Our overhead is a hidden monster.
We often treat disease and restore function with little regard to how much it costs us to do so. The typical dentist will keep track of their lab bill and payroll but that neglects the several other costs of doing a procedure. If we’re going to be more thoughtful about the business of dentistry, we should know more about this critical part of our overhead.
I’ve written here and here about my love of the TV show “Bar Rescue.” Jon Taffer opened my eyes to the hidden costs of running a business. One of the concepts he taught us is food and beverage costs as a percentage. If it costs you $1.35 for a shot of vodka plus mixers and you charge $8.00 for the martini, then your beverage cost is around 17% (cost/price x 100). Knowing costs as a percentage gives restaurants a useful way to compare their food and drink items.
So let’s do this for dentistry. I call it The Procedure Cost. Last year I wrote a post called “How Much a Crown Actually Costs” to reveal the many little hidden overhead monsters that eat up our procedure cost for a crown. I’ve crunched the numbers for a few more common procedures listed below. What goes into the calculation? There are very minor variable costs such as cotton rolls and gauze that I left out. However impression material, impression tips, anesthetic syringes and other little buggers actually do add up to a significant number. Check out the post on crown procedure cost if you want the details. I did leave out the costs of rent, malpractice insurance, front desk overhead, and similar fixed costs because they are essentially the same for each procedure. You will see I added the assistant cost separately. Our assistant is one of the largest elements of a procedure cost and shouldn’t be ignored. I used $18 an hour for the calculation.
If you participate with a dental insurance you may be shocked how much their lower fee will raise your procedure cost percentage. I participate with GHI. My private fee for a complete denture is $1600 while the GHI fee is $580. So my procedure cost is 32% for fee-for-service patients and a whopping 88% for GHI patients. Holy freaking crap! Can I actually afford to make complete dentures for GHI patients? We can look at ways to reduce costs to get that percentage lower, we can petition GHI to raise their fees, or we can choose to not accept the plan. But at least we’re actively thinking about our overhead.
There’s a lot to be discovered by studying these numbers. For example, one of the lowest procedure costs (and therefor the highest profit) is for posts and cores. If you’ve ordered post and core material lately, you’ll know that stuff is not cheap. But fortunately it offers a 7% procedure cost for my private fee and 23% procedure cost for a GHI patient. This is largely due to the fact that a typical post and core procedure doesn’t take long to complete and there’s no lab cost.
I hope this discussion inspires you to break out a calculator, pour a cup of coffee, and start crunching a few numbers. You can use my estimated costs or derive your own. Procedure cost as a percentage allows us to think critically about our overhead for each service we provide and make better business decisions.