12.10.10 Issue #457 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter
 

Is it Time to Raise Fees?
by Sally McKenzie CEO
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According to Kiplinger, consumers are spending again.  The most recent adjusted rate shows a 2.6% increase, the largest since 2006.

Yes, consumers are buying and retailers are charging. Case in point, McDonalds Corp. plans to raise prices next year. It will be the first time in more than a year. Company officials say they are cautiously optimistic about the slowly improving economy. Not to mention the fact that they anticipate commodity prices will be going up next year as well. You can also expect to pay more for your designer duds in 2011 as the price of cotton is predicted to increase too. Certainly during the last several months, many retailers and service providers have been understandably reticent to raise prices, but the tide appears to be shifting.

For dentists, the decision to adjust fee schedules can be agonizing in the best of times. Determining if the time is right to increase fees, particularly if you’ve avoided it for several months because of the economy, is a decision that should be carefully considered.

In most cases, I recommend that fees be adjusted each year - if you have chosen to maintain your current fee schedule the past couple of years, I hope you told your patients. They can’t possibly appreciate what you did for them if you didn’t inform them. That being said, it’s probable that for some dentists, if not many, it’s time to adjust fees. Like other businesses, costs are increasing on many fronts. But, before you make the decision to raise your fees, take time to consider a few key factors.

#1 - Your Market
Many doctors will arbitrarily establish their fees without ever checking what their dental neighbors are doing. Study dental fees in your area and find out where yours stand in comparison. Information on dental fees is available online and through your local dental society. Income and demographic information, which can be extremely helpful in establishing fees, is available through the local chamber of commerce. In addition, a variety of surveys and reports regarding the costs associated with the dental practice are available through the American Dental Association.

Consider the message your fees send current and prospective patients. If your fees are the lowest in the area, are you attracting quality patients that appreciate and value your care, or is your practice a magnet for price shoppers? Similarly, if your fees are the highest, do you want to be known as the most expensive dentist in town? Do you offer a patient experience and results that warrant the higher rate? Are you seeking to work with a smaller patient base?

#2 - Logic, Not Fear, Is Your Guide
Many doctors have not increased their fees in years - long before the recession hit - and they have no system for doing so. Consequently, practice finances are suffering. And doctors have trapped themselves in a financial quagmire, many charging only in the 50th to 60th percentile for their areas. Undercharging patients by as little as 7-8% each year translates into thousands of dollars lost to the practice. Undercharging by 40-50% translates into a serious financial pounding.

The dentist down the street may be charging in the 90th percentile and may be thriving, but many doctors convince themselves that they simply couldn’t charge that because patients will leave or the doctor feels guilty for increasing fees. Yet ours is a culture in which people associate quality with cost. In other words, you get what you pay for, and like it or not, cheap is often equated with low quality.

As compassionate as you may be as a healthcare provider, providing the best care comes at a price. Fee adjustments are a necessary part of running a high quality dental practice. Are you compromising quality for low fees? 

#3 - Establish A Realistic Fee Schedule
Certainly, you need to be responsive to your community, and during serious economic times like those we’ve seen, it’s essential to be sensitive to financial realities facing your patients. That being said, don’t let temporary altruism turn into long-term poor business decisions.

Institute a fee schedule that has a standard for each service. Evaluate the time required for each procedure, the fixed expenses necessary to run the office, variable expenses including supplies and lab fees, and income required per hour to compensate you, the dentist.

Next week, while you’re evaluating fees, it’s time to revisit your financial goals.
Interested in getting your fees evaluated?  Email info@mckenziemgmt.com.

Interested in speaking to Sally about your practice concerns? Email her at sallymck@mckenziemgmt.com. Interested in having Sally speak to your dental society or study club? Click here.

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Nancy Caudill
Senior Consultant
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Does 2011 = Salary Increases?
By Nancy Caudill, Senior Consultant McKenzie Management

“I dread the new year coming. My staff members are expecting a salary increase because I have given them one every year since the office opened 9 years ago. What should I do this year?”

Sound familiar? 

Let’s review the seven categories of your practice’s P&L that comprise the expenses that are evaluated from a practice management standpoint:

  1. Office Supplies
  2. Dental Supplies
  3. Facility Costs
  4. Lab Costs
  5. Gross Salary for your team, not including yourself
  6. Benefit Expenses for your team, including matching SS, Medicare, unemployment, vacation, sick leave, holidays, etc.
  7. Miscellaneous

As you know, a healthy overhead for a general family practice is 55-60% of net collections for the year. If you were over 60% for the past 12 months, the first recommendation would be - no raises this year. However, before carving that in stone, I would suggest that we evaluate each of your categories first. Here is why:

Let’s say that your Facility Costs are 8% instead of 5% because you lease the building back to yourself and you have over-inflated the rent compared to the area. To be more realistic, check to see what it would really cost you to lease a nice space in the same general area with the same square footage. Would that put you closer to the 5% goal?

Review your dental/small equipment supplies. Did you purchase some small equipment that can’t be depreciated but will last for several years, and you won’t have that expense again for some time, such as hand instruments? Are your lab costs too high because you are having too many crown failures, creating “redo’s” and running up your lab fees with no revenue to offset it? If it is the lab, change labs. If it is the type of crowns that you are using, consider changing crowns to increase success. Did your office supply expenses soar this year because you changed your logo and had to reprint all your stationery? You won’t incur that expense next year.

