How do you make your business decisions? How do you decide what further assets you need to purchase, how much to pay your employees, how to manage your cash flow, and most importantly whether you are just a self-employed dentist or running a successful business? If you don’t know the answers to these questions, this will help you.
Data is a serious business; it can help you understand whether your business has the potential of becoming a successful venture even before you get started. And when you do delve into a business, data driven decisions ensure success and better management. A dental practice is no different. We talk about evidence based dentistry, but we also need to speak about evidence based business.
The Two Types of Metrics
There are basically two types of metrics. The first is the commonly known Key Performance Indicator (KPI), this calculates a business’s performance and how effectively a business is able to achieve its goals . This metric is calculated after the performance or fact. It is a result of how well a business is doing.
On the other hand is the Critical Driver (CD), it is calculated based on the cause that leads to the results. So, though both calculate the effectiveness of a business in achieving its goals, the difference is that CD is calculated before a performance or fact and KPI is calculated afterwards. We will be doing an in-depth analysis of both in running a successful dental practice.
Understanding Your Financial Numbers
Understanding your financial numbers is critical for success.
You must understand the financial performance of your practice. Following are a few numbers and ratios that you really need to keep a close eye on:
Revenue to Assets Ratio
Also known as the asset turnover ratio, it is an important number for measuring the effectiveness of a business. This ratio is calculated by dividing the revenue by assets. For example, calculating the revenue per chair; doing so would help us better understand how well a chair, or any asset of the business for that matter, is performing. Doing so will help you better understand if you are getting the most out of that particular asset. It also helps measure the usefulness or effectiveness of an asset over time.
Let’s say, you upgrade your dental chair, but you still have the previous one that you use for training purposes. So you’d still be using the old chair, but its ratio for effectiveness wouldn’t be the same. Because you aren’t getting the same returns from it that you were when it was being used for treating patients.
Revenue per Employee
This is another important number; a bit unkind or direct, but important. You need to know how effective your staff members are and if you are generating the right amount of revenue from them. Are you over or under staffed? Do your employees have way too much burden to effectively do their job, or too little responsibilities to justify their pay cheque?
Let’s say you hire an embroiderer for a $50 an hour. If you are only giving him, say a bodice, worth $25 to embroider in an hour, then you aren’t able to generate a justifiable revenue from him. Revenue per hour is a key metric for every business and you need to assess yours.
Your staff is an asset of the business and you need to make sure that you are getting the financial return on the wages bill. You not only need to calculate your revenue per employee for present times, but rather look at it like an organizational structure in order to have a better understanding of what decisions you need to make to help your business grow.
Maintaining a Dashboard
The best way to effectively track the performance of your business is to maintain a dashboard. I review my dashboard on a daily basis. It helps us know whether we are moving in the right direction; and in case we aren’t, then what are the factors that are hindering the performance.
Active Patient Numbers
You need to keep track of your active patient numbers and how they are changing over time. Is your patient base growing or lessening? Say the number of your active patients is 5,000 on the 1st of January, and by the end of June, it is 5,200. Now let’s assume you attracted 2000 new patients in the same period, but only have 200 active patients, then your net growth is pretty slow in comparison. So once you have these numbers, you can then assess what happened to the other 1800 patients that you had through your practice?
Without these numbers, you’d just be satisfied with the 200 that came to your practice, or even if you weren’t satisfied, you wouldn’t know what to compare it to or further evaluate what were the causes behind the rest of them not coming back through those doors.
Assessing Your Marketing Strategies
Marketing strategies are evolving over time. Digital marketing has really turned out to be a game changer. But digital marketing is a very broad horizon; you need to further evaluate which marketing platforms are most effective. How many of your patients are coming from the internet? Whether it’s Google, Pay per click, Facebook ads or just organically?
Understanding this number would further help you determine if you are getting a viable return on your investment. Is the money spent on marketing really generating any returns? There is no right number as to how much you should be spending on marketing, what’s more important is to know is which marketing strategies are really working.
The Recall Success Rate
Understanding how to measure the recall success rate is critical. You can do that through your practice management software, but it’s more important to understand what’s happening at various points in your recall system because it is the recurring profit model of your practice. It’s what gets people back to you.
Let’s say your patients are coming through word of mouth referrals, and you are not utilizing the recall system, then not only are you losing potential patients, but also blocking the ability to generate new ones.
Avoid Incomplete Treatment
This is another leak that you need to fix right away. What’s the dollar value of outstanding treatment? What’s the number of treatment plans sitting on your system that have not yet been converted, or the patients are yet to proceed with? And how do we follow that up?
Tracking Your Record Releases
Have you lost patients? Where did those patients go? Why did they leave? There would be patients who would leave without submitting a records release. You need to assess record release requests. And once you have a records release, try to chat to your patient to get a better understanding of why they are leaving. Exit conversations are a great opportunity for either winning them back or taking measures to prevent more patients from following suit.
Case Acceptance or Sales
Another important metric to keep track of is case acceptance. This measures the ability of patients to accept a treatment that is being presented to them. This number is higher for existing patients compared to new ones; because you already have a stronger relationship with them.
The New Patient Value
The new patient value is calculated by the amount of treatment accepted on a per patient basis for a given period of time. Similarly, new patient potential can be calculated by assessing the amount of treatment diagnosed per patient across the same period of time.
Units of Treatment
This is calculated by checking the number of units of treatment presented per day per practitioner. If you present enough treatment, ethically of course, you’ll get sufficient throughput of patients. And the best way to do this is to diagnose comprehensively.
Effective Hourly Rate
The effective hourly rate is the free cash flow divided by the number of hours worked in or on the business by the business owner. And this rate is key because it calculates the ability to generate revenue and manage other important sections like cash flow, expenses, accounts receivables, accounts payables and inventory.
So based on this, if you are working a lot of hours, you might have a reasonably high free cash flow, but if you are working way too many hours then your effective hourly rate is going to be low. However, if you have leverage in your practice, then the effective hourly rate is going to be higher. This is a key metric for business owners wanting to grow their business.
The Final Word
So there you have it; all the important metrics that can turn your self-employment situation into a profit generating business. These metrics will act as guardrails and navigation points to help you sail through the journey of growing your business.
These metrics are key, especially if your goal is to see your practice grow as a business. Being a great dentist might get people walking in the door, but in order to make sure that they keep walking in, refer you ahead and get complete diagnosis and treatment, you need to learn how to maintain and track data.
P.S. Whenever you’re ready …. here are 4 ways I can help you grow your dental practice:
1. Grab a free chapter from my book “Retention – How to Plug the #1 Profit Leak in Your Dental Practice”
The book is the definitive guide to patient retention and how to use internal marketing to grow your practice – Click Here
2. Join the Savvy Dentist community and connect with dentists who are scaling their practice too
It’s our Facebook group where clever dentists learn to become commercially smart so that they have more patients, more profit and less stress. – Click Here
3. Attend a Practice Max Intensive live event
Our 2 day immersive events provide access to the latest entrepreneurial thinking and actionable strategies to drive your practice forward. You’ll leave with a game plan to take your results to the next level. If you’d like to join us, just send me a message with the word “Event and I’ll get you all the details! – Click here
4. Work with me and my team privately
If you’d like to work directly with me and my team to take your profit from 6 figures to 7 figures …. just send me a message with the word “Private”… tell me a little about your practice and what you would like to work on together, and I’ll get you all the details! – Click here