UNDERSTANDING THE DEMOGRAPHIC REALITY
Being self-aware is always a common trait of successful doctors. What are your strengths, weakness, and surroundings? We are going to dissect the effect of demographics for your office. Demographics is defined as the statistical data relating to the population and particular groups within it. For our purposes, we want to learn the ins and outs of demographic data as it applies to the area that we practice in or plan to practice in. Success can truly come down to location, location, location. In fact, the value of a practice is directly related to its location and demographics within a 5-mile radius of the facility. Make an informed logical choice of location and reap the benefits for the life of your practice. If you choose your practice location just because you want to live nearby, many times you will find yourself struggling to make ends meet. We are seeing the dawn of a new dental economy and a new dental climate. What went before will never return. What got you where you are is a far cry from what you will need to do to sustain and/or maintain growth and profitability. Specialties are fading and great practices are challenged in our large cities with changing demographics and increased competition. In fact, if you have been in the same location for 15-20 years, you are probably in the wrong location now. Demographics change and this change can drastically effect your ability to compete with other, newer practices or attract the kind of patients you need for growth.
For our purpose, we are going to go to www.zipwho.com and look at one zip code and dissect the meaning of the numbers and the ramifications each area might have on our practices. I am going to go to my original office area at 75070. This is an area I know well. I practiced in McKinney, Texas, for over three decades and lived there over sixty years. Let’s take each category and explain what it means to your success.
Median Income ($) 84,847 97 Top 10%
Cost of Living Index 185.4 84
Median Mortgage to Income Ratio (%) 22.0 63
Owner Occupied Homes (%) 86.6 86
Medium Rooms in Home 7.4 97 Top 10%
College Degree (%) 52.2 95 Top 10%
Professional (%) 55.5 96 Top 10%
Average Household Size 3.0 91 Top 10%
Median Age 32.3 13
Male to Female Ratio (%) 98.8 79
Married (%) 77.0 99 Top 10%
Divorced (%) 6.0 9 Bottom 10%
White (%) 86.0 43
Black (%) 3.1 60
Asian (%) 2.0 79
Hispanic Ethnicity 6.7 75
• Medium Household income: You will notice that at almost $85,000, it is in the top 10% of all locations in the US. In fact, it is in the top 3%. The average income for a family in the US is $55,000. If you ask most dentists whether this is good or bad, most would say “great”. Why? “Because they have more disposable income. They can afford more dentistry.” Not so fast buttercup. As with most things, there is a good and a bad here. Look down a little further and you can see that this zip code is in the top 10% for college and professional. With high incomes, you will generally find a highly educated upper middle-class upbringing. They have always gone to the dentist and always flossed and brushed their teeth. Most of the time I find that populations like this consider comprehensive dentistry to be a cleaning and a bleaching tray. They rarely have or need much dentistry. In this area you would have to have twice the number of new patients to get enough dentistry to be even average. We recommend about 50-70 new patients per month per doctor to insure a 15% growth rate year after year.
• Cost of living index: Here we find the cost of living to be 185.4% higher than the average location in the US. If you take the time to run different locales, you will see a drastic difference in the cost of living, even from one area of a city to another. It costs more to live here so you need to consider the impact on their disposable income. Often times a good income in a high cost of living area means there is not much left over. The mistake most dentists make is falling in love with this great location, because it is great. You just will struggle to make it here.
• Medium mortgage to income ration (%): The rule of thumb is that the cost of your house should not exceed 2.5 times your yearly income after taxes. I continue to get calls from doctors asking if they can afford an expensive house. Often times, the actual cost of the house is within their budget. But if they make this purchase, they soon realize the ripple effect of their actions. They find out that they need new furniture, that their kids need to go to a private school, that they don’t belong the right country club, and it goes on and on. Sometimes the initial cost is not the actual reason you can’t save money and pay off debt. It is everything else.
• Owner occupied homes: At 86.6% we once again find ourselves very high when compared to the national average of about 50%-60%. One good thing is that the demographics indicate that the population of this zip code paces a high value on home ownership. Check that box on the American dream. What it doesn’t say is that in this area, 20% of the population moves every year. McKinney is a highly educated, dual income, bedroom community for large corporations based in Dallas. It is common for people to move in, and in just a couple of years move out to another part of the US because of a raise and better job opportunity. Let’s consider another zip code with just 45% owner occupied homes. This should tell you that there are probably a lot of apartments and that means you will need to market more consistently and consider working all day Friday and be open at least part of the day Saturday. Highly mobile populations require special attention to consistent marketing as well as a higher marketing budget for this area of your practice.
• Medium numbers of rooms in homes: Once again, this top 4% indicates an affluent society that will have very little need for major dental procedures.
• College Degree (%): Top 10% means that these folks have always gone to the dentist and will not have much need for larger cases.
• Professional (%): Top 10% means that they value their smiles and they will have gone to great lengths to take care of their mouths. By the time they get to you, they never needed much or they’ve already had it fixed.
• Population: At 34,729, this zip code is geographically large considering the 86.6% home ownership. The average zip code in the US is around 17,000. If this had been the only number we looked at, I would have expected a lower number of owner-occupied homes and a larger number of apartment dwellers. If that had been the case you would need to increase the frequency and consistency of your marketing to a nomadic lifestyle.
