It didn't cost you anything, until you ate it!
“You can’t have your cake and eat it too!”
You must control your overhead, but don’t risk your production!
LABOUR and YOU are the biggest overhead in a dental practice. An associate, or yourself are 40% or greater of the overhead to the BUSINESS of dentistry. Keeping this in line should be your #1 Priority!
Keep in mind that LABOUR is BY THE HOUR or BY THE JOB. In our business – we are mostly paid BY THE JOB, regardless of the TIME involved. Anything we can do to improve the efficiency of our time, or those who work for us relates to LESS overhead. For example, if you employ an associate who produces $300 an hour compared to one that produces $600 an hour….while you may still pay them 40% - the cost of the REST of the labour surrounding this production hasn’t changed much.
To keep it simple – imagine that a class II filling takes one dentist an hour and another completes the same job – at the same high level of competency – in half an hour. If the job was $250 and Dentist 2 can get two done in the same hour they are producing $500. This is TWICE the amount as the first dentist.
Imagine that the only real difference was the materials used. Perhaps they used a Palodent system to get high quality proximal contacts while the other doctor gets the same result – but had to use more conventional (and less expensive tofflemire) to accomplish the same results.
The extra $5 for that procedure for materials doesn’t seem as significant compared to the $250 per hour production gain.
THIS is TIMEfactors.
Time = money.
Time = freedom.
TIME is a good investment!
Who sets your fees?
We have fee guides that take an “average” cost and extrapolate this in order to create an “average” profit. This means using “average” clinical settings. If you want to gain an advantage on the “fees” that you can’t control, it’s important to break down your costs of procedures. First and most important is to structure your business around what you enjoy most. Then success in inevitable. You have a much better chance to profit if you ENJOY what you are doing! You will get VERY good at it, and VERY efficient too.
Keep in mind the fee guide someone else made for you wasn’t based on your skill. Your expenses. Your business. It was created as a suggestion. How we present this to our customers is marketing, and it’s up to you to present this in a way that makes the most sense and benefit to your patient, and for your business and quality.
Take a few procedures you LOVE to do and break down the costs. Figure out your fee guide and then your costs.
How long does it take you?
How much team member time is involved – actual chairside time and estimate of time involved for team members running the office.
How much did the equipment cost, and the rent?
What materials are involved including set up, sterilization, the products used during the procedure.
It might be almost impossible to get an EXACT number as it’s hard to predict how long an instrument will last, or if you had to cut longer with that autoclavable diamond.
You can skip all that and trust me – it’s your LABOUR and TIME that are the major factors in your profit and loss statement. Anything you can do to improve your skill, including the use of appropriate technology, techniques and materials will enhance your TIME. This includes supplying your TEAM with the right technology, techniques, materials and education to be productive. It’s BETTER if you have a team that has found all the ways to keep you productive as every minute they gain is extrapolated in your bottom line. Not only do you gain efficiency – the instrument is always ready, the team never has to get up to find something, there is no time wasted between patients, patients are scheduled perfectly and patient experiences are excellent as you never run behind can always accommodate patient requests.
LABOUR is EVERYTHING, especially the members of your team.
As many of you know, I used to own a Bakery. A business that really points out cost of materials versus labour.
Lets do a simple formula:
Retail for a loaf of 1-lb bread - $6
Cost of flour in a 1-lb loaf of bread - $.75
Time to make a loaf of bread – 1 hour
Baker makes 30 loaves an hour and is paid $20 an hour = $1.50 per loaf labour
30 loaves x $6 retail is $180 per hour production
Cost of $20 labour and $22.50 materials = $137.50 per hour gross profit
Formula 2 an efficient baker using high grade equipment and ingredients.
Retail for a loaf of 1-lb bread - $6
Cost of flour in a 1-lb loaf of high production bread- $.90 (20% more expensive material)
New Time to make a loaf of bread –30 minutes
Bakers now makes 60 loaves an hour and is paid $20 an hour = $.75 per loaf labour
60 loaves per hour x 6 retail is $360 per hour production
Cost of $20 labour and $54 materials = $286 per hour gross profit.
