The Power of Profitability By Roger P. Levin, DDS, MBA, CEO and
Founder, Levin Group
This is the second in a series of articles by Dr. Levin that
will appear in Global Health Nexus.
Dental schools do an excellent job of teaching the clinical skills
necessary to practice dentistry, but those skills alone will not
guarantee a successful practice. Dentistry is both a profession
and a business. A dentist can have top-notch clinical skills but
run a less-than-stellar practice due to lack of business systems
training. According to Levin Group research, most practices stand
to lose $6 million to $9 million in revenue over a span of 20 years
if data-driven business systems are not implemented.
Successful dentists realize that combining clinical skills with
practice management knowledge is the best way to run a high-performance
dental practice. Patients usually do not judge a practice by the
dentist's technical skills; rather, they look at the practice through
the prism of other systems, such as customer service and scheduling.
But too many dentists believe that clinical excellence is the only
skill required to manage a thriving dental practice. As a result,
they ignore the business side of their practices. Without documented
business systems in place, however, even the most clinically skilled
dentist will find it almost impossible to run a low-stress, high-profit
The Goal of the Dental Business
Achieving maximum profitability without sacrificing quality patient
care should be the business goal of every dental practice. Indeed,
maximizing profitability is critical to achieving excellence throughout
the practice. Practices cannot maximize profitability by providing
poor customer service or by exclusively performing single-tooth
dentistry. Nor can practices achieve acceptable profitability without
closing a certain percentage of cases or having a sufficient number
of new patients to provide many of those new cases.
Systems and Profit
Nevertheless, an alarming number of dental practices operate without
systems to secure daily production and collection goals. This makes
controlling financial performance nearly impossible. When a practice
achieves a high level of profitability, it is a result of other
systems operating at or near maximum efficiency.
Inefficient systems often create a vicious cycle in regard to profit.
In an attempt to resolve or work around bottlenecks, the dentist
spends more time on administrative matters and less time chairside
with patients. The dentist's operatory time is the main driver of
practice production and profitability. When that chairside time
is negatively affected, profit decreases -- sometimes quite steeply.
This can affect long-term investment in the practice.
The point is that without a strong focus on systems, the doctor
cannot evaluate what is contributing to the practice's overall success
and what is detracting from it. While a dentist may be able to live
comfortably, even though a practice has widespread inefficiencies,
that is no substitute for being able to save enough to achieve financial
independence at a reasonable age, especially compared to colleagues
who have implemented the necessary data-driven systems.
Profit is the other critical factor for dental practices and should
be a daily priority. A proper focus on profit can lead to:
Understanding the role of profit in a dental practice allows the doctor
to capitalize on the business potential of the practice.
- excellent business planning,
- the design of outstanding business systems,
- a well-compensated and highly satisfied staff that is salaried
within budgeted percentages,
- sufficient retirement savings for the future along with a comfortable
lifestyle now, and
- overhead that is at the optimal level.
The only way to measure profit is by the numbers. While the Levin
Group Method has guidelines for small and large practices
alike, each practice is unique and has to be evaluated individually.
A critical tool for understanding and managing profitability is
Key Performance Indicators or KPIs. KPIs are those core variables
that drive practice performance. Examples of the most critical KPIs
Every practice has about 12-15 KPIs that determine success. Each of
these indicators is clearly related to the others and should be evaluated
within statistical boundaries. By examining KPIs on a regular basis,
practices can register immediately whether or not they are experiencing
problems reaching their goals.
- number of new patients,
- average production per new patient,
- average production per patient,
- no-show and cancellation percentages,
- net profit.
For example, when a practice that averages 30 new patients a month
suffers a drop to 18 new patients, it will more than likely have
a lower production and profit over the next months. Unless the production
or services rendered per patient is significantly higher among the
18 new patients, a one-month shortfall can significantly affect
the practice's bottom line for the entire year if it is not accounted
The Status of the Practice
KPIs should be easy to establish, fast to review, and evaluated
daily or, at the very least, weekly.
KPIs allow a dentist to understand what has happened in the practice
that day, week, month, or year. They allow a dentist to predict
whether or not a practice will be able to achieve its goals, including
profit, on an annual basis.
Using KPIs, dentists can ask questions and create solutions for
the business side of the practice due to a greater understanding
of what is happening in their practice on a regular basis. Without
this type of regular numerical and statistical evaluation, it is
all but impossible to understand practice performance. When KPIs
are not being met, the dentist should make adjustments as early
as possible to get the practice back on track to achieving its goals.
Establishing profit targets and measuring KPIs regularly are the
best ways to focus on the business side of the practice. Documented
business systems allow practices to measure performance.
In today's economic environment, dentists know that their practices
-- even previously high performing practices -- are no longer guaranteed
success. Although they may still be providing a modest income, a
large number of practices are finding themselves flattening out
or even declining.
By maintaining a constant analysis of the KPIs, practices can remain
keenly aware of their financial performance and be nimble enough
to change when economic and technological trends deem it necessary.
Goal setting is one of the most basic business tenets and yet one
of the least understood. By setting specific, measurable, realistic,
and time-specific goals, proper systems can be put in place that
will allow practices and dental team members to do far more than
simply get through each day. When the dental team has targets and
goals for different practice areas, it engenders a performance-driven
culture. Of course, the dentist must communicate goals clearly and
provide training opportunities to the team.
Making practices complex from a business standpoint can be detrimental
and overwhelming for the dentist and the dental team. Despite all
of the business theory available, the basics still work best.
When running the day-to-day dental practice becomes too complicated,
the dentist and team reach a plateau or ceiling of performance that
is often difficult to break through.
In dental practices, team members are specialized in clinical or
administrative duties. Because staff members are kept very busy
contributing to the day-to-day operation of the practice and the
delivery of top-quality patient care, the dentist does not have
a full-time designated management team to implement his or her ideas,
That is why getting everyone on the same page with clear goals is
Achieving Financial Independence
Many dentists are living reasonably well today but do not understand
that retirement can be a very expensive activity. After all, when
dentists retire, they do not want to live a diminished lifestyle
devoid of comfort and travel, nor are they going to sell their home
in order to increase their income, even though it may be an integral
part of a net worth statement. The larger the practice profitability,
the more a dentist can funnel into retirement savings and take advantage
of compound interest at an earlier age.
The more a dentist has to invest early in his or her career, the
faster he or she will achieve financial independence with the benefit
of compound interest.
Levin Group has many clients who are in a financially independent
position between the ages of 45 and 55. The key for most of these
individuals was the ability to increase practice profitability early
in their careers and to adhere to a disciplined financial and investment
Profit is no longer about merely accumulating wealth -- it is about
designing practice systems properly in order to realistically achieve
the profitability goal. The benefit to dentists is not only an extremely
well-run practice, but also the ability to reinvest in the practice
and achieve financial independence at a reasonable age.