Episode 143: Solutions for Overhead Control

Naren: Welcome to another episode of the less insurance dependence podcast show, the official podcast of the reducing insurance dependence academy, www.rid.academy. Today’s topic is solutions for overhead control, solutions for overhead control. Before we get into the topic, I have a quick announcement. We are excited to announce our very first in-person live MBA in a long time, at least in more than a year and a half. This is going to be happening in Phoenix, Arizona, on November 6th phoenix Arizona it’s from 8 30 a.m. till 5 30 p.m., it includes eight hours of CE the link is thrivingdentist.com live MBA, and you will learn about the ten elements of a thriving practice that’s the title of the one-day event plus you’re going to learn about the 24 systems that are essential for thriving practice. Gary will go through and do workshops live workshops where you and other attendees get to apply what he teaches. There are around 11 exercises that you, you, would do, and then, of course, the idea is by the end of the day, you have some, some, things you can take away and now act on. So, it’s a great, great, value and it’s a great event. Check it out. We only have limited seats; we just wanted to make sure that the quality is very high, so we are limiting the seats. So go to thrivingdentist.com forward slash live MBA. Gary, let’s jump in. This is a great topic-solutions for overhead control.

Gary: Yeah, Naren, this is one of my favorite topics because it is so important for every dental practice owner overhead control, and sadly overhead has been rising. The history of practice overhead is that it continues to rise ever, eating into the profitability of the practice. Sadly, Naren in the year 2018, the most recent year we have data from the ADA, they reported that the average practice overhead was 74 percent, 74 percent, and I’m going to be very bold on this and loud and clear. Doctor, if your overhead is 74 or higher, you’re working too hard for too little; you deserve more than that. That means you have a high-volume high overhead low net income practice if you’re overhead 74 percent or higher, and you deserve much better than that. With our clients in my coaching, work our goal is to get overhead at 60 percent or less, ideally 50 percent. Now let me qualify that 50 percent and tell you, Naren, while it’s not impossible, it’s very difficult in today’s climate to get your overhead to 50 percent or less. We do have examples, so if it’s done before, it must be possible, right.

Naren: Yes 

Gary: we do have examples 

Naren: yes

Gary: but those are the outliers, but I can confidently say to any of our listeners that any of you can get your overhead to 60 percent or less now why can I say that so confidently, Naren, because we have helped clients in every part of the country be able to get their overhead to 60 or less in fact just yesterday had a wonderful conversation with one of her clients, and she was absolutely thrilled she said Gary you know that goal that I put up there on my short-term goals. She said I wasn’t sure if she’d go in the short term or midterm, so we ask our clients to put goals together. We have goals, but we also ask our clients to put together their goals, so everything is customized to them, and we use the short term, which is the next 12 months. Midterm one to three years and long term three-plus, and she said when I was putting this together for you, I wasn’t sure if I should put my overhead less than 60 percent in the short term or midterm, and she said I decided what the heck, I’m going to put it in the short term, and she said I didn’t think we’d get there, but hey maybe we’ll get close, and it’ll be an improvement over it was, but yesterday we had a review meeting, and she said Gary I, I, want to jump there was a zoom meeting she said I want to jump through the screen because guess what I have the data here from my account and my overhead is 59 percent not including depreciation, and she said you know depreciation is another three or four percent, but she said it’s 59 percent not including depreciation my actual overhead when you factor in depreciation is even lower than that. She said, don’t take this the wrong way, Gary, but I didn’t really think we’d get there this quickly, but we did, so I can say confidently that any one of our listeners with, with, if they’re willing to do the work, you’ve got to do the work, they’re willing to do the work they can get their overhead to 60 or less. So, there was a song a popular song that came out a few years ago about don’t sweat the small stuff. 

Naren: yes

Gary: Don’t sweat the small stuff; who was that, was it? Oh, you’re going to look it up and tell me. 

