What Is The Average Dental Office Overhead?

Understanding the Average Dental Office Overhead

By Cecil Staton, Dental-Focused Financial Advisor at Arch Financial Planning

Managing overhead expenses is crucial for any successful dental practice. Overhead refers to the ongoing expenses necessary to operate your dental office, excluding the direct costs associated with providing dental services. Understanding and managing these expenses can significantly impact your bottom line, ensuring your practice remains profitable.

As a dental practice owner, managing your dental practice overhead is the first step to making your practice more efficient. Employee wages are increasing dramatically and are usually your largest expense.

Breaking Down Overhead Expenses

Overhead expenses in a dental practice typically fall into several key categories:

1. Payroll and Employee Compensation: This is often the most significant expense for a dental practice. It includes wages for staff members, payroll taxes, and benefits. In general practices, payroll can account for 25-30% of total revenue.
2. Dental Supplies: Essential for patient care, dental supplies can range from disposable items like gloves and masks to more durable goods like dental instruments. These variable costs can fluctuate based on the number of new patients and the types of procedures performed.
3. Lab Fees and Lab Costs: When sending work to a dental lab for the fabrication of crowns, bridges, dentures, and other prosthetics, lab fees are incurred. These costs vary but typically account for 5-10% of total revenue.
4. Facility Costs: This includes rent or mortgage payments, utilities, maintenance, and insurance for the dental office. These fixed costs are essential for keeping the practice operational and can range from 5-7% of gross revenue.
5. Administrative Expenses: This category includes office supplies, marketing, software subscriptions, and professional fees such as accounting and legal services. Administrative expenses can account for approximately 5-10% of total revenue.

Industry Averages and Benchmarks

To gauge the financial health of your dental practice, it’s important to compare your overhead expenses to industry averages. On average, a well-managed dental practice should aim for an overhead percentage of 60-65% of gross revenue. This means that 60-65 cents cover overhead costs for every dollar earned, leaving 35-40 cents as the average profit margin before taxes and owner compensation.

Team members tend to cost more than ever, bringing down your net income. Investing in top talent and paying them what they’re worth is still a good idea. Dental practice management is not just focusing on cost control and staff costs but empowering your employees to grow in their careers.

Here’s a more detailed breakdown of the median overhead percentages for a general dental practice:

• Payroll and Employee Compensation: 25-30%
• Dental Supplies: 5-6%
• Lab Fees and Lab Costs: 5-10%
• Facility Costs: 5-7%
• Administrative Expenses: 5-10%

How Much Should A Dental Practice Owner Spend on Marketing?
In today’s competitive market, dental practices must allocate a portion of their budget to local advertising to attract and retain patients. Utilizing platforms like Google Ads and Facebook can be particularly effective. Practices aiming to maintain their current patient base can typically spend between 0-2% of their collections on advertising and marketing. However, investing 5% or more of their collections in these efforts is advisable for practices looking to grow or those in more competitive markets. This increased investment can help ensure visibility, attract new patients, and drive revenue growth.

Strategies for Managing Overhead

1. Monitor and Analyze Your Income Statement: Regularly reviewing your income statement can help you identify trends and areas where expenses increase. This allows you to decide where to cut costs or invest more resources.
2. Negotiate with Suppliers: Review your dental supplies and lab costs regularly to ensure you get the best prices. Don’t hesitate to negotiate with suppliers or explore alternative vendors.
3. Optimize Staff Efficiency: Ensure that your staff members are utilized effectively. Cross-training employees to perform multiple roles can help reduce payroll costs without compromising service quality.
4. Control Variable Costs: Keep a close eye on variable costs like dental supplies and lab fees. Implementing inventory management systems can help reduce waste and over-ordering.
5. Increase Revenue: Bringing in new patients and offering additional services can boost your gross revenue, which can help offset high overhead costs. Marketing and patient referral programs can effectively grow your patient base.

What Does it Take To Be a Successful Dental Practice Owner?

Paying competitive staff salaries is essential, even though it’s the largest overhead cost for a dental practice. Office staff play a critical role in shaping the patient experience, often interacting with patients more frequently than the dentist. From the warm welcome at reception to efficient scheduling and handling of patient inquiries, the staff’s contributions significantly impact patient satisfaction and retention. Investing in competitive wages ensures you attract and retain skilled, motivated employees who can enhance the overall patient experience, benefiting the practice’s reputation and profitability.

It’s becoming more common for a practice’s overhead costs to grow, and payroll expense is the most significant factor. The critical thing to remember is that employee costs will continue to increase. Your business operations rely on paying your staff well and finding ways to increase your collections.

Increasing Dentist Incomes
Dental practitioners should focus on managing expenses and increasing their income by attracting a more significant number of patients. While controlling overhead is crucial, growing the patient base can substantially impact overall profitability despite increasing the expense categories listed above. Enhancing the treatment room and other areas of the dental clinics you own can significantly improve the patient experience, making it more likely for satisfied patients to refer others. Investments in modern equipment, comfortable waiting areas, and efficient appointment systems can create a more appealing practice, boosting patient satisfaction and referrals, thereby driving growth and increasing revenue.

How To Maximize Income As An Average Dentist

Several impactful strategies can be implemented to boost a dentist’s income significantly. Hiring a professional to negotiate PPO contracts can lead to better reimbursement rates, directly enhancing revenue. Investing in continuing education allows dentists to expand their skill set, offer new services, and improve treatment quality, making the practice more attractive to patients. Additionally, creating an incentive plan for staff can motivate them to contribute to the practice’s growth and efficiency, improving patient satisfaction and increasing profitability. These strategies elevate income and foster a more dynamic and successful dental practice.

Related Reading: How Dentists Can Maximize Income (archfinancialplanning.com)

Conclusion

Managing overhead is a balancing act that requires constant attention and strategic planning. By understanding the average dental office overhead and implementing strategies to control expenses, dental practice owners can ensure their practices remain profitable and successful. At Arch Financial Planning, we specialize in helping dental professionals like you optimize your financial health. We’ll partner with your dental CPA to evaluate your total expenses based on your practice size and develop a plan to optimize your discretionary costs in the best way. Contact us today to learn more about how we can support your practice’s growth and profitability.

For more personalized advice on managing your dental practice’s overhead, feel free to contact me at Arch Financial Planning. Together, we can achieve your financial goals and secure the future of your practice.

Arch Financial Planning is a dental-focused financial advisor that helps dental practice owners nationwide. Be sure to read our guide and hire the right team of advisors who can assist with building and selling the practice you’ve built to empower your retirement plan. 

Related Reading: Tax Consequences of Selling Your Dental Practice

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