Baker 2 DID NOT compromise QUALITY, they simply applied the TIMEfactors formula. Looking for efficiencies in the production.
This sometimes requires a capital expenditure – like the baker above needed to buy a high speed oven, and a larger proofer to accommodate the additional production. But this WISE baker just followed the thousands of other bakers who had proven the concept worked and applied the principals.
Understanding and relating supply expenses…how budgets can hurt you.
So often I get asked about budgeting for offices.
As a reminder – YOU need to understand the ACCOUNTING of your supplies!!
Imagine running a restaurant where you limit your cooks to $500 a month of product. No matter what MEALS are getting served. No matter how BUSY it gets. No matter the possible compromise on the TIME involved to use the ingredients, or the QUALITY of the end product.
You get $500 a month and that’s that.
How does this work? What is everyone coming in wants the high end, gourmet steak and lobster instead of just a sandwich today? What if the cost of the high quality steak goes up – will you start buying compromised steak, or should you adjust your menu? What if it’s busier than usual? You get a run of 10 emergency meals you need to prep.
Our expenses should never be CAPPED to a monthly budget. Instead you should apply the principals of TIMEfactors. Understanding your procedural costs, the quality of the end result and how efficient your business runs.
In the restaurant example – the chef buys $1000 this month but only because the steak has a shelf life of 6 months and it was 30% discount. The budget may seem like it was blown – but in reality, it was a good investment. The overall cost of the steak came down 30% PLUS the restaurant actually was busier than normal and had no problems accommodating the larger demand!
This does not mean you can neglect your other expenses, it’s important to understand them.
You need to know that if you buy 100 bags of flour, that the Purchase itself is not an expense. You have simply moved money from your bank account onto your shelf. Until you actually physically use the product or throw it out, it is not an expense. You can have your CAKE – but if you eat it, then it becomes an expense…..otherwise it’s just sitting there worth the same amount you paid for it on your shelf.
What is wrong with having the cake on your shelf – ready to serve and bill out at 15X what you paid? THAT is when it actually becomes an EXPENSE! UNDERSTAND your inventory. Keep control of your expenses by understanding this principal….
When you are doing your calculations, you can estimate the cost of your flower compared to the sale price of your bread. Generally it would be 6-8% of your overhead. If it’s higher, perhaps you need to consider looking at your fees for the bread. Are you spending too much time creating product that is simply not profitable? Are you buying the expensive flour, but not relating this in the price of your retail product? Is there a way to manage the input cost without compromising time or quality?
In order to justify all costs, you need to find a way for production. Efficient production. You also need to have a demand for your product, as being efficient doesn’t make any difference if you have no demand for your product.
In order to master business, it’s important to master some simple principles. And understanding of creating a valuable product, how to market it is important….
Being efficient doesn’t matter if you don’t have a market to sell to!
Do you consider how you MARKET your business? I ABSOLUTELY know some incredible, talented dentists. The best in the business. Who have a very high standard. Offer the best care. The patients love them.
Yet they wonder why it’s so slow.
The “new clinic” across the street, the one that isn’t nearly as nice, or as good as this other dentist has all the new patients.
We can think “but they are just selling dentistry, and un necessary treatment”. We can think all we want. We all know these clincs eventually gain a reputation and will fail. They will get the public scrutiny and be judged by the patrons.
However….Many of these clinics are clinics I have evaluated, and for the most part – many of these clinics are excellent incredible and talented dentists. The best in the business. With a very high standard. Offering the best care. The patients love them. They have well educated, efficient teams. Organized systems. Wise investments in technology, efficiency and use of capital. They open in locations and at times that PATIENTS wanted. They offer convenience and treatments that patients prefer, and know how to present it well.
Everything about TIMEfactors….and enjoying what you do well also comes down to marketing it. There is no point in being incredible and talented if nobody takes the opportunity to try you out, listen to your music, read your book, adopt your treatment plan….
Being efficient won’t matter if you have all day to perform a procedure because the chairs are empty.
Have a great weekend, buy an Egret.