limiting step for any dental practice. Therefore the metric to use for the segmentation calculation is profit per hour.

To complete this exercise you will need to have a list of all the materials used for each procedure and the associated costs. In addition direct staff costs need to be calculated, by direct I mean employees who are actively involved in the procedure. It would not include your receptionist etc. Adding your clinics overheads is optional as this is a ranking exercise and the clinic costs per hour will be the same for all procedures. However I do recommend you include clinic overheads as this will make the calculation complete and give you a better idea of the profitability of each procedure.

For an example of how a segmentation might look please download the PDF below. The numbers used are hypothetical but directionally correct. A root canal will deliver more profit per hour then a scale and polish conducted by a hygienist.

In my industrial career it was quite legal to persuade customers to buy features they may never need, but in dentistry it is obviously unethical to sell treatments a patient does not require. But it is legitimate to promote your clinic as having expertise in your most profitable procedures and encouraging patients to come to your clinic when they need such treatment. As your dentists do more of this type of work, the faster they become and your profit per hour increases.

Completing this type of analysis probably does not appeal to most dentists but your accountant may be able to help. If you are using a book keeping service it would be worth considering getting professional help.

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