Naren: yeah, I’m going to look it up; you can talk 

Gary: was it Weird Al Yankovic? Maybe, maybe, you could no maybe it wasn’t Weird Al, it was someone else, but you’ll tell me in just a minute 

Naren: There’s a book by Richard Carlson, don’t sweat the small stuff, and it’s all this anyways it’s a different book I’ll look it up, Gary

Gary: see if you can find the song that relates to this but anyway, along those lines 

Naren: oh, it’s Kevin Wilson 

Gary: Kevin Wilson, okay, I knew there was someone came up with a cool song, along those same lines I’m going to talk about five specific expense categories to pay attention to, five specific ones why only five, now in a normal category of accounts if you look at your profit and loss statement, you a normal dental practice will have 45–50-line items of expenses, but there’s really only five that really matter, five out of maybe fifty, why? Because these five make up eighty-five percent of your total expenses, Naren. Get these five right.

Naren: right 

Gary: and you’re well on your way. If not at the finish line of having your overhead to 60 or less, I don’t really care what you’re paying for magazine subscriptions, right. 

Naren: right right, so I was going to say there’s one big one that’s not in the five 

Gary: well, we’re going to get to that, we’re going to get to that, but I want to talk about the actual expenses that you’re, well I say writing cheques, and I’m using that term figuratively because most of us don’t write checks anymore we pay everything digitally, but there’s, there’s, five categories from which we are you know actively spending every, every, month that constitutes 85 percent of your expenses and so it’s like don’t sweat the small stuff pay attention to the big stuff, get these five right and you’ll be well on your way to having a profitable practice. Let me go through those five, and I’m going to go through them in order of largest to smallest of those five. So the largest expense in any dental practice is going to be what your account is going to call staff wages or staff compensation. By the way, they use the word staff. I never use the word staff; I use team, staff to me you know it’s either an infection or a stick I guess if it’s an infection, you spell that differently, but we’ll use their language because that’s what probably appears on your profit loss statement staff wages, and the goal is to have that be 28 percent or less when I give you a percentage it’s a percent of your revenue, not a percent of the expenses it’s a percent of the revenue, 28 percent or less, and that’s an all-in I’m using single quotation marks all in expense what I mean by all in includes every related expense to your employees. So, your FICA, your FOODA, your unemployment insurance, your payroll service, your payroll taxes matching 401k contributions uniform allowance if anyone has any other benefits that are included in that, 28 percent or less. Now that’s your largest expense by category, or is it we’ll get to that in a minute 28 percent less? I will tell you that depending on where you are in the country, it’s harder and harder to get that to be 28 percent mainly because of rising wages and increasing wage pressure from whether it be dental assistance hygienists or administrative team members, but I can report to you that peak performing practices all over the country are able to control that to 28 percent and have our team members very well compensated. I actually have two goals there related to that in my own practice, and that’s that I want to have it at 28 percent or less, and I want my team members to be very well compensated.

Naren: yes

Gary: I want them to be the highest-paid in their positions in dentistry, and so you can have both of them. If your wages are, are, too high, if you’re above the 28 percent, one of the ways to look at this is you’re not producing enough to support the team that you have, you’re not producing enough, so first one 28 percent or less next lab expense your lab your outside lab. I’m going to give you two possible percentage ranges there because it depends on whether you’re using a cad cam dentistry CEREC or not. If you’re not using in-office cad cam dentistry or CEREC, then your budget for your lab is eight percent again. That’s eight percent of your revenue. If you are using CEREC, your budget now is four percent, and don’t believe the cereal salesman that says once you buy CEREC, you’ll never have an outside lab; you’re still going to use outside labs multiple units perhaps cosmetic dentistry you’re still going to use some. So, if you are CEREC, it’s four percent or less, and if you are not CEREC, eight percent or less. Next is dental supplies your consumable dental supplies. My budget for consumable dental supplies is six percent or less, six percent or less. Now one thing I want to caution you about consumable supplies is very often that becomes kind of a polluted category Naren because we likely buy our supplies from one of the main you know the supply, supply, vendors and oftentimes anything we buy from Paterson or shine gets thrown in there. So, hand instrumentation gets thrown in there if you buy a new sterilizer, it gets thrown in there you should have a separate category for small instruments and a separate category for anything that would be like a capital improvement in your practice like a sterilizer. So that six percent is meant to be consumable supplies relative to providing dentistry, and I will say there is some pressure on that one right now because of our increased PPE costs; there’s some pressure on that

