On Friday we explored the definition of OCPSPD (operating cost per surgery per day) and discovered that many associates are operating at a net loss to your business.
(You can revisit that post HERE)
At the risk of starting your week on a negative (to add to rail strikes and, for many, first day back after the holidays), I’m tempted to wheel out the expression “but it gets worse”.
Because Friday’s mathematical riff was based on a fictitious 100% chair occupancy, whereas the benchmark in independent private dentistry is closer to 90% even for a well run practice.
That in itself doesn’t make any difference to the operating cost per day (the lights are switched on and the staff are in attendance).
The problem occurs when you start to get complete sessions in which there are no patients in the chair because it simply buggers up your productivity – there isn’t any.
So the question I get from clients goes like this:
“Surgery 3 is only used 2.5 days a week, so when I’m working out my OCPSPD, do I take that as 5 days that the surgery is open or the 2.5 days that it gets used?”
The answer, of course, is entirely up to you but I suspect you can already see where the maths will take us if you choose to count actual days in use, rather than include empty chair days.
Up goes the OCPSPD, down goes the potential for profit, up goes the loss.
I recently prepared an analysis for a micro-corporate client, looking at 2 of their locations – the first had 47% chair occupancy overall and the second 62.50%.
Based on 100% occupancy, the OCPSPD would have been a very healthy £309.90 and £307.65 respectively.
Based on actual occupancy, the OCPSPD was £661.13 and £492.25.
With associates working on 50% contracts, benchmark numbers for lab and material costs and even a modest (but realistic) target profit of 15% pre-tax for an associate-led location, it is a practical impossibility to make a profit until chair occupancy rises to 90% and contract percentages are adjusted downwards.
So, if we add the content of this post and Friday’s together, we can see that there is a balancing act necessary to achieve and maintain associate profitability. Although control over lab and material costs is prudent, the real KPI’s are:
- the % paid to the average associate (should be 35% with sliding scale additions);
- the % chair occupancy (should be 90%);
- the overall running costs of the building (should be around £400 – which is why some of those shag-pile and chandelier palaces prove difficult to maintain).
I remember taking dinghy lessons in Falmouth harbour many years ago and spending few days getting that balance right between the set of the sail and the hand on the tiller. Finding the elusive sweet spot where the wind and the tide combine to accelerate the vessel through the water.
Associate profitability is as sensitive a ship to steer.
Business life is getting more expensive – it’s time to pay more attention.