Understanding the math

Question from a client this morning:

“My lab fees are 14% of sales and I’m pretty sure I am his biggest customer – should I be asking for a discount?”

My response:

Your overall net profit before tax is 37% (by the way – this a bloody good result).

So, for every £1000 of dentistry you deliver, the lab makes £140 and your business makes £370.

Call a meeting with your technician.

Tell him you want a 5% discount for volume and loyalty.

1. he is stressed and completely pissed off

2. his lab fee is now £133 per thousand

3. assume he has a 20% net profit margin

4. his net profit is down from £28 to £26.60 per thousand

5. he is taking a 5% reduction in net profit – his life

6. you are now making £377 per thousand

7. your net profit is up 1.89%

Big deal for him – small deal for you.

Wouldn’t you rather have a technician who loves you, does his best work and jumps every time the phone rings from your practice?

Maybe a conversation that agrees a target for production OVER which you enjoy a reduced price – that way, your technician doesn’t see his income dropping – he sees an opportunity for extra business.

Win-Win.

Understand the math.