Naren: right 

Gary: but you know we’re able to keep ours at six percent or less, and we are absolutely state-of-the-art when it comes to PPE, so it can be done next is your facility, and that will either be your rent or your mortgage if it’d be rent if you’re renting or leasing your space there’ll be a mortgage if you’ve purchased your space and my budget for that is five percent or less five percent, and that’s all in. That will include your property taxes if, if, you own the building that’ll include your, your expense cost if you’re leasing, it might be a triple net lease it might have other lease expenses that are part of that. It’ll include repairs to your building as well. So, we want that to be five percent or less, and finally, the fifth one is marketing, and we have found that today if you’re using the right resources, you can get that marketing expense to three percent or less and have all the new patients and the quality of new patients that you want, at three percent or less. So let me just recount those again staff wages 28 percent or less lab eight percent if you don’t have CEREC four percent if you do dental supplies because we’ll supply six percent facility five percent and marketing three percent. Now let’s address the five-thousand-pound pink elephant in the room. If you look at those and you’re, you’re, math-oriented Naren, and you look at those, and I just asked you of those five expenses what’s the biggest expense.

Naren: Of those five expenses, staff expenses 

Gary: yeah, and so you might say that’s the biggest one but wait a minute, there’s a sneaky expense that doesn’t show up in your profit and loss statement because you’re not writing a cheque or sending electronic payment off every month 

Naren: yes 

Gary: and what is that? You know we talk about the importance of getting your wages under control; it’s 28 percent. Get that one right, doc. 

Naren: right 

Gary: you know, if you have a million-dollar practice, let’s just put this in perspective, so you know we talk about one percent two percent. If you have a million-dollar practice, one percent is ten grand. 

Naren: yeah 

Gary: Naren, do you know any dentist that wouldn’t like an extra ten grand in their pocket 

Naren: oh, absolutely 

Gary: every dentist would like that, right 

Naren: yes, yes. 

Gary: I mean, you could use that to advance retire some debt, you know

Naren: yes

Gary: you could take a nice vacation with it. You can do lots of things put it in your pension plan lots of things you can do, so one percent yeah you could look at one percent that’s piddly diddly well one percent in a million-dollar practice is ten grand. Well, there’s a sneaky expense that isn’t recorded on your profit loss statement, and it makes the 28 percent for you; for your staff payroll, in comparison, it’s the expense that you pay the insurance company to provide you, patients. It’s your insurance write-off. 

Naren: right 

Gary: because of that, today in 2021 averages 42 to 44 percent, 42 to 44 percent. Now here’s the insidious part. The sneaky part, you’re not writing a cheque for that every month.

Naren: Yes

Gary: if you were writing a check for that every month or figuratively making a debit, you’d probably stop doing that 

Naren: exactly 

Gary: right 

Naren: I mean, it’s the same thing with real estate, right like you buy a house, let’s say a million-dollar house, the buyer is literally writing the 60 000 cheques, but he doesn’t see it because it goes through the seller same thing here you know it’s kind of 

Gary: invisible

Naren: it’s a sneaky it’s and even though you are the one paying for it because you are doing the dentistry and only collecting you know 56 percent because the insurance company keeps their 44 percent and gives you the rest 

Gary: right, you know we talked about you know how it’s harder and harder to keep your, your, staff wages at that 28 percent that’s getting hard in especially in urban areas

Naren: I mean, it is really hard if you’re a PPO practice right because well, you have to do 1.6 million dollars in dentistry to collect 1 million 

Gary: right 

Naren: and how do you do 1.6 million dollars in dentistry with 280 thousand dollars of staff expenses

Gary: your staff to do 1.6 

Naren: yes 

Gary: you’ve got the right stat because that’s what you’re doing you’re producing 1.6 million dollars in dentistry.

Naren: Right

Gary: so, you’ve got your staffing level your team at the level to produce 1 6 because that’s what you’re actually producing, but you can only collect a million on it, so if you want to get that one in line, then you want to successfully resign from PPO plans you want to successfully resign if you successfully resigned from PPO plans 

Naren: I mean, if I were to be blunt, your staff expense is 17.5 percent in that example because 280 000 as a percentage of 1.6 is 17.5 percent. So, you are doing an excellent job in staff the problem is because you don’t get to collect it. It’s 28 percent, and still, then it’s hard because how do you do it.

