Most dental practice owners are overworked and underpaid. They make substantially less income than they should while working far too many hours each week. That said, many dental practice owners don’t even realize that they are making below-average incomes. Because other business owners are generally unwilling to share the financial metrics of their practices, how can a practice owner measure their success? The answer is through dental practice benchmarking.
At PorterKinney, PC, we are your trusted financial partner specializing in dental practice accounting and business consulting. Today, we will share the importance of financial benchmarking for dental practice owners and how it will help you track performance, optimize profitability, and set growth goals. Let’s dive in!
What is Benchmarking in a Dental Practice?
Dental practice benchmarking is a strategic assessment dental practice owners can perform or have a dental CPA provide to them to identify their business’ strengths and areas for improvement compared to state and national averages. By comparing how your business is doing to that of others using essential metrics, you and your dental CPA can determine opportunities for potential growth, where to cut unnecessary costs, and how to boost your operational effectiveness for a better chance at long-term success.
Key Financial Metrics for Dental Practice Benchmarking
When it comes to dental practice benchmarking, it is critical to focus on key financial metrics like the following:
#1: Net Profit Margin:
Profit margins are where dental business owners calculate the difference between revenue and take-home earnings. A highly profitable dental practice should have net profit margin before owner salaries of at least 40%. By evaluating operational costs, dental practice owners can minimize excess spending and adjust pricing structures while still providing high-quality care with a well-compensated team.
#2: Revenue per Patient:
Revenue per patient is key to understanding current patient volume levels and the ability of the business to sell additional needed services. This, in turn, provides key insights into potential growth opportunities with strategies on how to maximize each patient visit, including adding high-value services or optimizing the costs of low-value services.
#3: Patient Acquisition & Retention:
Across nearly every industry, retaining clients is easier and cheaper than acquiring new ones, including the dental industry. Monitoring the rates of patient acquisition and retention demonstrates the effectiveness of a business’s marketing efforts and customer satisfaction levels. Using this information, dental practice owners can devise tactics to strengthen patient loyalty and execute growth strategies.
#4: Accounts Receivable & Cash Flow:
Tracking accounts receivables and cash flow ensures financial stability and minimizes payment delays. With the help of a dental CPA, business owners can use this data to implement clear payment policies, automate billing, minimize outstanding balances, and streamline insurance payments.
#5: Advertising as a % of Revenue:
Many dental practice owners take pride in growing solely by word of mouth. While there is nothing wrong with generating patient referrals, why not accelerate your growth rate through a targeted marketing campaign? Highly profitable dental businesses should spend 3% – 7% of their gross revenue on effective marketing campaigns. If an ad campaign is not generating a high return on investment (ROI), then discontinue that campaign and invest those dollars in campaigns with a proven track record.
How to Compare Your Practice to Industry Standards
When diving into the nitty-gritty details, dental business owners can find industry benchmarks from several reliable sources, including:
- American Dental Association (ADA)
- Academy of General Dentistry (AGD)
- American Association of Orthodontists (AAO)
- American Association of Endodontists (AAE)
Additionally, there are a multitude of dental industry reports and surveys that can provide recent data to compare one’s business. For example, the Dental Economics’ Annual Practice Report offers key industry insights on financial trends, staffing practices, and insurance reimbursements.
Of course, it is also wise to utilize regional data, especially regarding staffing and building costs, as they depend heavily on your location. In this case, it may be beneficial to look at resources like the Bureau of Labor Statistics (BLS), which can provide data on average earnings, employment trends, and business expenses in the healthcare industry in your local area.
To save you time, PorterKinney has developed a free, one-page benchmarking report for dentists that can be downloaded at www.porterkinney.com/dentist. This report compiles ten average financial metrics based on over 10,000 data points collected from dental offices from 2020 – 2024. Additionally, the report provides suggestions for running a highly profitable dental practice.
Strategies for Growth Based on Benchmarking Results
When reviewing your dental practice benchmarking against state, regional, and national averages, we encourage you to strive for these key growth goals:
- Optimizing operational efficiency to reduce overhead costs.
- Enhancing patient experience and increasing retention.
- Investing in new dental technology or expanding services based on market trends.
- Improving financial management through smarter budgeting and forecasting.
Why Work with a Dental CPA for Benchmarking?
Many dental business owners are dentists themselves. They would far prefer to spend time fixing their patients’ teeth than reading long-winded dental practice benchmarking reports. That’s where a dental CPA can make all the difference!
A dental CPA is trained and experienced in interpreting financial data specific to dental practices. From identifying operational inefficiencies to developing custom financial strategies that align with your business goals, dental CPAs help optimize financial planning for long-term practice growth.
At PorterKinney, PC, we are dental CPAs who want to help you achieve your business goals and create a legacy that will support you long after you are done with the 9-5 life. From tax planning to profitability optimization guidance, we help new and experienced dental practice owners looking to track performance and improve profitability. By working with us, we will break down key financial metrics, compare your business against industry standards, and showcase ways your business can improve efficiency through data-driven decision-making.
Looking to benchmark your dental practice for growth? Contact PorterKinney, PC today to get expert financial guidance tailored to your success!
