DIAGNOSE YOURSELF: PART 4
Surely, we all are now on the same page but if you have not downloaded your own Growth Analysis Spreadsheet please do so now (click here) and fill it out completely. Secondly, you will need to go back four weeks to the Introduction post for this series and read it and also read parts 1-3. Be sure you have a year at a glance Profit & Loss Statement and a copy of one week’s schedule because we will cover and refer back and forth to them.
We are looking at page 3 of your spreadsheet in this installment. You will notice that, in part, we have already covered some of these areas. So I will try to drill down for you to provide more clarity rather than start from the beginning. If you are new or behind, just go to our website and access our articles and catch up. (See the PS section at the end for details.)
1. Collection ratio: I am sure each of you have heard this: Business is all about the net, not the gross. You can’t spend what you don’t collect. At Summit we have a mantra for our clients: Produce More, Collect All, Keep Half. Words that every business should live by. It used to be said that your goal should be to collect 98% of production. NO LONGER! That percentage was at a time when we were the bank and collection agency. With outside financing you should always shoot for 100%+. As you look at the totals for each month’s collection ratio, make sure that you don’t see extreme swings: 81% one month, 95% the next, then over 100%. This is almost always attributable to poor financial systems, less than ideal insurance submission, or embezzlement. I want you to do a little home work here. Take your last years total collections and figure out what 1% would be. Example: 1% of a $1,000,000 is $10,000. Understanding what 1% represents will help you manage the financial side of your practice. If you only collect 98% of a $1,000,000 practice, you left $20,000 dollars each year on the table. If your hygiene department only produces 25% of the total production while it should be 33% or greater, you are losing 8% ($80,000) of potential profit each year. Ingrain that number and help your staff understand what a 1% shortfall amounts to and how it affects their pay and the profitability of the entire office.
2. Production per New Patient Ratio: Just so we are clear, this is the production per new patient. Not on each new patient. It is just the number of new patients per month divided into the collections per month and averaged over that 12-month period. Average will run about $1,400 per new patient. Great would be around $3,000-$4,000. Averages over that are usually due to very low new patient numbers or a boutique style practice with mainly crown and bridge procedures performed on adults.
3. Production per Day Office is Open: Average offices do about $3,400 per day. You should shoot for about $6400 for a really good practice and $8,000-$10,000 per day for a Super General Dental Practice. NOTE: These amounts are for a single doctor with 1-2 hygienists. Multiple doctor offices should do multiples of the benchmarks.
4. Production per Operatory: Average is about $14,000 per month per Op. We would like to see a $25,000-$30,000 benchmark. Once you get close to or exceed this benchmark, you have hit or approached a capacity blockage and will need to alter your schedule or add more Ops to continue to grow.
5. Production per Employee: Average is about $14,000 per month per employee. Ideal would be $20,000-$25,000 per employee per month. Falling short means that you are either overstaffed or underproducing. This is the single most abused benchmark in most practices. Poor results here will guarantee that you will have a high overhead and very little take home for you, the owner.
6. Total of All Doctor Production per Days Office is Open: You, the doctor, need to produce 67% or more of the production in the office. Your goal will need to be well over the average and should approach or exceed $600-$1,000 dollars per hour.
7. Total Production per Hygienist per Day Worked: This number should be considered total ADJUSTED NET production for the hygienist. This would also be true for the doctor. Hygienists must produce at least three times what they are paid (taxes, pay, benefits, continuing education, assistant, etc.). Their total net adjusted production should be about 33% or more of the total office collections. Your job, as the owner, is to make sure that each hygienist has at least 25-30 new patients per month. Even an average practice can do this. The goal would be to average about 2 new patients per day per hygienist.
In the next installment (PART 5) we will be looking at the outflow of your practice in the form of a Profit and Loss Statement or Cash Flow Statement. I believe that if you will continue to take the time to absorb this data from your own office along with its effect on your growth and profitability, you can easily take your practice to the next level. This is how you Summit.
Michael Abernathy, DDS
PS – The Summit website (www.summitpracticesolutions.com) has a SEARCH feature located on the HOME page. Just scroll down a little to find it and type in any word or words. You will be shown a list of articles/blog posts that contain the word or words you entered. There are over 400 articles/posts at this point, so don’t be surprised if you get multiple “hits” on your search.