Overhead, for a business, is any costs to produce either a service or a product. It is vitally important to know the overhead for: 1) budgeting purposes; and, more importantly, 2) determining how much you must produce in order to make a profit and stay in business. The overhead KPI should be measured and monitored in every dental practice to help you improve profitability.
Overhead Fixed vs Variable
Depending on your practice, you could be both service-oriented and product-oriented if you have your lab in-house. Every business has two types of overhead: fixed and variable.
- The fixed amounts do not waiver from month-to-month and would include something like salaries or rent (depending on your lease structure).
- Variable costs can fluctuate every month and are usually parallel with the amount of production going through the practice. These costs are associated with utilities and supplies.
Determining Your Practice's Overhead
In order to determine overhead, there must be consistency regarding practice policies and procedures. How much a procedure costs each time you do it, should relatively be the same and use the same amount of supplies and provider time. A well run practice will allow you to operate at maximum capacity with a minimum amount of staff. An office manual with periodic training should be conducted to ensure that the practice is performing in a consistent manner. Systems that are set in place will allow for more efficient policies, cutting down the need for more staff...meaning you can reduce staff costs or provide bonuses to current staff to retain top talent.
There are two ways to increase profit: produce more or decrease overhead. Before focusing on more production, you should work on buttoning up your overhead. There are two ways to make sure a leaking car engine keeps running. Pour more oil into the engine, or fix the gaskets that are causing the leak. You want to fix the gaskets prior to pouring more oil in into your engine. The same is true for your practice. You could bring in more production, but it might just leak out in your overhead.
Essentially, monitoring your overhead is monitoring your budget. Here are a few industry standards regarding your practice's budget and their corresponding percentage from Collections:
- Employee Payroll - 25-30%
- Dental Supplies - 5-7%
- Lab Fees - 8-10%
- Facility Costs - 6-9%
- Marketing - 2-5%
- Total Expenses - 55-65%
In order to understand your current overhead, you will need to track all expenses associated within your practice. Dividing those expenses into the proper categories will allow you to produce the percentage values regarding your overhead. Using those expenses as a baseline, you can then move forward with an accountant in creating your budget in order to help you make purchase decisions for your practice.