5 practical ways to statistically measure your practice

Dr. Roger P. Levin brings you the most thought-provoking topics from the Dental Business Study Clubs, an organization focused on the business of successful dentistry. Each month, Dr. Levin will explore an aspect of the business of dentistry in detail.

Imagine driving to a friend's new house for the first time. You have the address and think you know how to get there, but you're not 100% sure. What's worse, you have no GPS or internet access. You don't even have a map.

This is what it's like for practices that don't track key performance indicators (KPIs). These indicators are statistics or measurements that represent the most important factors in operating a successful business. Every business that wants to have a true understanding where it's headed tracks these indicators frequently.

5 key performance indicators

Any business that doesn't measure KPIs will not have a true understanding of its strengths, weaknesses, and course corrections that need to be made. The following five KPIs will help show you exactly where your practice is headed.

1. Production

Roger P. Levin, DDS, is the executive founder of the Dental Business Study Clubs.

Every practice should set production goals for each year and design a strategic plan for reaching those goals, including a breakdown of production by service, active patients, new patients, and other contributing factors. Measure production daily, weekly, monthly, quarterly, and ultimately annually against the production goal.

By tracking production throughout the year, the practice will know exactly where it stands. If you're behind your goal in January, it's not a big deal. If you're still behind in November, it may be impossible to make up ground.

2. Profit

Many dentists view profit as the income that they take home or whatever is left in the checkbook -- a simple calculation of collections minus overhead. However, it's much more than that. Profit indicates whether the practice is providing the return on the doctor's investment of time, debt, and effort. More importantly, profit ultimately determines how many years a doctor will have to work to reach financial independence.

3. Overhead

Every practice should have a target number for overhead. We suggest that general practices be at 61%, orthodontics at 49%, oral surgery at 50%, pediatric dentistry at 49%, and endodontics at 42%.

Using these targets to continually track all overhead categories against regional and national averages will help determine if your overhead is under control. Frequently, we see practices whose overhead is 4% to 6% too high. This seems small but indicates a significant loss of annual profit.

For every percent that the practice goes over its overhead goal, it loses $1,000 of income on every $100,000 of production. That means a successfully productive $800,000 practice that is 4% over in overhead loses $32,000 annually. Keep in mind that in some cases, overhead is too low. This indicates that not enough investment is being made in the practice, which can result in low production.

4. Collections

A practice performs only as well as its collections. A collection target of 98% as a goal can be measured daily, weekly, monthly, quarterly, and annually. When practices don't track collections, other KPIs can actually be misleading.

Practices need to design collection systems so that they can collect virtually all money owed to them. Practices with high production and low collections actually have less cash available to invest back into the practice and to add to doctor income.

5. Number of new patients

The average new patient has a higher production level over a 12-month period than the average active patient, because dentists tend to identify more potential treatment on new patients than active patients.

If this number of new patients declines, it often hinders production, collections, and overhead percentage. Tracking the number of new patients will indicate whether there are problems scheduling new patients, if you need new marketing strategies, or whether new patient production has increased or decreased.

Remember, all five of these KPIs work together. By analyzing a change in one, it's easier to predict how the other KPIs will be affected. For example, if collections begin to decline, then it's predictable that doctor income will decline as well.

Summary

There are many KPIs that can and should be tracked, but production, profit, overhead, collections, and new patients are the most critical. When tracked daily, weekly, monthly, quarterly, and annually, these five KPIs alone will provide practices with a clear picture of their performance.

Roger P. Levin, DDS, is the executive founder of the Dental Business Study Clubs.

The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.