The Ten Myths of Practice Management 2

And the Truth that will Set You Free (Part 2 of 2)

by Tyson Steele

In our September issue, we looked at four of the myths of practice management that can limit your success.

In this month's issue, we will review six additional myths that can hold you back and the truth that will set you free . . .

Myth #5 -- Cosmetic focused practices are highly profitable.

If you were to listen to most seminar speakers, dental gurus and magazine editors out there today, you would think that cosmetic dentistry is the key to success in your practice. "Just focus on performing high-end aesthetic procedures," they say. "And you will dine on caviar for the rest of your life!"

This myth assumes that because cosmetic procedures generally demand high fees, they must be highly profitable. Of course, this is an oversimplification.

In order to build a cosmetically focused practice, you must "sort through" prospects to find patients who desire cosmetic treatment and have the ability to pay for it. No matter how you slice it, the number of "receptive" cosmetic patients is lower than the number of "receptive" preventative patients. Thus, the cosmetically focused dentist has to spend more time and money searching for appropriate patients than his restorative counterpart.

In addition, marketing costs, exam time and case presentation time can be quite high in a cosmetic practice even before doing any treatment. Then, you've got lab fees and treatment time. Add to this the fact that many cosmetic cases require some additional reworking and reselling even after treatment is finished, and you can begin to see why cosmetic dentistry can have limited profitability.

Of course, you can get "big bucks" for cosmetic treatment. However, many dentists find that good old "bread and butter" preventative dentistry is ultimately more profitable. In fact, in our detailed analysis of hundreds of dental practices, we've found this to be true -- the top money earners tend to have preventative/restorative focused practices and use cosmetic dentistry as an additional "tool" to serve all of their patients.

The truth is that, for most practices, cosmetic dentistry is often less profitable than it appears.

Myth # 6 -- The best practices achieve 45% profitability

For decades, many practice management experts have set targets of 45% practice profitability -- meaning that for every $100,000 of production each year, the dentist's before tax profit would be $45,000.

This was probably a good target in times past. However, dentists today are using new materials, equipment, accelerated hygiene and associate dentists in ways that provide greater production in excess of any increased overhead.

In fact, we have found that many of the best money earners today are not achieving 45% profitability. This is because their focus on maintaining a high level of production more than offsets their reduced percentage of profitability. Think about it. If Doctor South produces $500,000 per year at an excellent 45% profitability, he has a net profit of $225,000. However, if his friend Doctor North produces $900,000 per year at a relatively low level of 30% profitability, he has a net profit of $270,000. This means that Doctor North is less profitable as a percentage but more profitable in the stuff that really counts -- the green stuff.

Of course, producing more doesn't always equate to earning more. That's why you have to measure production and profitability while also keeping track of time spent and intangibles such as stress.

Ultimately, the goal is to balance gross production with your percentage of profitability to come up with the greatest amount of profit, while maintaining a low stress level and quality lifestyle. All of these things work together.

The truth is that, while some practices do achieve 45% or greater profitability, the practices that put the most money in the dentist's pocket rarely run that efficiently. Rather, these dentists are willing to accept a reduced margin as long as they can offset that with increased production.

Myth #7 -- I can't increase my production, because I can't run any faster.

This is more of an internal lie than a myth. It causes you to focus on what you think you "can't" do, rather than what you "can" do. It's an excuse that keeps you from taking action to improve your practice.

Of course, you don't need to run any faster to produce more. Instead, you just need to work "smarter." A dentist who earns $450,000 in profit each year obviously doesn't work three times as many hours as a dentist who earns $150,000. So, one can assume that the high earner doesn't work three times as hard either.

The nail in the coffin of this myth is the fee schedule. You can easily increase production without running any faster simply by raising fees. Roller skating from room to room is not required to raise fees. You don't even need a third arm. You simply raise your fees and -- poof! - you've increased your production.

Of course, this works for many systems in your practice. Just change the way you work, and you can increase production without any tangible increase in effort.

The truth is that you can increase your production. You don't need to run any faster. You just need to be willing to make the improvements necessary to succeed. It's the speed of your brain that counts.

Myth #8 -- I can't find good staff members in my town, city, county, etc.

This is a huge one. It leads dentists to do crazy things -- like the guy who wouldn't fire a staff member who had stolen from him several times because he thought it would be too hard to replace her.

Make no mistake -- good staff members are hard to find. However, they are out there, and they can be found.

The real question is one of "experience" versus "quality." You see, most dentists knock themselves out looking for staff members with experience in the dental field. Unfortunately, regardless of where you live, this leaves you with a relatively small pool of prospects. If you're good at recruiting and you don't mind the possibility of stepping on some colleague's toes, you may be able to hire a great, pre-trained staff member. Otherwise, you'll just have to rely on "luck."

