Dec 7, 2015
Profitable Practice Rule #2: Reduce Dental Supplies Expense
Written By: Nate Williams
The average dental practice has a 60% overhead, or 40% Operating Profit Margin (the percentage of money you keep after paying all operating costs of the business). This means that the average doctor keeps $.40 of every dollar he/she collects. Our clients are not average, so we’re not satisfied until we see a 50% operating profit margin or better.
In our last blog post we emphasized the importance of focusing on production and all but ignoring everything else in order to increase profitability. Because most of the costs in a dental practice are fixed, this approach is critical.
But there is one cost we do want you to be aware of and to focus on continually. Clinical Supplies. We tell our clients to “spend 95% of your time and energy on production (making money). Of the other 5% that you can direct towards saving money, spend 95% of that energy and time on reducing clinical supplies.” This is sound advice. Do this and prosper.
This cost is purely variable (it “varies” with production), so you’re always ordering. And there is a big markup on most supplies. In summary, this is a warning! Your dental supply cost, if not watched carefully, can easily balloon out of control costing you a lot of money.
With careful oversite, and some effort, we have seen many doctors save big $ by getting their dental supply bill to 5% or less of collections (yes, collections, not production. Collections is really all that matters). Here are some tips to help you lower this cost (for simplicity, we’ll assume the person ordering the supplies is a female):
- Assign one person in your office to be responsible for ALL supply ordering (not you). It is critical that nobody orders other than her. Why? You need to hold her accountable; if other people are ordering you cannot do this. Train and retrain her over time on how to effectively order supplies.
- Give her a budget of 5% of the prior month’s collections (not production).
- Require that she keep your inventory sufficiently stocked so you don’t run out of necessary supplies.
- Introduce competition among vendors. Dental and medical supplies are heavily marked up; so to fight for your business, it is common for a vendor to mark down – significantly.
- Buy in bulk if there are sales to do so.
- Check online options such as eBay or net32.com/ec/dental-supplies for deals. We have heard mixed reviews about the quality of the products being sold on these sites, so pay attention.
- Consider giving your assistant a performance-based bonus for success in this area. Remember that a 1% savings on a $1M practice is $10,000 per year in your pocket, so paying your assistant for performance makes both of you better off. Talk with us about how to administer this bonus before implementing.
In conclusion, if you’re going to watch just one of your costs, for your sake, please make it be dental supplies.