With the broader economy on shaky ground and the dental industry in the midst of a wave of consolidation, what does a small dental group need to do in order to stay afloat?
On a recent episode of Dental Marketing Theory, we posed this question to Dr. Hendrik Lai, co-founder of Sage Dental Consulting. Here are his top takeaways.
First, each of your locations needs to have an internal economy of scale.
What this means is that you’re generating enough gross revenue at each location to keep that location going. Typically, this happens once you reach between $1-$1.2 million a year in revenue — enough to cover your fixed costs and expenses.
What you don’t want is a situation where one especially profitable practice is subsidizing another location that’s losing money.
Now, to get each practice to the magic number, Dr. Lai recommends that you:
- Focus on making accurate diagnoses. Don’t be so conservative that you end up unintentionally working against a patient’s best interests (say, by delaying treatment until the problem gets worse and more expensive to fix).
- Improve your case acceptance rates. The average practice has a case acceptance rate of only 60-65 percent. That means you probably need to get better at communicating and making the effort to meet patients where they are.
You’ll also need to be more flexible in how you provide care. Work with each patient’s budget. Try spreading treatment plans out over months or even years so that the patient can pay a little bit at a time instead of rejecting the whole idea out of hand due to cost.
Finally, you also need to start thinking about how you can achieve an external economy of scale. This is more complicated because it’s all about creating a centralized corporate layer over your individual locations to help them run efficiently and effectively.
Once your group hits a certain size this becomes a necessity. You can manage 3 locations as a doctor-owner, but 5? No way — not if you’re also spending half your day placing crowns.
At that point, you either need to become a full-time CEO and build a management team or hire someone else to do it for you. Either way, that costs money — more money than you can afford with just 5 practices worth of revenue.
So now you’re in a quandary — keep floating along and hope for the best, or get bigger, fast. Dr. Lai says that groups that choose the latter aggressively leverage debt to buy additional locations until they get to between 15 and 20 practices.
At that point, things level out a bit. You’re making enough revenue to support the management team you need to run your locations effectively and you can focus on stabilizing your business before trying to grow any further.
Not an easy climb, but if you’ve done one too many root canals for one lifetime, it may be worth strapping on your boots and going for it.