Gary: Difference comes out of your pocket doctor 

Naren: Yeah

Gary: it comes out of your pocket, and it’s, it’s, time to change that you know and I’m going to come back full circle what did we say our goal was our goal with our clients have overhead at 60 percent or less and so much in life is a math equation 

Naren: yes 

Gary: it’s a math equation I, you know it’s interesting I, I, teach my grandkids to pay very close attention to math because a lot of times kids don’t understand what math relates to life

Naren: Right

Gary: say, pay very close attention because life is a math equation. Our two oldest grandchildren have got their attention on this, and they love math, and I’m excited about that, but literally let me go through a math equation for you. Can you control this? Is it a rhetorical question I know the answer to? Can you control your overhead to 60 percent or less if you’re giving away 44 percent on your PPO patients? If you’re giving away 44 percent, can you the answer is no. That’s a math of that math that does not compute because when we see practices that are PPO practices, the majority of their patients are PPO patients. It’s 70 percent 75 percent 80 percent 90 percent of their patients, and so they can’t do that. You can’t get your overhead if you’re giving away 44 percent, so what’s the lesson. Yes, pay attention to your expenses. Be a good steward of your expenses. Make sure there’s no you’re in a boat make sure there are no leaks in the boat. 

Naren: yes 

Gary: you know, make sure you’re not wasting money on lab expense make sure you’re not wasting money on your, on your facility, make sure that your dental supplies you know you don’t have things expiring on the shelf work with EKWA for your marketing and I can guarantee you’ll get your marketing to three percent or less because ours is one point six percent. So how am I doing, Naren? If you are my accountant and we’re looking through my balance sheet, and I show you that I spent one point six percent of my revenue, my goal was three percent or less, how am I doing

Naren: you’re going extremely well 

Gary: to give me a gold star that I can put on my lapel 

Naren: Exactly, exactly, and you get to save tens of thousands of dollars you know towards your profit because your marketing is less than what it needs to be

Gary: right, so if you would, Naren put a link in our show notes to your marketing strategy meeting for any of our listeners if you want to control your marketing’s best to three percent or less and get the right number of new patients, which for us is 90 a month and not only the right number of new patients but the right quality of new patients the fastest track to do that becomes an equine you’ll spend 1200 a month, and that may be all you need to spend on marketing because it is producing amazing results not only in my practice but for our clients as well. But if you want to control your, overhead the best way to do that is to successfully resign from PPO plans. That’s how this topic ties into our podcast, and you know, speaking of which, I’ll bring this full back circle. Hopefully, this is motivating you to take action on this. I am super excited about the announcement that you made in the opening for our live MBA coming up on November 6th; by the way, that’s a Saturday we’ve scheduled Saturday intentionally. I don’t really want to take your weekend away from you, but we do know the challenges towards the end of the year with patients trying to get and everything else that Saturday seems to make the most sense. So that’s on Saturday, November six. It’s, it’s, in my backyard in Phoenix, come join us for a live one. We’ve been doing these remotely, and I love doing them remotely, but they’re even more rewarding when they’re LIVE, and I’ll go through the ten elements of a thriving practice; one of those elements is to how to successfully resign from, from, from PPO plans. So come join us, and I look forward to seeing you live and in person on Saturday, November 6th. You know I do enjoy my work virtually and presenting live stream-type formats, but there’s nothing quite like being there live and in person. So, I hope you can make it. Phoenix is not a bad place to be in early November. Come early stay late golf courses are great we got great restaurants tennis facilities at the resorts are world-class, bring your spouse and enjoy the spa anyway I hope you get to come to join us on November 6th, Naren this has been a fun topic. 

Naren: absolutely, Gary

Gary: you know I want to conclude by thanking you, Naren and, and your 174 team members at EKWA for all you do for my practice. We couldn’t do what we do in life smiles without you. I also want to thank our listeners. We love what we do here at the less insurance dependence podcast. Be sure to tell your colleagues about it. It’s fun to go on a journey with someone else, so you’re not alone. On that note, let me thank you for the privilege of your time, and I look forward to connecting with you on the next less insurance dependence podcast. Thanks so much, guys!