One of my favorite subjects is about net profit and how to improve it. It’s a “slightly” taboo subject, but I think it’s far more important than any other. One of my (many) favorite quotes is “Revenue feeds the ego, but profit feeds the family.”
I’ve been running my main company, LIFT Enrichment, for over 14 years and track its net profit every month. It operates at a staggering 60% net profit. The average dental practice runs at around 40% net profit; but, I think that it’s more around 30-40%. Here are some tips you can use for your dental practice to increase your margins
Track Your Numbers
Peter Drucker, the famous business expert said it best, “What gets measured, improves.”
Here are some key data points to know each month
- Monthly Revenue
- Gross Profit (aka Gross Margins)
- Net Profit
Then you can look at this data for the last month, the previous 3 months, and the previous 12 months. In Quickbooks (or whatever software you use), meet with your bookkeeper so you can pull these reports as a percentage of total income.
This way each month you can see the numbers increase or decrease. If they go down, then you can investigate why and course correct.
To stay on top of these numbers, I invest several hours a month live on Zoom with my bookkeeper to make sure the categories are updated to best provide easy visibility.
Also, you should ALWAYS have access to your P & L and know how to read it at any point.
I met with a friend recently who didn’t know how to get this information before his meeting with me, so he had to ask his Controller. With software like Quickbooks, I can log in and pull a report in a few minutes.
Sometimes, my Cost of Goods Sold is too high, so I dig into the categories to find out why and make adjustments.
Calculate Your Net Profit Accurately
Your Net Profit, the way I define it, includes the owner’s salary, any “expenses” you run through the business to save money on taxes, and your net profit on your P & L.
As an example: Your P & L might say that your dental practice with 5 chairs and 3 doctors does $3,000,000 in annual revenue. Your net profit is 15% on your P & L, which is $450,000.
However, your owner’s salary is $200,000.
And you spent $100,000 over the course of the year on “business owner expenses” like your investment in a local entrepreneur group like “Entrepreneurs Organization“, a trip to Hawaii with two of your dental buddies to golf and relax, plus many dinners in your hometown with your favorite couple who also happen to own a business. You can write these off in business, as long as they are tracked accordingly.
Your “real” Net Profit is $450,000 + $200,000 + $100,000 = $650,000 is 22%
An easy way to track this is to have a separate business credit card just for “business owner expenses.”
And you already know your salary.
So get good at knowing this number, and then you can make it grow!
Increase Your Prices
When I say “increase your prices” please understand that it is within the context of the area you live.
In this age of climbing inflation, everything is getting more expensive including rent, labor costs, supply costs, insurance, equipment, and pretty much everyone else.
If your margins are suffering, look into your pricing and ALSO look into your competition. You can even cold-call other practices to see their rates.
You have every right to fairly increase prices due to rising costs. This could have a huge effect on your net profit, and thus your family’s well-being at home.
Make Small Changes Over Time In Different Areas
Now that you’ve seen your P & L, you most likely notice areas that are disproportionately high. This is normal.
Maybe your ratio of income to labor costs is crushing your margins. Or you’re spending too much on supplies. Or you might see your net profit is too low.
The key is to make small changes in one area at a time. You can’t fix your whole company overnight, and you don’t want to.
But you can pick one AREA to focus on for a quarter. It’ll be a 90-day sprint and once it’s in a better place, you can focus on another target. In a year you’ll fix 4 areas. In 3 years, you’ll fix 12!
I’m currently learning Boxing, and it’s a very complicated sport. There are many movements including jabs, hooks, uppercuts, blocks, slips, and more. Also, each movement has many alternates. A left hook is different from a right hook and you can aim for the head or the body. It’s completely overwhelming for someone who is new like me, as I’ve only been practicing for about 4 months regularly.
The key, and I’ve tried to tell my coach this but he sometimes doesn’t listen, is to just fix one area at a time. i.e. Clean up my left jab and right cross in a few lessons, and then focus on another area.
I know that this approach works for me in business and life.
Here are some individual areas to focus on:
- Increasing top-line revenue
- Reducing supply costs (which are typically 15% for dentists)
- Managing the revenue-to-labor cost ratio
- Improving gross profit
- Improving net profit
- Reducing software costs
- Reducing direct labor and direct costs (aka Costs of goods sold = COGS, which is one I focus on in my companies a lot)
Business is a game of percentages, so if in one quarter your supply costs are 19%, and they should be at 15%, it would be a big win if you could knock that down a few percentage points in 90 days.
Doing this task will require more of your time and effort to find out the issue, problem solve, and maybe even look into other vendors (or buying in bulk) but it will help your business.
Just do it one area at a time.
Invest in Remote Staff
One of the biggest reasons for my success in both of my companies (LIFT Enrichment and Net Profit King) is that I invest in staff that are overseas.
At this moment: LIFT Enrichment has a President based in Ukraine, a Sales Director based in El Salvador, and an Operations Director based in Honduras. Plus we have a team of 25 below these managers based in the Philippines, South Africa, Mexico, and many other countries.
I pay about ⅓ the cost of an American doing the same job and I find, quite often, these people are MORE appreciative of their job and work harder than ever. They are making great money in their country and I can save on costs while getting my clients a fantastic result.
Side Note: One of my sales guys in the Philippines named Roj sent me a picture of how he bought his SECOND house and was super thankful for his job at LIFT Enrichment over the last 2 years.
Now how can this idea help your dental practice and your margins?
You have to ask yourself this: “How can I have a blend of virtual AND in-person staff that work together well?”
There are positions that you can easily delegate to a remote staff member including:
- Data Management to an Administrative Virtual Assistant
- Email Marketing
- Front Desk Help and Assistance for patients that call in
- Bookkeeping
- Patient Reminders about their appointments
- And…(you knew I was going say it!) Treatment Coordinators!
(Just to be clear, Treatment Coordinators that are in the office are necessary and add tremendous value)
But why not ADD a Remote Treatment coordinator who follows up on your patients and books them on the calendar?
If you have a doctor that you employ 40 hours a week and they have openings in their schedule, it’s your job to fill their time so you’re not wasting money.
A remote treatment coordinator can make hundreds of follow-up calls a week to patients with Unscheduled Treatment and book them on the calendar AND take a 50% deposit.
We do it all the time with our clients at Net Profit King, and we’re good at it. 😉
If you’d like more help following up with your Unscheduled Treatment Plans from my team so your appointment book is full, Net Profit King can help out. We partner with dental practices as “remote treatment coordinators” so your patients get the treatments they need, your staff is more efficient and less stressed, and you’ll make more revenue (and net profit!) Plus our model involves us making money only AFTER the treatment is complete, in which we charge a percentage. And we have the best guarantee in town: a 90-day money-back guarantee. Book a 10-minute consultation meeting with our team to learn more.