What Is a Good Profit Margin for my Dental Practice?

Discover six things you can do now to improve your profit margin.

When we discuss margins in dentistry, we may first think of crown margins—where an excellent crown margin is supragingival, protects the patient from pain, and prevents gaps where future problems can occur.

But there is another margin that is of utmost importance to your practice. Your profit margin. But what is a profit margin?

Profit margin measures how much money a practice makes on its products and services after subtracting all of the direct and indirect costs involved. It is expressed as a percentage. Simply put, profits in dentistry are created by patient services.

Revenue = Patients X Procedure Fee

A good profit margin protects the dentist from financial pain and future problems. You can get an idea of an ideal profit margin by using benchmarks from standards created by financial experts specializing in dentistry. While these are suitable measures, they don’t have to be the end-all for your practice profits.

Benchmark standards state that the profit margin of a typical dental practice should be at least 40%. A 40% profit margin (or 60% overhead) is close to the average profitability of dental practices in the US.

What Factors Contribute to My Profit Margin?

Dental practices differ in physical size, location, and number of dentists and staff treating varying numbers of patients. These are variables in dental practices to consider when calculating practice profits.

Before realizing revenue and profit for the practice, we must analyze our total operational expenses. Total expenses are usually itemized on a profit and loss sheet produced by a computer accounting program or your CPA. Revenue collected from patient services must pay the relegated expenses before there is any profit to the business. Relegated expenses include:

  • Variable expenses: Overhead or operating expenses that can change monthly due to production needs, such as dental supplies, lab materials and lab fees, office supplies, technology, and miscellaneous fees and costs.
  • Fixed expenses: Costs that, once established, don’t change month-to-month, such as facility/rent or mortgage, equipment, salaries, and benefits for employees.

A well-staffed dental practice typically has employee expenses ranging from 24-28% of collections. That includes salary, payroll taxes, and any employee benefits. Employee costs are usually the highest portion of overhead expenses.

After getting an idea of your expenses, you can look at revenue production to determine profit. The simple fact is that profit is produced when you take in more revenue than you spend. The items listed below are the basic procedures every profitable practice follows to ensure revenue is greater than expenses.

Basic Procedures for a Profitable Practice:

  • Manage your overhead expenses by creating and sticking to a budget.
  • Create business systems that save time and money.
  • Acquire new patients through target marketing, SEO, website content, and social media interactions.
  • Retain patients by providing the best service and incentivizing referrals and reviews.
  • Create new services and products to attract and retain patients.
  • Schedule production goals to increase efficiency and eliminate wasted time.
  • Build your team through morale-building efforts, ongoing training, and emphasizing the goal of helping patients have a great experience.
  • Create flexible but firm collection policies, treatment plans, and estimated costs in writing. Patients are happy when they know what is expected of them.
  • Get your insurance claim filing and insurance A/R under control.

How Can I Improve My Dental Profit Margin?

  1. Raise your fees. Analyze your fees and place them where they should be for your geographic area. The ADA provides this information without charge to members.
  2. Negotiate with network PPOs for better reimbursement fees. In-network PPO providers must negotiate higher fees regularly to increase reimbursement. Don’t know how or have the time? Unitas PPO Solutions has the answers to your questions about negotiating fairer fees and will provide you with successful solutions.
  3. Introduce an in-house discount membership plan for cash patients. The benefits of this include no claims to file and collecting payment at the time of service.
  4. Spend more time with patients building relationships.
    • Dentists should target their ideal patients who share their values.
    • Provide impressive, jargon-free treatment presentations.
    • Provide perfect customer service, especially with insurance billing.
    • Provide services they can’t get elsewhere or bring unique comforts, such as massage chairs or warm face towels.
    • Be friendly and take the time to say hello even when you aren’t doing an examination.
  5. Open up more hours. Dental practices are open a set number of hours per week and, through marketing endeavors, expect to be contacted by phone or a website contact page by people needing their services. Your phone must be answered eight hours daily, or you should provide scheduling online for busy people who use the internet for communications. Provide a chatbot to answer questions. For some people, a phone call is a nuisance and takes too much time.
  6. Realize more significant profits with revenue-enhancing systems.
    • Outsource insurance billing, claims appeals and follow-up, posting insurance checks, and billing patients to a professional billing company. eAssist dental billing is the most significant dental billing company with the most dramatic success stories of dentists who show bigger profits and, for many, lower salary expenses. eAssist acts as an extension of your team, working behind the scenes while your staff cares for your patients’ needs.
    • Purchase the tools for coding and insurance billing success for your clinical and front-office insurance team. Knowledge of the ever-changing CDT codes and how to use the ICD-10 diagnostic codes is a skill that is now necessary but rare in dental offices. The delayed and denied claims due to lack of proper insurance coding will cost your practice thousands of dollars over time. Practice Booster products, including the renowned Dental Coding with Confidence, answer your coding and documentation needs. For a small price, you will save not only your profits but valuable time.

Taking good care of your patients and keeping an eye on your financial affairs will ensure that you have your expenses covered and the profits needed to feed your growth and peace of mind.

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By Sandy Odle, VP of Operations – eAssist Dental Billing

This article is provided for general information purposes only and does not constitute legal or professional advice. You should not act on the basis of any material contained in this article without obtaining proper legal or other professional advice specific to your situation as needed. The views expressed by the author or other third parties in this article are those of the author or third-party and not, necessarily, of Henry Schein One, LLC. Certain components of the product, or other products or services that interact with or support the product, and on which its functioning relies, may be provided by third parties, and Henry Schein One, LLC is not responsible for them, and expressly disclaims all liability for damages of any kind arising out of their use or operation. Third-party products are trademarks or registered trademarks of their respective owners and are used with its permission.