Of course, your other option is to find someone who lacks experience -- a top quality person who will fit in well with your team -- and train them. But here's where the problem arises. No one wants to train a new staff member from scratch. It takes time. It costs money. They might leave soon. There are no guarantees.

But, hey, what is guaranteed?

We all know that the quality of your staff has a greater impact on the quality of your practice than anything else, except you. We know that a great team member can be worth more than double an average team member. We know that the overall quality of your life in regard to income and stress levels can be greatly affected by your team.

So, make an investment in your future -- decide that training is a worthwhile endeavor when it comes to potentially great employees. Start with the best employees you already have. Set aside time to actively train them. Invest in their education. Pay them well. But never, ever settle for mediocrity.

Then, when hiring new people, decide that "quality" is more important than "experience." Know that you will have to make an investment in training in order to generate a return. It will be one of the best investments you ever make.

The truth is that you can find excellent staff members in your town, city, county, etc. They may not be "experienced," but they may well be "qualified."

Myth #9 -- People in this area just don't value good dentistry.

Let's face it, few people value good dentistry. In fact, for the most part, good dentistry should be "invisible" -- and it's hard to place great value on something that's invisible.

I like to compare good dentistry to good plumbing. It's rare that you consider the quality of plumbing in your house and say something to your friends like, "This house is plumbed with 24-gauge, full-copper, Ridgeway piping! How cool is that?" Rather, good plumbing is invisible. It's good because you don't have to think about it. Unfortunately for your plumber, when there is a problem, you think more about the cost than the quality. After all, plumbing is viewed as a necessary evil. Sure, you say, "Put the good stuff in so it will last longer." But you're not exactly jumping up and down. It may cost as much as a new car, but it sure isn't as much fun.

That's how most people view dentistry, too. It's a necessary evil. It's hard to get excited about. Sure, maybe you can persuade your patients to value it a little. (Or even a lot if we're talking about a major cosmetic case.) But, it's never going to have the emotional value of a new car.

Despite this, denitsts keep focusing on the value of the clinical treatment, when the real value to the patient stems from their relationship with you. It's a relationship of trust. It's a relationship in which you, the dentist, carry a great burden -- the responsibility to care for your patient's health, to educate them on things unseen, to protect them far into the future.

Sure, the new car purchase is emotional, but there's no real relationship between the customer and the salesman. He's there to sell the product. There's little trust and little loyalty.

So, why are dentists training to sell like car salesmen? Instead, focus on the relationship. Be deserving of the patient's trust. Your paramount goal should be to get the best for your patient. The patient doesn't need to value good dentistry. They just need to value you.

The truth is that this myth is true! People really don't value good dentistry -- they value their relationship with you. Make the most of it!

Myth #10 -- Dentistry is a highly profitable profession.

I sort of threw this one in to make a point. It's not really a practice management oriented myth. However, your internal beliefs regarding this myth do affect how you manage your practice.

According to the IRS, dentistry is the fourth most profitable profession in the United States. Unfortunately, this statistic tells us little about dentistry's real profitability. For, although most dentists earn an excellent living, the true value of an investment is based on its return.

If you were to look at dentistry as an investment from a business perspective, I think you might be shocked. The current average out-of-pocket investment to become a dentist is approximately $450,000. This reflects the cost of eight years undergraduate and post graduate study combined with an average practice purchase price of $220,000. If you take into account interest on school loans and the practice purchase, the start-up cost well exceeds $750,000.

In return for this investment, the dentist successfully procures a full time job (albeit with great earnings potential.) The problem, of course, stems from the fact that production fails to occur if the dentist is not at work. In contrast, most other businesses that require a half-million dollar investment (franchises, internet companies, car washes, etc.) offer the added benefit that, after a start-up period, the owner may choose not to work in the business or sell it for a substantial profit. For that matter, the original $450,000 invested in the S&P 500 could theoretically return an average of $56,250 per year forever, without any work whatsoever.

In addition, as the number of full-time practicing dentists in the United States decreases, the value of many practices will decrease as well, further diminishing the return on your investment.

The truth is that dentistry is a mediocre business investment. But it's a great investment when you consider it in relation to the "lifestyle" it provides -- stability, great relationships, lots of time off, good cash flow. But you've got to make the most of it. You've got to work at developing a "low stress" practice. You've got to maximize your profits. You've got to enjoy every day. And that's the great thing about dentistry -- you are in control of your destiny.