The "Secret" to Increasing Profits in the Growing Practice!
by Anthony Stefanou, DMD

"Dentistry is a business!" is the one phrase that you will repeatedly hear in seminars and read about in email groups and articles as you embark on your clinical careers and private practices. It is easy to say, "We know that!" However, many of us still believe that as long as we are great clinicians, our patients will love us, and that means we will be successful financially.

Unfortunately, that is not always the case (and certainly not the norm!). Great clinicians often fail to be very profitable in private practice. Conversely, many average or poor clinicians become very successful financially. Why is that? Well, there are many reasons. One is that the overwhelming majority of patients do not know the difference between excellent and acceptable dental work, and if that's all we focus on, we can lose the financial game. And, there are many other factors that are important in leading and managing an office, such as:

• How do I powerfully and effectively market my practice?
• How can I improve my communication skills with patients and staff?
• How do I hire, train and motivate the best possible office team?
• How do I stay current with technological advances without overspending?
• How do I design an office so that it looks professional and operates efficiently?
• How do I stay in compliance with regulatory issues?

Therefore, it is certainly not just about how you cut a crown prep. The good news is this: if you understand and implement a powerful concept used universally in the business world, you can be both a great clinician and more profitable.

The concept is called PASSIVE INCOME.

Let's look at some numbers. In the last 15 years, there has been a dramatic, steady increase in the most important statistic when looking at office profitability: overhead, or what it takes to "run" a practice. Recent surveys now show that the average dental office is operating at a bit over 70% overhead! What does this mean in simple terms? For every $100,000 you collect, you net $30,000. Now, here's the challenge. You want your practice to grow, and maybe even get to that magical number you hear about in the dental world: $1,000,000 annual gross. A combination of things are often done to try and get there:

• Signing up with more plans (to get more patients)
• Hiring more staff (to accommodate the anticipated patient volume)
• Staying open more hours (to offer more flexibility)
• Buying state-of-the-art technology and equipment (more debt, more payments)
• Expanding the types of treatments and services you provide

Some of this is fine, and even necessary, to get to the next level. However, if this is all you do, the end result can be that your gross goes up significantly, but so does your overhead! Many million-dollar offices operate in the 85% overhead range! You don't need to be an accountant to recognize that your net now is basically the same as if you were grossing half that at the average 70% overhead! You now go ahead and spend thousands of dollars on practice management consultants to do what, decease your overhead? The thinking is that we will automatically create more (net) income if we increase the practice gross. We go about it by doing more dentistry, spending more time chairside or staying open more hours. This is an active approach to try to become more profitable, or as some call it, "trading time for money." The problem is that it doesn't always translate into more profits. Why? Because when we solely go this route, the overhead almost has to go up percentage-wise.

So what can be done about this? As the practice grows, we need to find a way to utilize a combination of active and passive approaches. Passive income is simply defined as "earnings derived which the individual is not actively involved," or "isn't doing more work to earn the income." This is the key to the power of real estate investing, and why much of the world's wealth is created in this area. Can this be applied to the dental office? Yes! The idea is to create more income without having to see more patients, do more dentistry and spend more time in the office. Another business/marketing term that can be used to explain what we are looking to do here is "increasing the point of sale," or making more dollars per patient visit. Sound impossible? It's actually not difficult at all. There are two easy methods to do this in your private practice. The first is an indirect way to create passive income. It's indirect because you are still working for it (chairside), just not spending more time at it. For example, your patient needs several basic restorations. In the past, you may have offered amalgam as the only option — acceptable and affordable for the patient. You have one hour scheduled to do the work. Now, you offer several options, specifically, composite resins, which will be cosmetically superior, and will carry more of a fee. You can probably do this in the same amount of time that it takes to do the amalgams you used to do. This can therefore be considered a form of passive income. However, if you get into lab fees and multiple visits to do the other restorative options for this patient, this strays from the passive income approach.

The second approach is what I call "true passive income." Let's first look at active income again. You have a million dollar office. It is at 75% overhead. To net another $25,000, you must create, find and/or produce another $100,000 worth of extra dentistry. How much work will that take? Is it worth it to do that? Or, a better question might be, "Can you even do that (increase 10% this year)?

There is a simple method to easily profit the extra $25,000 this year in a passive way, without having to do $100,000 worth of extra dentistry. We already instruct patients on preventing decay and/or periodontal, and smile maintenance. We recognize we need to do this, and patients expect and want us to do this. The problem is that what we usually do is offer generic advice: brush, floss, rinse, etc. We don't tell them what to use. The end result of this is that they usually don't improve their oral health. They go to the supermarket or pharmacy and get overwhelmed with the choices in the dental aisles. What they often purchase are not the right products for their dental needs: high abrasion toothpastes, hard bristle brushes, high alcohol content rinses and products that contain colorings or dyes that can stain teeth. On top of that, the drug companies and stores make all the money.

Something is wrong with all of this. The good news is that there is a new trend emerging in dentistry. Recent statistics show that approximately one-third of dental offices now recommend specific home care programs and dispense (yes, sell!) them in their offices. This is no different that what veterinarians, dermatologists, chiropractors and other medical disciplines have been doing for many years. We are the oral health care experts. We should be getting paid to provide oral health care instruction. It's as simple as that.

Patients love the convenience. They get the proper recommendations based on their dental condition and treatment plans. You get to better control what they are using. They improve their oral hygiene and maintain the cosmetic and restorative work they have invested in. And, guess what? You increase your profits significantly! Now, instead of saying to Mrs. Jones, "Go home and make sure to brush, floss, rinse, etc.," you now say,

"Mrs. Jones, we're going to make sure you are using the best home care to take care of the investment you have made in your smile. We recommend the __________ home care system. In fact, we use it ourselves! Mary will get you your personalized hygiene kit up front and review the instructions with you."

Mrs. Jones does this without hesitation. This doesn't take up any more chair time. Do this with just a few patients per day, and you will easily produce another $25,000 this year in profits. The office staff also benefits because you can now offer a percentage of the retail profits from the program to them as a monthly bonus. They become motivated and don't worry about their "$0.50-an-hour" raise as much!

This concept works, and everyone wins; patients, staff and your practice! There are several high quality alcohol-free home care programs that distribute through dental offices. Research and personally try a few of them before you decide what to recommend. I urge all of you to consider implementing retailing in the dental office and creating substantial passive income in your practice. You will be on your way to "healthier patients" and a "wealthier practice," with less stress, less time in the office, and a more balanced and productive career and life!