12.17.10 Issue #458 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

Fee Increases - How Much is Enough?
by Sally McKenzie CEO
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The Christmas holiday shopping season appears to be off to a strong start. Many retailers saw longer lines on Black Friday this year, as shoppers were happily opening their wallets to purchase laptops, clothing, electronics, and the like. Consumer confidence is growing, and along with it, so is consumer spending. While retailers certainly made bargains available, they weren’t exactly giving away the goods. What’s more, they are expected to pace those discounts over the holiday buying season. The sentiment that prices have to be slashed ridiculously low simply to get bodies in the door has gone the way of Christmas past.

What does this mean for dentists? During the last couple of years, many dentists have been locked in financial maintenance mode. Fee increases stopped, and for many, professional and personal aspirations were shelved as they hunkered down to wait out the Great Recession. Today, we are watching the strongest holiday season in three years unfold, a clear indication that as we approach 2011, the economy is poised to make significant strides. The question is, are you? It’s time to take a close look at adjusting fees in the coming year and dust off that list of dreams and goals while you’re at it.

Start with the very basics that shape your quality of life. What is your definition of success - money, time, family, technology, early retirement, three-day work weeks? How much vacation time do you want to take? How much does the practice need to produce to meet your financial needs and wants - i.e. goals?  How much do you need/want to pay your staff and yourself? What are the mortgage and the utility bills? How do you pay for all these? By renewing those production-per-hour goals and adjusting fees to achieve those goals. Let me explain.

For purposes of example, we’ll say your goal is to break $900k for practice production, including hygiene. Your hygiene department is on track and producing 33% of total practice production. Therefore, your production goal for the year is $603,000, which calculates to just over $12,563 per week (taking four weeks out for vacation). Working forty hours per week, this means you’ll need to produce about $314 per hour. If you want to work fewer hours, per hour production will need to be higher.

A crown charged out at $950, which takes two appointments for a total of two hours, exceeds the per hour production goal by $161. The excess can be applied to any shortfall caused by other procedures. Use the formula below to determine the rate of hourly production and see if the practice is meeting production objectives.

  1. The assistant logs the amount of time it takes to perform specific procedures. If the procedure takes the doctor three appointments, she should record the time needed for all three appointments.
  2. Record the total fee for the procedure.
  3. Take the cost of the procedure, $950, divide it by the total time to perform the procedure, 120 minutes. The production per minute value is $7.91. Multiply that by 60 minutes - $475/hr.
  4. Compare that amount to the doctor’s hourly production goal. It must equal or exceed the identified goal.

If you’re not meeting your production per hour goal, you have two choices: reduce the time you take to perform procedures, or increase fees. Ideally, you should adjust your fees twice a year: 2% then 3% for an annual increase of 5%. Even if you increase fees only slightly, say $4-$5 per procedure, that will make a huge difference in your bottom line. 

However, it doesn’t stop there; consider practice expenses as well. Examine where current expenses are as compared to where they should be. Overhead costs should line up according to the following benchmarks:

  • Laboratory expenses: 10%
  • Dental Supplies: 5%
  • Rent: 5%
  • Employee Salaries: 19-22% (excluding the doctor)
  • Payroll taxes and benefits: 3-5%

Knowing your expenses will help you identify specific production goals based on the number of days per week you will see patients, and the number of hours you will spend on treatment. Establish a solid fee for each service, and when your second cousin Sue asks if you’re giving “family discounts,” tell her that she’ll have to take that up with your Collections Coordinator. I recommend you leave the price breaks to the Black Friday jockeys and the big box retailers. You’ve got a practice to run.

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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