• Average household size: Top 10% again. This means that if you don’t take kids in your practice, you will find yourself struggling to beat an average practice’s 20-30 new patients a month, and most of you reading this really hope to do better than average. Demographics allows you to plan a strategy that insures that you don’t self-sabotage. NOTE: Every business has a point of entry. In dentistry you will find it to be 5-18-year-olds. The educated consumer wants to be able to take the whole family to the same office. That can be one reason good corporate practices attract such a following. You can count on them sending their kids in first, and if the kids love you, mom will soon follow. The dads come in when they are at deaths door and their wives made the appointment and made them go. Even churches are spending hundreds of thousands of dollars on children’s buildings because they know if they get the kids, they get the parents and grandparents. My practice in this very zip code averaged over 250 new patients a month with 47% being kids. The great thing about middle class kids is that they don’t really need any clinical dentistry. In a market like this you will need a lot of hygienists. The youth in your area are the best and largest part of a successful marketing funnel for new patients.
• Median age: 32.3 means that even if we did not have a highly educated and highly paid population, you would still find that a young population needs less comprehensive dentistry. Normally, if we have a population median age of 28-35 there will be a lower lab expenditure for your practice because they just don’t need that type of treatment yet. If we looked at production by procedure for hygiene, there would be fewer scaling and root planing procedures and production because their younger age means there is less chance of periodontal needs. In every dental practice management software, you can run a practice management report that will give you the number of patients in your practice by age, by the zip code they came from, male or female, insurance or no insurance, and the number of active patients that do not currently have an appointment. Run this report and then run a demographic report for your zip code and compare them. They should be close. If not, you have to ask yourself why. If it is vastly different, you can expect your practice to be going down hill and it will not be sustainable over time.
• The male to female ratio, married, divorced percentages: These three areas do not directly effect your marketing strategies or practice outreach unless you are looking for a date. If you really think about it, 92% of all appointments made are made by a female. The lesson here is that everything you do needs to appeal to the female population.
• Race Demographics: When considering demographics, marketing, and staging your business model, race comes into play. There are cultural differences when we look at race, just like there are generational differences by age. Some races value their smiles and teeth while others do not. Most will spend money on their kids that they might not spend on themselves when it comes to dentistry. Your hiring practices should directly reflect the ratio of races in your area. In Texas, it would be silly not to have at least one or more native Spanish speakers on your staff. The deep south will be different as would the West coast states. It is foolish to think otherwise. If you do print marketing, be sure that the people in the photos also reflect the cultural and race demographics of your zip code or draw area.
Let’s add a couple of other numbers to keep our eyes on in the form of demographics that affect our potential for growth and profitability.
• The ratio of dentists to population: Just to be consistent, I will use 75070. The ratio in this zip code is one dentist for every 685 people. In another zip code in McKinney it is 1:128. Clearly this is a competitive market. Just 5 miles towards Dallas there is a zip code where the ratio is one dentist for every 64 people with 43% of them being kids. Ideally you should want a ratio of 1:2,000 or greater. While there are companies that you can pay to give you this information, you can get close by going online to your state’s dental board site and accessing the list of dentists licensed in your state. It will be in the form of a spreadsheet that you can sort and search by alphabetical order, years that the license was active, or ZIP CODE. Another way would be to go online to the business yellow pages and do a search for dentists in a particular zip code. Bottom line: If you find that the ratio is below 1:1,500 you are in for a difficult ride. You would have to be the “it” dentist in your area to have consistent growth. The rest of the pack will just suffer. If you are just starting out, don’t fall in love with a location with poor demographics. Take a pass and look elsewhere.
• Ages of the dentists in your area: Let’s say we find that the ratio of doctor to population is not ideal. Take the time to go to your state board site and do the search again, except this time arrange the list by zip code and then look at when their licenses were issued. Assume that most of them will have gotten the license at about 26-27 years of age. If you see that a large percentage of them are in their late fifties and older, this might be a great place to set up. These doctors will not be seeing the kids, you will. They are not in network, you are. They don’t work Saturdays or Fridays, you will. They probably don’t market and most of them do not get out and engage the public any more. You get the idea. If you can see an upside that you can take advantage of, you might consider going for it anyway.
• Density of Specialists in this area: I enjoy doing ortho, oral surgery, and endo so I look for areas that might be underserved by not having these types of services. To really thrive, you too must learn to do these advanced services to insure you have what consumers are looking for in a dentist.
• Growth of your zip code for the last 3-5 years: Don’t trust the demographics that cities put out or real estate agents quote. They are inflated and highly flattering of the area. Do the due diligence. One of the best ways to predict growth and understand what the next few years will look like is to be sure and access the notes from the city’s Planning and Zoning board meetings for the last year or two. Every builder or company will have to submit for zoning changes and permits through this board. Take the time to get a map and understand what is coming down the road in your city and where it is going to take place. This makes you money and gets you ahead of all of the other dentists that go through life cluelessly settling for whatever comes along.
• Jobless rate and poverty rate: Stay away from areas that approach 6 percent on either one of these areas. High poverty rates, even high crime rates, push a forecast of even tougher times ahead. If at all possible shy away from these.
The study of basic demographics along with the application of this knowledge will insure a more predictable level of consistent growth and overall success in your practice. Like most things, it boils down to location, location, location.
Michael Abernathy, DDS