Like it or not, many doctors doom their prospects of owning a successful dental practice by denying the importance of location and specifically the demographics of that location. Selecting that “just right” location can make all the difference in the world. Not moving this decision to your highest priority can create a situation that you may never recover from. Our last discussion covered many of the considerations of selecting the correct location for a purchase or start up. This next iteration will consider the science of demographics.
There are definitely companies out there that lease databases with infinite layers of data for any query you might make in demographics. For our purpose, we are going to use open-source data that you can easily access to disqualify certain locations and sort through the rest to get to a point that allows you to pull the trigger on your purchase for this practice. There are two sites I use to cull a number of locations in a very efficient way. One is www.unitedstateszipcodes.org and the other is www.zipwho.com. Keep in mind that there are infinite searches that can be made to delve into the minutia of demographics, but we will use these two sites as a clearing house to limit our choices. Eliminate the terrible, find the good ones, and concentrate on the great ones to do a more thorough investigation before making a practice purchase. Remember that demographics add one more level of investigating purchases along with The Growth Analysis Spreadsheet, Profit & Loss Statement, and your personal desire to be in a general location.
For our purpose today, we are going to look at two very different locations using www.zipwho.com. In order for you to achieve the best understanding of the implications of demographic data, we will discuss several points of information taken from Zip Who’s database. Your job is to get on line and run these two zip codes so that as we discuss them and become familiar with the format and meaning of each category from this simple demographic site.
The categories and Zip codes will be from McKinney, Texas and Sherman, Texas, two towns within 30 miles of one another. If you are not going to the actual web site, be sure to print the data below as we compare and contrast. Keep in mind that we are using this demographic data to make sure that the actual location adds to our upside on purchasing this practice. Foundationally, if your research determines that the location is poor, just walk away. Don’t make the mistakes that so many before you have made by purchasing or starting a practice thinking that you can overcome a mediocre location. This is the very definition of demographic denial.
McKinney, Texas 75070
|Median Income ($)||84,847||97%|
|Cost Of Living Index||185.4||84%|
|Median Mortgage to Income Ratio (%)||22.0||63%|
|Owner Occupied Homes (%)||86.6||86%|
|Median Rooms in Home||7.4||97%|
|College Degree (%)||52.2||95%|
|Average Household Size||3.0||91%|
|Male To Female Ratio (%)||98.8||79%|
|Hispanic Ethnicity (%)||6.7||75%|
Sherman, Texas 75090
|Median Income ($)||31,690||25%|
|Cost Of Living Index||56.2||9%|
|Median Mortgage to Income Ratio (%)||19.3||22%|
|Owner Occupied Homes (%)||63.8||19%|
|Median Rooms in Home||5.1||21 %|
|College Degree (%)||12.3||33%|
|Average Household Size||2.7||71%|
|Male To Female Ratio (%)||90.3||39%|
|Hispanic Ethnicity (%)||14.7||86%|
Median Income ($): Let’s quickly look at and compare the income levels. McKinney vs Sherman or a medium income level of $84,847 vs $31,690. NOTE: These income levels are not for an individual but for a family. Most dentists would immediately declare McKinney the clear winner. No need to look at anything else. That’s the place to set up a practice. Top 10% versus a lowly 25%. But let’s step back and take a deeper look.
What is good about having almost three times the income level? Most will answer by saying that they have more disposable income. Having a great smile is important to them. Check and check. But what is the down side? Most are thinking, down side, what down side? There is a huge, in your face, gotcha, I never thought about it that way down side to high incomes. If you are in the top 10% of incomes, you came from a middle class or higher family. You always went to the dentist. You floss and brush every day. You never miss your 6-month cleaning at your dentist’s office (yes, they already have a dentist). And (wait for it), comprehensive dentistry to them is a cleaning and a bleaching tray because they don’t need much, if any, restorative dentistry. If you scan ahead, you will find that families in the McKinney Zip code will have the highest income, largest home, most rooms in the home, highest educational level and professions, average household size is larger, everyone has kids (they also don’t need anything dental), and they are in a top percentile for being married.
OK, from now on, be sure you try to distance yourself from your profession while we look for that ideal upside for the practice you will purchase and foremost: “Stop Thinking Like a Dentist”. This McKinney location, even though we don’t see this in the demographics, has an average ratio of dentist to population of 1:650 with 47% of that 650 being kids. Think about how that will ruin your day in a purchase for rapid profitability of a practice or you decided that you didn’t want kids in your practice.