You can see where these points are leading you - if your total overhead is over 60%… determine why.

Salary Overhead Goals
Standard gross wage expenses for your team is 19-22% of net collections. Gross wages are ONLY their gross wages before the withholding reduces it. For instance, if they are paid $20/hr and work 40 hours, their gross wages for that period are $800. You discover that even though your overhead is over 60%, your gross wage percentage to net revenue is only 21%. Do you increase their salaries 1% overall for the upcoming year?

It all depends on the above-mentioned categories that were too high. Calculate an estimated overhead for the next 12 months and factor out the extraneous expenses that you incurred last year that you won’t have this year. At the same time, be fair and consider any expenses that you may have for the New Year that you didn’t have last year. If your new estimated overhead puts you below or equal to 60% of net revenue, I would vote “yes” to the salary increase!

What About Benefits?
Before you get too excited and spread the good news at your Christmas Party, let’s review the benefit dollars that you are spending for your staff. The goal is 3-5% of net income. What if yours is 6%? That is 1% too high so together, 21% in gross wages + 6% in benefits = 27%, which is your maximum goal.

If your benefits are more than 5%, I can surmise that you are paying too much in medical benefits, offering too many vacation days that you can’t afford, or contributing to a retirement plan that you can’t afford. Now I have to vote “no” to the salary increase.

But They Are Great Employees!
Assuming that you have been following the McKenzie Management e-newsletters for years, you are already running a “lean and mean” dental machine! You have eliminated the employees that were not team players and the team you have now are hard-working, dedicated professionals that enjoy their jobs. The patients think they are wonderful, and so do you. Now what?

Establish your 2011 collection goals to reflect a decrease of their benefit expenses to 5% or less. Meet them half way and offer to increase their salary in 6 months if they are meeting or exceeding the new collection goals. At the end of the year, if they are still meeting and exceeding the goals, increase their salaries again to bring their total wages and benefit package to no more than 27% of collections.

Maybe it is the Holiday Season and I am feeling generous. At the same time, I also see how hard your team members are working to continue to help you have a successful and profitable practice while at the same time giving quality service and care to your patients. Outstanding performance should be rewarded in conjunction with a financially healthy practice.

My best to you and your team in 2011. I hope for you all good health and prosperity for the upcoming year.

If you would like more information on how McKenzie's Consulting Coaching Programs can help you IMPLEMENT proven strategies, email info@mckenziemgmt.com.

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Belle DuCharme CDPMA
Instructor/Consultant
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Dentistry is the Best Investment for your Total Health
By Belle DuCharme, CDPMA

Soon it will be a new year and a new opportunity to improve our health and well being.  As dental professionals, we will continue to deliver our messages of quality dental care in the hopes that patients will want our services. Dentists across the country have lost production due to the downturn of the economy and the slow recession recovery.  Staying positive and focused can be challenging. Spend more time with the patients that come in to your practice, as they are the ones that believe in caring for their teeth. Take a close look at the message you are sending when marketing your practice. People are spending, but with more discretion. Stressing the long term value of quality dentistry is the way to convince patients that even though there is an initial outgo, the value is there over time. The following is a message written to encourage patients to make a choice for dental care. Consider this message when talking to your patients about saving their teeth.

Hygiene

Dear Patients,

In case anyone is waiting to make more money or save more money to pay for needed dental care, please give me a minute or two of your time. Long gone are the days when the condition of your teeth was separate from the health of the rest of your body, and entire mouths of healthy teeth were removed because it was “fashionable” to have false teeth. People looked very old at 45 from collapsed faces and from poor diets of soft foods, due to not being able to chew well. It is believed now that healthy teeth and supporting bone or “gums” are necessary to have a long and happy life, because the relationship of gum disease and heart disease is well documented with oral bacteria found in the heart. You can choose whether to keep or lose your teeth; our mission is to help you keep them for your lifetime.

Postponing dental examinations and preventive cleanings because of the cost involved is not prudent, because dental care is not elective any more than a mammogram or a colonoscopy. Please consider the following before opting to avoid the dentist:

 The average cost of a porcelain fused to gold crown or a full gold crown is about $1200. Major dental insurance companies will replace this crown in 5 to 10 years if there are open margins, decay, fracture or pain from using that crown. To illustrate long term value, divide 5 years into $1200 and you get $240 a year or $20 a month cost over time. This is less than the cost of a gym membership, lunch for two, dry cleaning two jackets or fancy coffee for the week.

 Now that is for five years - but a well made, well maintained crown should last 20 years or more, so the costs go down enormously. Add to the value of postponing aging by preventing sagging of the face caused by tooth loss, and don’t forget being able to chew food that improves your health. I have two crowns that are twenty-two years old and going strong, do you think I care what I paid for them when considering what they have given me over the years? Next time you walk away without making an appointment to save a tooth, consider the long term value to your health and your pocketbook.

Health is usually at the top of everyone’s list, but it is up to the profession of dentistry to promote the connection between healthy mouths and healthy bodies. Make it your New Year’s resolution to continue to improve communication with your patients so that they choose dentistry first. Want help with conveying the message? Sign up today for McKenzie Management’s Treatment Acceptance Course and learn more and better ways to communicate.

If you would like more information on McKenzie Management’sTraining Programs  to improve the performance of your team, email training@mckenziemgmt.com

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