A raving lunatic guide to overhead
“The bitterness of poor quality remains long after the sweetness of low price is gone…”
There has never been a saying more true than in our business!
It’s one of the reasons I developed TIMEfactors – there were too many “cheap” items that were TIMEsuckers!! Switching to a less expensive produce compromised the quality and outcome which lead to higher cost of labour. More no charge dentistry to fix the failures. And patients who don’t come back!!
#1 – Good for the patient – must be scientifically proven, have street credibility, long term clinical evidence
#2 – Good for the business – must reduce costs and increase profit with predictable outcomes
It’s that easy.
What drives me crazy.
The concept of overhead is not difficult.
If you make bread and sell it for $1
Good, predictable, reliable flour is .06
Labour to make it is .30
In simple terms your two largest components of “making bread” cost you .36 for every $1 you charge.
The average company making flour has a gross profit of 64%. Even if you can GRIND another 20% off the same flour – that reduces your overhead to .048 on a loaf of bread. This is not an easy task as the suppliers that are already competitive will need to also try to find cost savings and will need to reduce their profit which was used to maintain quality of the service and product.
That means your cost is now .348 for every $1 you charge.
Many consultants who LOVE to point out to you how much your overhead sucks and how much you are failing RARELY mention the retail price of bread. NOT EVERYONE CHARGES $1 a loaf! Across the world the prices vary dramatically. In North America there can be greater than 20% differences in “the menu”. There can be DRAMATIC DIFFERENCES in how the codes are interpreted and how insurance pays.
Fee guide differences !! Why? Same procedures. Same outcomes. Same insurance company.
Same cost of supplies.
Do you think this affects your overhead?
These same people also talk like everyone is doing everything the same. How many actually consider how much TIME it takes one clinician to perform a procedure compared to another? One guy is hand filing and spending $20 on files but takes two hours to generate $1000. The second guy is hand filing and spending $40 on files but takes one hour to generate $1000. The COST of supplies is higher for the second dude – yet he is more profitable! Where are the SMART GUYS that can’t figure this out?
Yet EVERYONE wants to talk about the 5% mythical supply overhead without addressing the other MOST BASIC ISSUES affecting profit! WTH??
What did you actually EAT?
This one drives me the most crazy. Your overhead isn’t ONLY what you spend every month. This is just accounting.
If you start with ZERO groceries, then go to COSTCO and buy $1000 of groceries. You get home and put this into your ZERO cupboard. You have NOT just wasted $1000 on groceries since you haven’t fed yourself yet.
During 30 days you use your groceries and make a list to replace these items.
To replace EXACTLY what you bought you had to spend $500.
So your total grocery bill this month was $1500!!!
But you actually have $1000 of groceries on your shelf. What you actually ate was $500 of groceries.
When I get challenged on the cost of groceries – I always ask….do you keep accurate count of your inventory?
I GUARANTEE YOU however – that whatever you spent on LABOUR is not on your shelf. You CAN NOT get back the TIME that is gone and you paid good money for.
SECOND MOST IMPORTANT and a HUGE ISSUE at most offices: WASTE
Just like the groceries you get at home, some items have limited shelf life and go bad.
How much of the grocery bill went into the land fill and compost? Are you actually rotating your inventory? Did you start using romaine lettuce now instead of spring mix and it now expired? Did you grab way more than you needed and then have to dispose of the remainder?
The lowest overhead practices are very efficient at turning over inventory with little waste. UNDERSTANDING that LABOUR is the biggest waste of all – but keeping in mind materials Must be used efficiently.
Yes, an endo file can cost $20 – but it can also DRAMATICALLY REDUCE the TIME it takes to perform a procedure. HOWEVER, there may also be an alternative, well documented, name brand, scientifically and street proven product that is 50% less that can do the same thing. It’s worth knowing.
MOST IMPORTANT – TIME
YOU are valuable. If you want to be profitable and rewarded for what you do – make sure to value your time. Make sure to VALUE the time of the TEAM you work with. If you DO NOT – they will walk away and get on a better team.
Do you think it’s co-incidence that the most valuable sports teams, the ones that win the most, generally have some of the highest payed players? How often do these incredible talents go to a new team only to find their talent wasted, and the team no longer wins?
It’s systems. It’s coaches. It’s TEAM effort.
You want to feel valuable. I want to feel valuable. The people who come to work for you every day want to feel valuable. If you are continually driving a spike in their heart instead of encouragement…..what do you think will happen?
TIME is MONEY. TIME is generated by PEOPLE.
30% of your overhead is paid to your staff. You CAN NOT get TIME back….so how can you reduce this? Get MORE PRODUCTION.
A guide to saving money at the dental office on supplies
STEP ONE – count your inventory with price to have a starting point and create an inventory ordering system
STEP TWO – Throw out expired items
STEP THREE – Return anything you won’t use or donate it.
STEP FOUR – Reduce waste. Set out what you need for a procedure and know the costs.
STEP FIVE – Reduce the inventory when possible. Do you really need 5 shades of grey?
STEP SIX – Negotiate your best prices and buy in proper quantities for best rates
STEP SEVEN – Consider alternatives. Consult on materials that have proven results and can save time and expense.
Use these ideas as a guide to purchasing and reducing your expenses.
IDENTIFY YOUR COSTS.
Lay out a loaf of white bread. Lay out the materials you need to make this bread. What is the cost? Can you do ANYTHING that may reduce this cost without compromising the quality? Be smart. Will this create an equivalent or better product or will it be a TIME vampire?
Once you have identified your COST VAMPIRES, ask an expert on materials for solutions. I GUARANTEE for every product you lay on the table there are alternatives products or techniques that may work just as well and LIKELY can reduce your procedure time and over all costs.
Business 101. In order to CONTROL your expenses, you must UNDERSTAND your expenses. Instead of spending weekends going to fairy tale consultants – look in your own back yard. The people HERE know what you need to do. It’s already being done VERY successfully. I KNOW it because I work with 82 offices and there is a small percentage who actually “get it”.
There are offices here that use the same chairs, bill the same procedures, use the same products, hire people from the same pool…but run at 40% or greater profit levels.
They understand Business. That’s it.
Have a great weekend.
Success in Dentistry and life