What Creates Value?
When dealing with doctors considering a transition, we see a consistent misunderstanding of what creates value in a dental practice. Value, or the relative worth of a dental practice, is important whether you are a solo practice or a multi-doctor practice. The very things that increase the value of the practice also increase productivity, lower overhead, and result in greater profit. It’s a case of focusing on the major things in the business of dentistry. If you think about it, the sole reason for owning a business is to grow it and then to sell it at some point. The benefit in doing it right means more profit and therefore more financial choices.
There are five major areas that you need to focus on to create value in your practice:
- Demographics. Where you are and what type of potential clients are available is huge when considering value. Educational level, income, growth of the area, unemployment, race, and age of the population create a very narrow operating range leading to a very predictable growth potential. Add to that the ratio of dentists to population and you can create either an ideal situation for growth and value or a dead end street that will block even the best practices. Bottom line: Your location is the single most important factor in success. Choose (or end up in) the wrong location and you will never crawl out of mediocrity.
- Number of new patients and referrals per month. If I had just one number to look at to evaluate a practice it would be the percentage of new patients that came to your office through a direct referral from an existing patient. In other words, I want to know how many people you are inspiring. All and all, it tells me whether you have great systems, team, doctor, and location. It’s kind of the barometer of consumerism. You are either inspiring your patients or you are not. You are either growing or languishing at a plateau. It doesn’t matter how many patients you get if you are not getting at least 50% of them from referrals. Anything less means you eventually will fail.
- Marketing. Do you have the skills and knowledge to ramp up your new patients through internal and external marketing at will? Basically, you need to have an unlimited supply of new patients, and the skill to execute a plan to create enough demand so that there is no limit to your potential growth. Without this you cannot bring in additional hygienists and doctors. Without this skill, you will grow to your level of incompetence and stall out at a moderate productivity level. The neat thing about this is it is a learned skill.
- Systems. Keep in mind that you are where you deserve to be. In other words, your systems are designed to give you the production level, overhead, new patients, stress, and staff that you are getting right now. To go to a different level of practice requires that you go to a different state of practice with different systems that adapt to the new situations you find yourself in when growing a practice. You need to be very intentional about growth and adaptation as well as embracing the “change” it requires to get there. If there has been one constant in the successful dental practice, it has been the ability to embrace the constant change of an evolving dental business.
- Hygiene recall. 67% of all dental production in a general dental practice comes from patients coming back on recall. If you don’t have a great recall system of over 70%, you will not grow. Sustainable growth is a function of a caring, compassionate, competent hygiene division of your practice. Like it or not the hygienist can make or break your practice. I just finished a report on “The Hygiene Factor” that will rock your office’s productivity and help your hygienist understand the huge responsibility they control to grow your practice. Just email Max and he can tell you how to get a copy.
That’s it. Short and sweet. Five often misunderstood and often neglected factors in creating value in your dental practice.
Michael Abernathy, DDS