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a blog by Chris Barrow

Guaranteed profit

What is the target in your dental business for net profit before tax (and before owner’s drawings)? In my experience, you should be aiming at the following: £500,000 in sales = 30% £1,000,000 in sales = 25% £2,000,000 in sales = 20% £3,000,000 in sales (and above) = 17.5% Why does the profit margin decline, the bigger you are? More people – middle managers – are needed to run the organisation. How would you like to be able to guarantee that profit margin, come what may? Easy – once you know how. It requires the application of a simple formula to everything you do: Operating costs + variable costs + target profit margin = price to patient. How simple is that? So why don’t dental principals apply that formula to everything that is sold, from a consumable sale, through preventative maintenance and into treatment planning? Answer – because they get distracted by other historic and often irrelevant issues:

  1. a competitor’s prices

  2. fixed percentage contracts for hygienists, therapists and associates (most often too high)

  3. hourly rates

  4. poorly measured Return on Investment from marketing activities

  5. low daily production from fee-earners

  6. ignorance of operating costs per surgery per day

  7. no monitoring of Key Performance Indicators

  8. lack of market research on materials and supply costs

  9. uncontrolled use of discounts and patient-finance options

  10. wastage and over-ordering

Perhaps all of this could be summarised by a lack of time and passion invested in “understanding the numbers” and monitoring very carefully every penny in and out of the business. It doesn’t take much:

  1. good monthly management accounts

  2. KPI’s

  3. average daily production figures

  4. marketing ROI’s

  5. new patient conversion statistics

and you are on your way to improved and guaranteed profitability. Oh – and an investment of an hour a week in reviewing the numbers and taking action. Profit doesn’t pour out of your business – it seeps out of the cracks in your leaky ship – drip, drip, drip – day after day. You work damned hard for your money don’t you? Why don’t you invest more time in looking after it? People you need:

  1. a good book-keeper who can produce management accounts every month

  2. a pro-active accountant who can show you how to legitimately reduce tax and give you business structuring tips

  3. a no-nonsense business coach who can tell you where you are going wrong and what to do about it

  4. the hard-ball version of YOU

A team of trusted advisors who can pay for themselves in no time at all. Its a false economy to think you can do all of this yourself and run the business and do the lion’s share of the dentistry. Come on – wake up – you are better than that. Why not guarantee your profit every year?

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