Using Key Performance Indicators to Steer Your Ship

Since 2010, dentists have been working harder and longer. Overall, revenues are down, insurance reimbursables have decreased or, in some instances, been eliminated. Business overhead is up; dentists are retiring at an older age; group practices and corporate dentistry (growth of managed care plans) are alive and growing in numbers; dental schools are graduating more dentists; and patients have become more discerning in how they spend their hard-earned money. Dentistry has become a competitive business and will continue to remain competitive.

The most predictable way to become successful in this new dental economy is to maximize your productivity, increase your collections, implement proven systems, enhance your efficiencies, and examine your data on a monthly basis. Like a pilot who monitors the fuel consumption, flight path, and other aircraft systems during flight, it is incumbent for business owners to evaluate their data and possess a thorough understanding of their patient mix and competition to ensure excellent outcomes for their families, team members, and patients.

During my years of practicing, I was fortunate to have understood the importance of monitoring my key data generated through practice-management software (Eaglesoft). The challenge was consolidating the information into a manageable format. A previous career in the hospitality industry responsible for hundreds of millions of dollars, combined with my Master of Business Administration degree, taught me the importance of evaluating fundamental analytics to maintain substantial profit margins. On a monthly basis, our key performance indicators were consolidated into one report, and as a team, we evaluated the outcomes. As a result, we could all see where we needed to take corrective action to stay on course to meet our financial goals and objectives. It is amazing how this data can be used to gain buy-in of your business philosophy by team members. When you share this data with your personnel, you create accountability and legitimacy that you understand how to successfully operate your business while providing excellent dental care.

“What gets measured gets managed.”

The first step to evaluate the financial prosperity of your dental practice is to measure your practice’s performance against regional metrics designed with desired profit margins (38–40 percent is a realistic profit margin for the general dentist). Established industry benchmarks by practice type (general dentist, periodontist, orthodontist, etc.) are used by trusted experts who can help you make that comparison and, more importantly, identify and recommend corrective action. Meaningful benchmarks are excellent starting points to measure your business strengths and weaknesses.

“To measure is to know.”

Key performance indicators (KPIs) are measurable values that demonstrate the effectiveness of a business in achieving its key objectives. Almost all organizations use KPIs to measure their success in achieving their goals and objectives. Due to varying business philosophies and service mix (emphasis on surgery, endo, pediatrics, implants, ortho, or other), these numbers are provided as benchmarks only and will vary by region and number of services (measured with Code on Dental Procedures and Nomenclature [CDT] codes) provided. The following chart provides a look useful KPIs for the dental professional:

Expenses/Budget Categories	Dental Industry Normalization Expenses (%)Based Upon Net Collections
Personnel: includes all wages, taxes, benefits, worker’s compensation, retirement plan, incentives, etc.	19–26% (paying too much or producing too little); dental hygiene should be 28–33% of total production
Facility: rent/lease/mortgage, janitorial, landscape, maintenance, utilities, etc.	5–8% (lower if office is paid for)
Dental supplies	6–9%
Professional services: business mentor, accountant, lawyer, postage, office supplies, etc.	2–3%
Marketing: 80% internal, 20% external	5–10% (new practice) 3–5% (mature practice)
Credit card fees	1.8–3.0% (33% of all fees are charged)
Labs and CAD/CAM	7–12% (service mix dependent) Fixed, removable, implants, basic restorative
Doctor compensation: salary, taxes, pension, etc.	38% and up of all collections
Continuing education	2–4%
Office supplies	3–4%
Miscellaneous	6–8%

In most instances, maintaining overhead at 62 percent or less (all expenses before dentist compensation) provides healthy compensation for the doctor and future investment in your business (technology, expansion, and replacement of equipment). If your overhead is 62 percent or greater, it is time to start looking at ways to decrease expenses or increase production and collections. Remember that collections convert to cash, and cash is king!

In my next blog post, I will look at the importance of obtaining regular demographic studies to help plan your growth while providing the right service mix. Also, in a future blog post, I plan to provide a comprehensive list of all KPIs that should be measured and reviewed on a monthly basis.

Duke Aldridge, DDS, MBA, MAGD, DICOI, MICOI