How to master these seven dental key performance indicators
Updated: Mar 23, 2022
There are so many dental practice key performance indicators floating around, it probably makes your head spin 🤪. The good news is, no matter what all that KPI noise tells you, the ultimate dental practice KPIs simply come down to your financial reports (the actual money in and out), particularly, your collection income vs. practice overhead expenses.
The financial reports are the endgame results of everything in your dental practice, and also the easiest dental metrics to get your hands on. Everyone has a dental Profit & Loss report, right? If you file a tax return, you should have a Profit & Loss report. There are seven key performance indicators (KPIs) right on your Profit & Loss report that will tell you the most insightful story into your dental practice performance.
The greatest part about these dental KPIs is by simply adjusting your mindset and only focusing on what matters most, I'll tell you where you are going to make the biggest domino impact to master all seven dental KPIs.
Below, I have listed and explained the seven dental KPIs for easy reference. These KPIs are calculated as a percent of your income. Then keep reading because I explain how you can master them all!
Dental key performance indicators:
Team/Personnel Costs - 24-28%
Clinical Supplies & Lab - 12-14%
General Business Costs - 11%
Facility & Equipment - 10%
Discretionary Costs - 0-2%
Total Overhead - 60-65%
Owner's Compensation & Profit - 35-40%
Team Key Performance Indicator - 24-28% of income
Your dental practice Team KPI mostly consists of the team's payroll costs, with the addition of services you outsource like phone answering and collections/billing services since they replace the staff in your practice. This dental KPI does NOT include any doctor, owner, or associate expenses. Be sure to take doctor related costs out of all the items below.
Staff Gross Payroll
Staff Employer Payroll Taxes
Employee Benefits
Temp contractors
Answering Services
Collection/Billing Services
Facility & Equipment Key Performance Indicator - 10% of income
Your Facility KPI is everything related to your space and the equipment in it. It includes depreciation expense, which you might not be able to get totals for without your CPA, but that's okay. You can do this KPI without it, and it'll still be pretty close.
Rent/Lease of your space
Repairs & Maintenance
Utilities
Depreciation Expense
Amortization Expense
Loan Interest
Dental Supplies & Lab Key Performance Indicator - 12-14% of income
The Dental KPI for clinical supplies and lab fees is an easy one. It is exactly what it says. Hopefully your Profit & Loss report is organized enough to keep this simple. Add your dental supplies and lab fees together and that’s it.
Dental Supplies
Laboratory Fees
Discretionary Costs Key Performance Indicator - 0-2% of income
The Discretionary costs dental KPI is one of my favorites. Why you ask? Because it’s an awesome dental metric that points to all the extra money you spend on things that don’t provide value to the practice. The only exception is continuing education, but even that can be spent wisely, and not excessively. The discretionary costs also get pulled off the P&L when doing an dental practice EBITDA valuation.
Automobile Expenses
Automobile Lease
Travel and related costs
All meals, even staff meals
Entertainment
Business Gifts
Charitable Donations
Continuing Education
General Business Costs Key Performance Indicator - 11% of income
An easy way to do the General Business Costs KPI is to think of it as the ”catch-all” for all the expenses that don’t go in the other KPI categories. If it doesn’t fit in the categories above, then it probably goes here. But don’t put any Doctor/Owner costs here. Business costs include, but are not limited to, the items below:
Advertising & Marketing
Merchant Service Fees
Office Supplies
Consulting, Legal or Accounting
Software subscriptions
Telephone, Internet, or Cable
Business Insurance
Total Overhead Key Performance Indicator - 60-65% of income
If you add all the dental key performance indicators above, you will get your total dental practice overhead KPI. Again, don't include doctors or owners in this dental metric, they will come next.
Total Providers, Owners and Profit - 35-40% of income
Okay, last, but certainly not least, is your Owner's Compensation & Profit. This dental metric is for all the doctor related expenses, including your associates. The tricky part that most people forget is that you have to also include the dollar amount of your "Net Profit (Loss)" from your Profit & Loss Report to get the correct numbers here.
Owner's & Associates Gross Pay & Employer Taxes
Owner's & Associates Health Insurance
Owner's & Associates Pension Matching
Owner's Family Gross Pay & Employer Taxes
Any employee benefits related to owner's family working in practice
Net Profit (or Net Income) from bottom of P&L Report
Mastering all seven dental key performance indicators:
Now you feel a little crazier don't you? All the metrics above are probably making you feel overwhelmed. And the P&L dental metrics are only the tip of the iceberg when it comes to dental KPIs out there.
Look, you don't need to be overwhelmed, and you certainly have the ability to conquer them all. I understand how numb dentists feel when looking at these numbers and trying to improve the practice based on what they see. You feel overwhelmed because 99% of the time, dentists are doing it wrong. I don't mean you're calculating the metrics wrong, although that is a big issue, but I mean dentists are reacting to the metrics wrong.
So I will try my best to explain this concept very simply...
The dental KPIs are results. Results are the measurements of your practice systems. The systems are being performed by your team. And you, as the leader, are the one responsible for guiding your team to successfully perform those systems.
All dental KPIs are the results of the systems your team is performing in your practice. Every task performed in the practice is a system, including simple things like making coffee and greeting the patients. All of those systems are interconnected. Changing one thing will impact a plethora of other systems (and the results).
Most practice owners will calculate their dental metrics and then try to directly impact a specific metric that isn't in line with their targets, but that is completely wrong. Don't do that. Trying to directly impact a specific metric is like doing 100's of sit-ups to lose the fat in your belly. We all know that's not how it works, right? I mean, you might be losing some calories, but that's not directly impacting your stomach fat.
So, here is the secret sauce: You have to become really good at motivating and training your team, so that your team can be really good at performing and improving the systems in your practice.
You got that? 😉
Once you flip that switch to change how you look at and react to practice performance, you will start to see a drastic difference across ALL dental key performance indicators. All it takes is for you to focus on your team. Improving your team's capabilities will improve your systems, which will improve the results, everywhere.
Your human capital is the biggest and most expensive asset in your practice. The proof is in the metric since your team is 24-28% of your income and the largest portion of the dental metric pie. If you're not leveraging and improving your human capital, you are going to keep spinning wheels, never able to create the income or life of freedom from your business that you want.
The best place to start improving these dental KPIs, is first improving yourself by being better at leadership and inspiring your people. Then start working on improving your team, system by system. The more you empower your team to be better at the systems, the better they will be at improving those systems to run like well-oiled, streamlined machines.
You impact the team, who impacts the systems, who impacts the results (dental KPIs), which impacts the bottom line, and everyone reaps the rewards of that bottom line. Are you seeing the potential now? Leverage! 😉
Conclusion:
Remember, even though you can't directly impact a specific metric, it's important to track these dental metrics consistently over time and monitor how they respond to your team's efforts. You can't help the team improve the systems if you're not measuring results.
If you want more details for calculating the dental key performance indicators I have listed above, read our blog post Six Overhead Expense Benchmarks to Live by in Your Dental Practice.
Thank you for reading! Please remember to subscribe to our blog if you haven't already.
Sona Wegner, MBA ❤
Founder, Bookkeeping for Dentists™