Summary: Many general dental practices operate with excessive overhead that eats into profits because of surplus operating costs and inefficient business practices. But with the right support, you can run an efficient general dental practice while still prioritizing patient care.
The recommended overhead for general dentistry is around 60% of revenue, but many practices today run around 75%, costing 15% in potential profits. It’s no exaggeration to say that overhead can make or break a general dentist practice. By definition, your overhead determines your profitability, and your profitability determines your practice’s ability to survive. It also determines your salary as the practice owner, and that’s no small matter.
With so much of a practice’s performance tied to overhead, it makes sense to keep overhead low. But what is “low” overhead in the context of general dentistry? Or perhaps the better question: what is reasonable overhead for a general dentist practice, and what does it really mean?
What is Overhead in a Dental Practice?
It includes everything except the dentist’s income, so employee compensation, rent, lab costs, supplies, and equipment all count as overhead.
For example, if your practice generates $1 million in revenue and your expenses total $750,000, you’re carrying 75% overhead and earning $250,000 in income. For reference, the generally accepted target overhead for a general dental practice is around 60% of revenue. If you reduced overhead by 15% to reach the target, you could add $150,000 in income.
Your largest expense will always be labor, including all salaries, benefits, bonuses, and payroll taxes, and it’s recommended to keep it at about 25% of your collections, depending on geography. Other categories like rent can be closer to 9%; lab costs and supplies should each fall around 6%; and all other expenses, such as marketing and accounting, should be around 3% and 2%, respectively.
Strategies for Reducing Overhead
The proportional relationship between overhead and profits means every dollar matters: reducing overhead by 1% increases profits by 1%. However, overhead is also closely tied to your collections. If your collections decline, the percentage of your overhead increases; conversely, if your collections increase, your overhead decreases.
If your goal is to boost your practice’s profitability, there are two main strategies you can turn to for decreasing overhead and strengthening your bottom line:
1. Increasing Efficiencies
The best first step toward decreasing overhead is increasing collections, which requires growing production and operating more efficiently. Some simple steps toward this goal include growing your referral sources, minimizing no-shows and cancellations, and adjusting your fees. None of these methods affect your spending, but they can help offset those costs by increasing revenue.
2. Reducing Costs
Cutting expenses is an obvious way to reduce overhead, but it sometimes requires difficult decisions. Drastic cost cuts may require reducing staff, but this should always be a last resort. Other cost-cutting steps may include negotiating lease terms, reviewing insurance policies, and evaluating utility costs to improve profitability.
Remember that each practice is unique, so while benchmarks matter, your collections and expenses may align differently. Your goal should be to maximize profitability while prioritizing excellent patient care, and any cost-cutting measures that hurt efficiency just aren’t worth it.
Final Thoughts: How Reducing Overhead Can Transform Your Practice
Many dentists struggle to run their practices as efficiently as possible because they often spend more time on business decisions than treating patients. Get back to what matters most—your patients—and let a dental CPA handle the rest.
Aprio’s National Dental Practice can help shoulder the burdens of managing a successful business through comprehensive advisory services in accounting, tax, and wealth management. On average, our clients achieve a net operating margin of 41.3%, and we have the experience to help you achieve your profitability goals.
