If you recognized “The Princess Bride” reference, you’ve probably accumulated a few years.
If not, the actual line from the 1987 movie is, “You keep using that word. I do not think it means what you think it means.”
And in this case, the word that dentists keep misusing is “profit.”
Profit, But No (Self)-Honor?
Typically, dentists use the word profit to describe what they pay themselves. In other words, their own salary. That idea is pervasive and completely wrong.
In truth, a dentist-owner’s salary is more or less what they would pay another dentist to do the same work. If you look at it that way, there is no profit; the practice’s collections are covering the payroll and the rest goes to other expenses: taxes, payment on loans, lab costs, various types of insurance, and on and on.
Here’s a typical example: the practice’s total overhead is 75 percent, and the owner receives 25 percent in salary. There are ZERO dollars left over… in other words, zero profit.
An actual profit would be when, after all expenses are paid, there’s money left over to put in the bank or to invest in the business.
Which Path To Profitability Is Best?
Dentists can, and should, work to make their processes more efficient, shop for less expensive suppliers, minimize lab costs, and so on. There are varying “guides” online about what each expense category should be as a percentage of revenue that you can use as a starting point. But there’s a limit to what can be done to minimize overhead. You’ll reach a point of diminishing returns faster than you might think.
The other path is to significantly increase collections, i.e, recurring revenue, while decreasing expenses to 60 percent or less of revenue. When you achieve that goal, you’re set to make actual profits from your practice.
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