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?”
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.
he is stressed and completely pissed off
his lab fee is now £133 per thousand
assume he has a 20% net profit margin
his net profit is down from £28 to £26.60 per thousand
he is taking a 5% reduction in net profit – his life
you are now making £377 per thousand
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.
Understand the math.