How to Manage Overhead in a Dental Practice

There’s more to running a successful practice than just providing quality dental care. Practice owners also need to effectively manage the financial aspects of their business to ensure consistent revenue and maintain growth over the long run. One crucial element in this regard is understanding and optimizing overhead expenses.

Overhead in dental practice refers to the ongoing costs and expenses required to keep the practice running smoothly. In this article, we will explore the concept of overhead in dental practice, its impact on profitability, and strategies to manage and reduce overhead expenses.

In this article, we’ll discuss the steps you can take as a dental practice owner to manage overhead and maximize your revenue.

What is overhead in a dental practice?

Overhead expenses in dental practice encompass a wide range of costs that are not directly associated with providing dental treatments. These expenses are necessary for the day-to-day operations and maintenance of the practice. It includes rent or mortgage payments, utility bills, salaries and benefits for staff, equipment and supply costs, marketing expenses, insurance premiums, and administrative expenses.

There are three types of overhead expenses in a typical dental practice, and understanding what these are will help you keep costs down and identify which areas you need to address.

• Fixed overhead expenses – Fixed overhead expenses are recurring costs that remain relatively constant regardless of the level of dental activity. These expenses typically include rent or mortgage payments, property taxes, insurance premiums, and basic utilities.

• Variable overhead expenses – Variable overhead expenses fluctuate based on the level of dental activity. These expenses may include dental supplies, laboratory fees, staff salaries, and marketing expenses.

• Semi-variable overhead expenses – Semi-variable overhead expenses have both fixed and variable components. For example, staff salaries may have a fixed base salary but also include performance-based bonuses or incentives.

To assess your practice’s financial health, you need to calculate its overhead percentage. This figure represents the proportion of a practice’s expenses relative to its total revenue. You can achieve this by dividing the total overhead expenses by the practice’s gross revenue and multiplying the result by 100.

What are the main causes of high overhead?

There are plenty of factors that contribute to high operational costs in a dental practice. Often, practice owners overlook one or two of the five main causes contributing to high overhead. These are:

1. Excess staff

One of the primary causes of high overhead in a dental practice is excessive staffing. Having more staff members than necessary can significantly increase labor costs. It is essential to analyze the staffing needs based on patient volume and optimize the workforce accordingly. Reducing excess staff can help lower overhead costs while ensuring efficient operations.

2. Lack of modern technology

Inefficient workflow processes and outdated equipment can contribute to high overhead costs. Inefficiencies in patient management, treatment procedures, and administrative tasks can lead to wasted time and resources. Additionally, outdated or malfunctioning equipment may require frequent repairs or replacements, leading to increased expenses. Streamlining workflow processes and investing in modern equipment can improve efficiency and reduce overhead costs in the long run.

3. Inaccurate patient scheduling

Poor patient scheduling practices can result in high overhead costs. When appointments are not properly managed, it can lead to extended waiting times, inefficient use of resources, and missed opportunities to accommodate more patients. Implementing a robust scheduling system that optimizes patient flow can help minimize idle time and maximize productivity, ultimately reducing overhead expenses.

4. Poor supply management

Ineffective supply management can contribute to high overhead costs in a dental practice. Ordering excessive supplies, inadequate inventory control, and lack of negotiation with suppliers can lead to wastage and unnecessary expenses. Developing a strategic approach to supply management, including regular inventory assessments and vendor negotiations, can help optimize costs and reduce overhead.

5. Inefficient administrative processes

Administrative expenses, such as rent, utilities, insurance, and office supplies, can contribute significantly to the overhead costs of a dental practice. Inefficient administrative processes, unnecessary expenses, and lack of cost-saving initiatives can result in inflated overhead. By identifying areas where administrative costs can be reduced and implementing cost-effective solutions, dental practices can lower their overall overhead.

How can you keep overhead costs low?

Now that you know the main reasons for high overhead, let’s discuss the steps you can take to lower your operational costs.

1. Assess overhead costs

To identify areas of improvement, it is essential to evaluate your current overhead costs. Analyze expenses related to rent, utilities, insurance, staff salaries, supplies, and equipment. Categorize the expenses and calculate the percentage of each category in your total revenue. This assessment will help prioritize areas where cost reduction is most feasible.

2. Automate routine tasks

Efficient administrative processes can significantly impact overhead costs. Implementing electronic health records (EHR) systems and practice management software can streamline scheduling, billing, and record-keeping tasks. Automating routine administrative tasks frees up time for your staff to focus on patient care and reduces the need for additional personnel.

3. Optimize supply management

Effective supply management can result in substantial cost savings. Evaluate your current supply chain and negotiate favorable contracts with suppliers. Maintain a comprehensive inventory management system to prevent overstocking or running out of essential supplies. Consider joining group purchasing organizations (GPOs) to leverage bulk purchasing power and access discounted rates.

4. Replace outdated legacy systems

Embracing technology can enhance efficiency and reduce costs in a dental practice. Invest in digital imaging systems, such as cone beam computed tomography (CBCT), which improve diagnostics and reduce the need for costly referrals. Utilize online appointment scheduling and reminder systems to minimize no-shows and optimize patient flow. Telecommunication tools can also enable remote consultations and minimize travel costs.

5. Invest in staff training

Optimizing staff efficiency can have a significant impact on overhead costs. Ensure that your team receives comprehensive training to perform their duties effectively. Cross-train staff members to handle multiple responsibilities, reducing the need for additional personnel. Regularly assess staff productivity and make adjustments to schedules and workflows to eliminate inefficiencies.

6. Improve patient retention

Focusing on patient retention can lead to significant cost savings in marketing and acquiring new patients. Develop strong relationships with your existing patients by providing personalized care and excellent customer service. Implement loyalty programs, referral incentives, and patient satisfaction surveys to gauge and improve patient experience. Happy and loyal patients are more likely to refer others to your practice.

7. Continue to monitor the progress

Minimizing overhead requires ongoing evaluation and improvement. Regularly review your financial reports to identify trends, anomalies, and opportunities for further cost reduction. Seek feedback from your staff and patients to identify areas that need improvement. Stay informed about industry trends, advancements in technology, and cost-saving strategies to adapt and optimize your practice continually.

Conclusion

Effectively minimizing overhead costs is essential for the financial success of a dental practice. By assessing current costs, streamlining administrative processes, optimizing supply management, leveraging technology, maximizing staff efficiency, investing in preventive care, enhancing patient retention, implementing marketing strategies, and continuously evaluating and improving, dental practitioners can achieve financial stability while delivering high-quality patient care. Does your dental practice need help sorting its financial records? If so, our team is here to help! Feel free to fill out the form below, and we’ll get in touch with you shortly.