Is your practice reaching all of its potential? Many practices fall far below their potential and the problem often stems from not knowing what is possible. At the end of the year, the best practices evaluate where they are in relation to the industry benchmarks of practice profitability. Benchmarks are the measurable markers of any highly successful business in a particular industry. Get your pencils and your calculators and proceed to evaluate your practice numbers and compare them to the following essential benchmarks. This comparison gives you the foundation for goal setting which can increase your practice’s profitability in 2007

I. Benchmark - Practice Growth
Overall practice growth should be above the CPI Dental Services growth rate unless you want to stand still. Take your practice collections from the past five years and calculate the percentage of change. Then, compare your growth percentage to the percentages from the CPI Detailed Report below.

Essential Benchmarks for Dental Practices.

5 years - your Practice revenues

% change (+) or (-)
01 _________________
02 _________________
03 _________________
04 _________________
05 _________________
06 _________________

CPI Detailed Report, Data for July 2006 - Dental Services (US Department of Labor - Bureau of Labor Statistics)
2001 = 3.9 % increase
2002 = 4.5 % increase
2003 = 4.4 % increase
2004 = 4.9 % increase
2005 = 5.7% increase
2006 = 3.7 % increase (as of July 2006)

Business identifies four stages of a business life:

• Emerging - erratic growth rate - unstable cash flow.
• Rapid growth - growing 10 - 20% annually – Practice growth saps cash due to increase in staff and equipment to handle patient flow.
• Mature / slow growth - growing at industry rate or just above - cash flow is excellent. This is the “Cash Cow” stage of practice.
• Aging / declining - declining growth pattern or growth below the industry rate.

Where does your practice fall? The following strategies should be applied to your business plan for 2007 depending on your growth pattern.

Emerging:

1. Marketing, marketing, marketing. Create a consistent marketing plan to actively recruit new patients and referrals.
2. Plan facility to handle growing patient flow. Minimum three treatment rooms.
3. Provide staff to keep phones covered daily, keep staff model growing.
4. Create systems, standardize procedures and document all processes.
5. Have alternative sources for living expenses, especially the first 1 – 3 years.

Rapid Growth:

1. Continue marketing to keep growth curve up consistently.
2. Refine target market of patients when cash flow stabilizes.
3. Add equipment, space, and personnel to keep ahead of growth.
4. Refine all delivery standards, procedures and document it.
5. Work on communication to increase patient’s value of services rendered.

Mature:

1. Maximize patient base by expanding services to existing patients.
2. Refine patient base by focusing on special services and most profitable services. Refer out non-preferred services.
3. Refresh practice image every 5-7 years. Improve and add technology to keep up with the industry.
4. Focus on cost reduction while maintaining quality.
5. Focus on team development, leadership and upgrading performance standards. Develop other leaders in the practice.

Declining:

1. Work to maintain positive growth for future resale value.
2. Invest in re-growth if the practice is not ready for decline. Re-marketing, re-decorate, refresh equipment and technology.
3. Shake up the stagnant team through continuing education or consulting. Be willing to let stagnant team members go.
4. Purchase another practice to restart growth.
5. When close to retirement, spend 1-3 years updating the practice to enhance sale price, or sell without update and let the new owner update.

II. Financial Benchmarks - These practice financial health benchmarks are critical to running a profitable practice.

Accounts Receivable Ratio   Benchmark = .75 - 1.0 *
Calculation: Divide the previous three month’s average production into the current Accounts Receivable Total.
Total Accounts Receivable -------------------------------- = ______ = A.R. Ratio
3 month’s Average production
* Some specialty practices have a different ratio

Accounts Receivable Aging Report  Benchmark – no more than 15% of total Accounts Receivable outstanding for 90 days.
Calculation: Divide the total in the 90+ days category into the current Accounts Receivable (AR) Total. Then, calculate the percentage.
   AR over90 days = ______ x 100 ____%
   AR Total

Insurance Aging Report  Benchmark - no insurance balance over 90 days. Calculation: From your Outstanding Insurance Report, add up the amounts over 90 days old. The goal is “0”.
   90 Days Old Insurance = $______

III. Hygiene Department Benchmarks

Hygiene Production as a % of total practice production- Benchmark 20-25%
   Hygiene Production total = ______ x 100 = ______ %
   Total Practice Production

Perio Procedures total as a % of hygiene production- Benchmark 20-30%
   Perio Procedures total = _______ x 100 = ______ %
   Total Hygiene Production

Recall Effectiveness
   Last 6 mos Periodic exams(0120) = ________.X 100 = ____%
   Active Patient Count

There are other practice management Benchmarks, however these are the essentials. The ones listed are to give you a big picture of the practice and to increase your productivity and revenue. The next step to Profitability is control of your overhead. The following are the key steps to increase profitability: To Increase Profit:

• Reduce variable costs: supplies, lab, and salaries.
• Produce more in the same time: increase efficiency, implement process improvement steps.
• Raise Fees.
• Increase treatment acceptance of primary procedures.
• Reduce open time; reduce broken appointments and last minute reschedules.
• Increase New Patient flow.
• Focus the team on internal marketing and ask for referrals.

Goal setting is the next step. Use the following steps to set your practice profitability goals.

1. Clearly state what you want in measurable terms. EX: a 4 % increase in our practice collection percentage. OR, a 2% reduction in supply costs.
2. Decide with your team the actions to take. EX: take a collections course or ask everyone for their co-payment at the time of service.
3. Assign accountability to the team to take the actions. This means scheduling a follow-up with the team members responsible for the actions, ensuring action. Be sure the staff member knows “how to” accomplish the action. This step may require continuing education courses for the specific skill needed to accomplish the actions.
4. Measure your results. EX: calculate your collection percentage each month to check your progress.
5. Make adjustments to get your goal. EX: Just asking for co-payments did not get the percentage increase. Additional actions: The practice will no longer accept secondary insurance payments. The patients who have secondary insurance will be given an insurance form on the day of service and an instruction sheet on how to file for their own secondary payment. The patient will be expected to pay the co-payment for their primary insurance benefit.

• There are Essential Benchmarks for each specialty practice also.
• To receive a complimentary Key Business Indicators Tracking sheet, send an e-mail request to: Linda@drevenstedt.com

Remember - It is not what you can do or think or read or hear about that increases profitability - IT IS WHAT YOU WILL DO. Crunching your numbers and knowing how you compare to the benchmarks are important steps to review monthly.

Linda W. Drevenstedt, M.S., President of Drevenstedt Consulting, LLC brings the wit and wisdom of a "Steel Magnolia" to her speaking, consulting and coaching. Her diverse background includes a Masters in Healthcare Administration, practice management consulting and dental hygiene.

Dentistry Today has voted her one of their "Leaders in Dental Consulting" for the past five years.

Contact Info:
Linda W. Drevenstedt, MS
7 Steps 2 a Balanced Life
Email: Linda@drevenstedt.com
Website: www.drevenstedt.com
Phone: 618-639-5433