Let’s condense the perspective of the profitability of your practice to one month instead of a year. That will allow us to have a real understanding of the impact a couple more treatment plans accepted and started can have on the profitability of your practice monthly and then annually and then year after year.
The only true variable costs (those costs that fluctuate with your production) are your laboratory expenses and clinical supplies.
Let’s say that in an average month you see patients 20 days. You will need to overcome your fixed expenses before you start seeing a profit. If you can’t cover your fixed expenses then the practice is not profitable. The sooner in the month you can pay off your fixed expenses the more profitable your practice will be.
Assume that your practice produces about $60,000 per month ($3,000 per day, 7 hours per day = 140 hours a month = $430 per hour) and your fixed expenses are $45,000 per month ($2,250 per day). You won’t see a profit until after the 15th day ($45,000 divided by $3,000 per day). Every day after the 15th day will be extremely profitable because the only expenses after that will be your variable expenses – lab fees and clinical supplies. The Contribution Margin - the marginal profit per unit sale – is very high toward the end of the month after fixed costs have been accounted for. If your lab costs are 10% and your clinical supplies are 8% you will enjoy an 82% Contribution Margin the last five days of the month.
Why is this important? If you understand this concept, it will guide you into making decisions about how your practice is managed that will help you reduce the number of days you need to cover your fixed expenses and increase the number of days where your Contribution Margin is maximized. That translates into much more profits for the practice.
How do you do this? Increase your production. Sounds difficult but there are strategies to help you. You will have portions of almost every day that you could see an extra patient or two for an extra procedure or two. Perhaps you can free up one hour per day for those extra patients. One hour per day times 20 days per month equals 20 hours of production available. At an 82% Contribution Margin, 20 extra hours of patient care @ $430 per hour = $8,600 per month X 82% = $7,062 profit per month = additional $84,624 profit per year. An extra $84,624 net profit for you and your family is certainly meaningful.
How do you manage that? Understanding that the key to your practice success is a sound financial policy is great way to start. It must be easy for your staff to manage and be easy for your patients to accept your recommended treatment plans. Do you offer payment plans to your patients to reduce financial barriers and help your patients afford the treatment they need?