Cost of Living Index: Generally, higher income equals greater cost of living. Everything costs more in a high-income, gated community. In this case, a 185.4% higher cost of living in McKinney than any other place in the U.S. while Sherman has a 56.2% cost of living. Low cost of living means lower housing costs, and everyone drives a used car that needs to be repaired. I find the ideal demographic area has a cost-of-living index close to 100% and income levels of $45,000-$65,000 a year for a family.
Median Mortgage to Income Ration (%): The average percentage in the US is about 22% and, in this case, Sherman is a little lower at 19.3%. Not as big a difference as one might expect.
Owner Occupied Homes (%): The national average is about 65%. Sherman is average at 63.9% and in McKinney everyone owns their home. Higher ownership of homes means a more stable population that does not move that much. But (and there is always a but) in McKinney, there is a 22% attrition rate (percentage that move each year). The average home owner moves every 9-12 years. The average apartment lease lasts about 2 years. The take away here is that the lower the home owner percentage the more apartments, meaning that you need to set aside a much larger amount of money to market in low owner-occupied home areas. You have a shorter period of time to look remarkable and guide them to call for an appointment.
College Degree and Professional categories: The higher the educational level, the more positive potential clients (patients) are in being consistent and seeking out a dentist. This is a great thing only mediated by the fact that you will need a higher level of new patients because fewer of these new patients will need much dentistry. Average number of new patients needed for an average one doctor office is about 20-30 new patients a month. In a high income, high education location, you might need double that to even be average on your income production/collection levels.
Population: The average city population in the U.S. is about 25,000 people. The average size or even shape of a Zip code area varies depending on the density of housing and available land for expansion. An example might be that in the city of New York you could have the same number of people in a 5-block area as a Zip code with 10 square miles might have in rural West Texas. NOTE: People will rarely drive more than 20 minutes to get to a dentist. Once again, size matters. Locations have different characteristics. Learn the ins and outs of a location and never assume anything without data to back it up.
Average Household Size: McKinney has 3 people in a household and Sherman has 2.7, yet McKinney is in the top 10% in the nation and Sherman is only 71%. 3% difference can mean a everything if you choose incorrectly. In both locations, the average potential patient will have kids in their family. I hope, if this were the case, you understand that seeing kids in a general practice is what everyone wants you to do. Except probably you. I found out early that if you wanted astronomical growth in a short period of time, welcome the kids in your practice and be great at the results with them. This can be the biggest and strongest marketing strategy that you can incorporate in the high profit, quick purchase of an existing practice. Some one doesn’t see kids in a high kid demographic, and you have the talent to see them, then your practice growth will take off and never stop growing. Everyone wants to go to a practice that handles kids well. Every adult wants the dentist that their kids say is awesome. Don’t skip over this upside in looking for that ideal purchase of a practice. It is pure gold.
Median Age: In the examples of these two zip codes the ages are almost identical. Because of the educational difference and income level difference you will find a much higher utilization of dentistry in McKinney, Texas, but a much higher need of dentistry in Sherman. The trick will be helping the Sherman patient “want” what they need and being able to figure out how to help them fit this cost into their budget. Let’s think back about understanding the Profit and Loss Statement. If you have an average age of 28 or so, you would also expect that the ideal expense line item for Lab costs would fall far lower that the ideal of 8%-10%. The difference is that in an area with very low age, there will not be as many people actually needing crown and bridge and dentures. Even if they did, lower ages generally mean lower incomes.
Male to Female ratio; Married and Divorced ratio: One thing to remember is that 92% of all appointments made in your office will be made by a female. The female will also be the one person that decides where their family will go to have their dentistry done. From a marketing perspective, females rule in a dental practice. Design the office, marketing, hours, and location to fit the needs and desires of a female.
Race Demographics: When looking at race demographics, we all need to be sensitive to who lives within about 5 miles of our office. If there were 14.7% of the population in your Zip code are Hispanic, then you or someone in your office needs to be about to speak Spanish fluently. If there is a large population of Asian, Blacks, Whites, Hispanic, then your hiring should reflect your demographics. Even photos and images used in your marketing that might should reflect the demographics of your audience. If the average age is 55 plus, then I would make sure that I had photos of people around that age. Common sense, not common practice, will handicap you in quickly turning an average practice into a 3X profit and growth bottom line increase. Everything matters.
Next, we are going to discuss further questions that you will need to analyze when looking for that perfect practice that can be purchased right and rapidly accelerated in growth and profit.
Michael Abernathy DDS