Do you want to grow your practice from $1 million to $2 million?
Or maybe you’re aiming to increase your take-home pay each month?
No matter what your financial goals are, reaching them starts with setting and tracking the right targets.
That’s where dental key performance indicators (KPIs) come in.
KPIs are essential tools that help you measure how well your practice is doing and identify areas for improvement.
To get you started, we’ve put together our top 5 recommended KPIs to regularly monitor for a financially healthy practice.
Let’s dive into the first one.
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#1 Dental Practice KPI: Collections
Let’s kick things off with collections.
We’re all familiar with this metric—it’s the money coming into your practice, your revenue. But beyond just hoping this number is trending in the right direction, how can you make it really work for you?
To get the most out of this KPI, start by setting specific collection goals. Decide how much you want to bring in each month or by the end of the year.
Once you have your goal, work backwards to figure out what needs to change to achieve it. This involves looking at what we call “mini-metrics.”
For starters, look at your case acceptance rate. If patients aren’t agreeing to the treatments you suggest, it might be a sign they need more information. Improving how you explain the benefits of treatments can help boost your collections.
Next, check how many new patients you’re getting. If you’re spending on marketing but not seeing more new patients, it might be time to tweak your marketing strategy. Also, keep track of how many appointments are no-shows. Missing appointments means lost revenue.
Finally, make sure you’re scheduling follow-up appointments before patients leave your office. If someone cancels, be quick to rebook them.
By looking at these details and working backwards from your collection goals, you can find out where things might be going wrong and fix them to improve your revenue.
#2 Dental Practice KPI: Staff Costs
Next up, let’s talk about staff costs—specifically, the cost of your staff excluding the owner’s salary. This is a key metric that we work with our clients on a lot, as it helps you keep an eye on how much you’re spending on your team relative to your revenue.
Ideally, your staff costs should be between 20% and 30% of your total collections. For newer practices, this percentage might be higher, often closer to 30%, as you’re investing in growth and trying to boost your collections. As your practice matures and your collections increase, this percentage should ideally drop to around 20% or so.
For well-established practices, aiming for around 25% is the sweet spot. This percentage allows you to balance competitive staff wages while maintaining healthy profit margins.
Here’s a practical example: If your practice is bringing in $100,000 in collections per month, your staff costs should ideally be between $20,000 and $30,000.
If you’re on the higher end, closer to 30%, it might indicate that as you grow, you need to focus on improving collections or managing costs more effectively.
Conversely, if you’re at 20% or lower, it could mean you’re running a lean operation, which is great as long as it doesn’t impact staff satisfaction or service quality.
A couple of things to keep in mind: Ensure that when you’re calculating staff costs, you’re not including contractors or your own salary in this number. It should only reflect the salaries and benefits of your regular staff.
Also, be cautious about making drastic changes based on this KPI. It’s important to consider the overall context and balance staff costs with other factors like employee satisfaction and service quality.
By keeping track of staff costs and aiming for that sweet spot, you can make sure that you’re spending wisely while supporting the growth and success of your practice.
#3 Dental Practice KPI: Variable Costs
Next up is variable costs. This KPI typically should be around 15% to 20% of your total collections, depending on the stage of your practice.
Variable costs are the expenses that change depending on your practice’s activity levels. They include things like:
- Supplies: This covers everything from dental materials like fillings and crowns to everyday items like gloves, masks, and cleaning supplies. Essentially, it’s any item you use up as part of your daily operations.
- Lab Fees: These are costs associated with outsourcing dental work to labs, such as creating crowns, dentures, or other dental appliances. If you’re sending these tasks out, the lab charges you for their services and materials.
Why is this KPI important? Because it’s an area where you have a lot of control and opportunities for improvement. You can make significant changes by managing what you purchase and how you handle supplies and lab work.
For example, you have the power to choose your suppliers and decide whether to bring lab work in-house. If your practice is reaching a revenue level where it makes sense, investing in in-house lab work can be a smart move. This often leads to better quality products and more control over the materials and costs.
Plus, having an in-house lab means faster turnaround times for your patients.
Another way to manage variable costs is by reducing waste and buying supplies in bulk. Efficient practices focus on trimming these costs, even by just a little, which can lead to significant savings and improved profitability.
Instead of reordering supplies as they run out, keep track of what you have and how much you’re using. This helps prevent waste and unnecessary spending.
By keeping an eye on variable costs and making smart adjustments, you can run your practice more efficiently and boost your profitability.
#4 Dental Practice KPI: Fixed Costs
Now let’s talk about fixed costs.
Unlike variable costs, which change with your practice’s activity, fixed costs stay relatively constant regardless of how many patients you see.
They include things like:
- Rent: The cost of leasing your office space. This is often one of your biggest fixed costs.
- General Administrative Costs: These are expenses related to running your office, such as utilities, insurance, and office supplies.
- Subscriptions and Marketing: If you have a consistent budget for advertising and promotions, it falls under fixed costs as well.
We recommend keeping fixed costs around 15% to 30% of your total collections.
Newer practices might see higher percentages as they’re still growing and setting up. More established practices, however, often manage to bring this number down to the lower end of the range.
For instance, if you’re paying $10,000 in rent and your practice’s annual collections are $100,000, your rent is 10% of your collections.
To optimize this, aim to get your rent cost closer to 8% of your collections (which is where we recommend it should be).
One way to manage this is by focusing on increasing your collections. While you can’t control rising rent costs, you can control how much you bring in, which helps keep the percentage of your fixed costs in check.
To give you a concrete example: If you have five operatories, and each generates around $250,000 annually in collections, you should aim to ensure your rent is effectively covered by these collections to keep your fixed cost percentage in the green.
#5 Dental Practice KPI: EBITDA
Finally, our last recommended dental practice key performance indicator to track is EBITDA, which stands for Earnings Before Income Tax, Depreciation, and Amortization.
Simply put, EBITDA measures how much income your practice is generating before accounting for non-cash expenses.
This might sound technical, but it’s crucial for understanding your practice’s profitability and valuation. If EBITDA is strong, and if the other four KPIs we discussed are on point, it means your practice’s overall financial health is solid.
A higher EBITDA increases your practice’s value, which is vital if you’re considering selling or assessing the worth of your practice.
To put it in perspective, think of EBITDA as the financial equivalent of a property’s market value. Just as you’d want your property to be in top condition if you’re looking to sell it, you want your practice to be in excellent shape financially. Regularly monitoring EBITDA helps ensure that your practice remains valuable, whether you’re planning a sale or just keeping an eye on its financial performance.
It’s like owning a house—you wouldn’t let it fall into disrepair if you might need to sell it tomorrow. Similarly, keeping track of EBITDA helps you maintain and potentially increase the value of your practice.
By focusing on EBITDA and regularly assessing it, you ensure that your practice remains a valuable asset, regardless of what changes might come your way.
Need More Help With Your Dental Key Performance Indicators?
We hope these dental key performance indicators give you a solid starting point for tracking your dental practice’s performance.
Remember, these five KPIs are just the beginning. To truly optimize and grow your practice, you’ll need a comprehensive approach to financial metrics.
At Virjee Consulting, we specialize in helping dentists like you set and monitor critical KPIs that can drive your practice’s success.
Whether your goals are to improve profit margins, expand your business, or prepare for a sale, KPIs should be a central part of your financial strategy.
If you need help with dental KPIs or have any questions, our team is here to help.
Simply fill out the form below, and we’ll get back to you within one business day to see how we can support your goals.
If you haven’t already, don’t forget to check out our Free Valuation Calculator to get an estimate of your practice’s worth today.
Until next time!
