36-24-36: Reading Between the Lines
I was speaking with a dentist that we all know, who has one of those “Institutes” for clinical and cosmetic services. It seems that while he was a wonderful clinician, and gifted speaker, he had never been able to produce or save enough to ever consider himself successful in the “business of Dentistry”. He would never be able retire, support his family if there was a downturn, or have choices if a disability or unforeseen circumstance occurred. He was covered up with debt and stress. Month’s ago I had to remind him that the highest form of ignorance is to reject something you know nothing about.
I had sent him an article I had published some years ago about “Benchmarks and Overhead”: A basic “running your practice by the numbers” article that clearly lays out the targets and day to day numbers that everyone should know and strive for. He had read it and was amazed at how the numbers were beginning to make sense. He had come to the realization that clinical dentistry alone will never bring patients thru the doors. It was going to take far more to inspire clients to “show up, pay for their treatment, and refer everyone they know”. As we ended this phone conversation, I was hit by how little he really understood about business and dentistry. How, after 30 years of practice, could a doctor show up every day, deal with staff and patients, and constantly improve his clinical dentistry only to find himself woefully lacking in even a mediocre understanding of what it takes to run a successful business? Email me and let me send you that article on Benchmarks and Overhead so that as you read this supplement you can also see where you need to go and how to get there.
When I hung up the phone, I realized that in the next phone call I needed to go further with his education and hopefully help him see that every number I look at means something. There is cause and effect in each statistic we look at and move towards. These numbers literally define the level of success and probability of change and improvement in our business. Easy stuff if you take the time to actually apply them. As long as you’re reading the article on Benchmarks and Overhead, you might as well take the time and also request our Spread Sheet Analysis and return it with a copy of one week’s schedule, and a copy of the last 12 months P&L. I will be glad to spend an hour or so showing you any blockages and the strategies that you should take to overcome them. With these two things you ought to be able to change a poor trajectory and move on to better production, overhead, and goal setting.
Let’s take a few minutes and actually go a little further in looking at what numbers and percentages mean to you and your practice. I will assume that you have read and understand the day to day numbers in the reference article above and spend some time fleshing out or going a little deeper on the subtleties that we sometimes miss. Will Rogers hit it on the head when he said: “The problem in America isn’t what people don’t know. The problem is what people think they know that just ain’t so.”
I am going to take a random look at numbers that will greatly affect your practices, so let’s start with the title of the article: 36-24-36. I know what you’re thinking, and you’re wrong. Let’s apply those three numbers to new patients. They refer to an actual practice that has 96 new patients a month. Sounds great, but let’s go a little deeper. Where did these 96 patients come from? 36 came from managed care plans they had signed up for, 36 came from the 6% of collections they spent on marketing, and 24 of the patients for the month came from direct referrals. It’s amazing how even the order of the numbers I gave you means something all together different to you. So let’s analyze the numbers. The volume of new patients seems great when you consider that the average general dental practice has only about 25-30 new patients per month, but there is more. Does just the total volume of 96 tell us everything we need to know? Absolutely not. This is an actual practice I looked at and they were producing about $200,000 per month, so they were spending $12,000/month on external marketing to get those patients. Keep in mind that the directly referred patients were not drawn in by the money spent for marketing because they were referred by a patient who was already coming into that practice, so none of the money spent goes toward those 36 patients. The next group was 36 patients who picked this doctor off of a list that their employer had because they were managed care. Once again the money spent on marketing did not bring this group in either: They were just on the approved list for participating doctors. The last group of 24 were attracted by the marketing and showed up at the front door after receiving or seeing their marketing efforts. That means that this practice paid $500.00 per each new, marketed for, patient. Doesn’t sound quite as good now does it? Out of 96 patients only 24 were sufficiently inspired by the doctor and staff, systems, hours, location, etc., to refer a friend, co-worker, family member, or neighbor to this practice. This is truly an example of a donor practice. Unless you are getting at least a 50% or greater direct referral rate from your existing patients, you shouldn’t even consider marketing. Good practices (recipient practice) that don’t really need to market, should. The bad practices (donor practice) who really need to market because they don’t have enough new patients shouldn’t market, because they are doing so many things wrong that they would just run off anyone who called and that is exactly what was happening here. This is the antithesis of consumerism. We want to be able to give patients what they want, when they want it, at a price they can afford.
Let’s go a little deeper and look at a couple of more numbers from this “seemingly great dental practice with no problems and lots of production”. We came into the office and pointed out what you just read, and went a little further to help the doctor and staff see that there were a lot of fundamentals missing in their practice. For the next month we had the front desk measure the number of calls from managed care, direct referrals, and marketing and keep that list. Result: For every 10 calls they only converted 1 patient to an appointment. Are you kidding me, a 10% conversion rate? They spend all that money on staff, technology, facility, and marketing only to find out practically none of the potential patients calling were impressed. Forget about measuring the number of new patients. You should measure the number of calls. It is not the marketing’s fault that out of over 900 calls a month you only convert 96 of them. Definitely a busy office trying to give patients something they don’t want. Numbers are the way that patients shout out to you when they like or don’t like something. We simply are not listening. You’re thinking, “Great example. But what does this have to do with my practice? We’re doing everything right.” Wrong. If you are not averaging some 50-75 new patients per month, a 55% (or lower) overhead, $20,000 per month production for each employee and $25,000 per month per each operatory, you are coming up short. Most dentists don’t even have a clue as to the name of the managed care plans they accept. Do you think that they have ever looked at these numbers in this way?
In this case the office never cleaned teeth on the first appointment. It’s called the threshold test. What do you have to do to get into your offices? Are there barriers? You need to consider anything you say “No” to will create a huge barrier to new patients. New patients only ask for two things when they call. I need my teeth cleaned, or I have a tooth problem and want to see the doctor. This doctor had a wonderful strategy of saying no to at least 70% of the callers. He thought he would up the percentages by having an older lady with a terminal smokers hack sounding like a “male phlegm god” answer the phone in an area where the average demographics said 70% of the population was 32 years of age with 2.1 kids. OMG, what a great strategy for practice growth! What were they thinking? Hours, fees, treatment services, insurance, etc., can all be barriers to a potential patient.
Last point: This doctor’s overhead on $200,000 per month production was 82%, with 47% going to employee compensation. Add to this the great track record in wealth building of successfully ending three marriages and you are starting to see the picture. If you just look at one number you can be misled. Far too many offices are being lulled into thinking that a 50-55% overhead is unobtainable, that huge debt is normal, and that poor economies and lower production are just passing trends. It will all get back to where we were a few years back. These doctors and staffs are sorely mistaken and will soon find that their error in judgment could cost them their careers.
I want to encourage you to get a “checkup” by taking advantage of emailing me — letting me help you spot those blockages that are holding you back from becoming the practice you always wanted to be. You have got nothing to lose and everything to gain. The average doctor that takes advantage of this call sees an immediate increase in new patients and productivity along with a decrease in overhead. Every doctor I have spoken with has commented that they wished they had heard this type of information when they started out. Don’t wait! Just email me at [email protected].
Mike Abernathy, DDS