Benchmarking for dental practices can be an incredibly valuable tool, however benchmarking is a continual process and is reliant on up to date data from both the practice and current industry data. BDO previously outlined the value of benchmarking for dental owners and practice managers pre pandemic.
Given the unprecedented challenges the dental industry has faced throughout the pandemic, it is critical when measuring the performance of a dental practice, owners and managers consider the pre- and post-COVID-19 context of any benchmarked data.
Dental practice benchmarks and COVID-19
The areas a dental practice should benchmark haven’t changed, but the actual benchmarks for these categories has shifted over the last two years.
Benchmarks are calculated as a percentage of a practices gross patient fees and most appropriate for practices with more than $750k in gross patient fees. The benchmarks are for general dental practices and should generally benchmark the following expenses:
|
Costs |
Pre Pandemic |
Post Pandemic |
|
Dentist/clinical staff costs |
35-40% |
35-40% |
|
Lab fees |
2-4% |
3-6% |
|
Consumables |
6-8% |
7-10% |
|
Advertising |
3-6% |
3-6% |
|
Rent |
5-10% |
5-10% |
|
Non-clinical wages (auxiliary staff) |
17-22% |
19-24% |
After several lockdowns across the country over the last two years, pent-up demand for dental services and record levels of low unemployment has resulted in significant labour shortages, in some cases driving wages for auxiliary staff by up-to 25% in the last six to twelve months. Additionally inflationary pressure, coupled with supply chain impacts has also driven an increase to the costs of consumables and lab fees. Broadly in a post pandemic world, the cost of these key inputs for practices have increased, potentially impacting practice profitability.
Using benchmarking insights for short-term and long-term decision making
These increased benchmark costs may tempt practice owners to implement a short-term fix to help combat these challenges in the immediacy, however owners and managers must consider the long-term impacts of doing so.
As an example, practice’s noticing wages rising due to short supply of labour may elect to offer significant pay increases to staff to assist with recruitment and retention. Owners will need to consider if this is a sustainable strategy, with inflationary pressures and rising interest rates potentially softening discretionary spending for patients, leading to softening of demand post the COVID-19 bump experienced in the last 12 to 18 months. Consider, are large increases to your practice’s wage bill sustainable if billings were to normalise or reduce to pre COVID19 levels? Perhaps a more appropriate strategy is to invest in strong on-boarding and training processes to upskill and cross-skill auxiliary staff quicker and more effectively. Alternatively another practice may need staff ASAP and doesn’t have the luxury of a longer term strategy – each practice’s approach will be different!
Benchmarks provide great insight along with accurate and timely data from your practice, to help guide your thinking around a particular area of practice, such as bulk buying, competitive pricing and other strategic decisions e.g. when should I purchase of a new chair? With benchmarking, you’re not making decisions based on “gut-feel” but using accounting and financial understanding so you can maximise the return on the time and effort you’re spending in your practice.
How financial literacy and data capture relate to decision making in a dental setting
It is important to consider benchmarks in the context of your practice. As with any number taken in isolation, if you don't have context, experience or expertise surrounding a particular benchmark, it's very easy to go down the wrong path. A benchmark by itself doesn't necessarily tie into a holistic conversation about what improvements a practice owner can make.
As an example, consider a practice that buys consumables in bulk in order to access discounts. Depending on the timing of the purchase, the practice’s consumables benchmark is likely going to fluctuate over a period of time i.e. the costs will increase significantly in one month, and then drop dramatically as the consumables are utilised in the coming months. If the higher costs are taken in isolation, a practice may inadvertently allocate time and energy to improve its ordering process, potentially wasting valuable costs and resources on a fruitless exercise.
In addition, it's important to consider how your benchmarks are calculated. Most benchmarks will be based on accounting information, so if a business doesn't have strong data, it's unlikely its benchmarks will be accurate.
Problems arise the data is inaccurate, mislabelled or charted against the wrong time frame. The implementation of a good data capture process is critical for the reliability and validity of your benchmarks. If benchmarks are off, then the decision-making from this can be challenging. Poor decisions made about one aspect of your practice’s accounting can have unexpected impacts on another part of the business. An effective data capture process requires understanding of how the benchmarks will be used holistically. It’s also important in the data capture process to strike a balance between having enough information to make decisions but not overwhelming yourself with data.
How to have meaningful conversations based on the numbers
The macro effects of COVID-19 on individual dental practices require practice owners to sit down and make important decisions on how to address labour shortages, wage increases, supply chain issues, and increased demand.
Education for new dentists unfamiliar with accounting is key to having those meaningful conversations based on your financial numbers. BDO offers hands-on workshops for dental owners and practice managers in the dental industry to learn the basics of bookkeeping, accounting and finance. These courses offer a more concentrated approach to increasing your knowledge of accounting principles and accounting management software.
Financial literacy is an ongoing learning process, but an adviser can coach you through applying what you’ve learned into your practice’s operations and future planning.
Key takeaways: Data capture and the pandemic
Dental practices need to understand their business on an operational level that is tied to their financials. With the help of an adviser, garnering insight from your financials is quick and easy if your data capture is done right. As noted above, how dental practices perform data capture matters. Here are a few key takeaways for data capture:
- Younger practices need to understand and establish strong data capture processes from the start
- Data access must take place in a timely manner for benchmarking
- Benchmarks must be considered specifically to your practice
- Practice benchmarks over time need to compare related data points to one another.
Ultimately, a strong data capture practice will enable your practice to effectively compare benchmarks and make decisions based on solid information.
For more information on how BDO can assist in establishing or strengthening a data capture process for benchmarking in your dental practice, contact one of our advisers today.