Regional Support Manager, Sarah Barnard, highlights the importance of understanding practice costs.
Do you know the operating costs per surgery, per day for your practice? If your answer to that is ‘no’, then it seems you’re not alone.
I run a monthly virtual Practice Managers’ (PMs) meeting and recently we touched on the need for PMs and Principals to understand their overhead costs per surgery, per day (OCPSPD). However, it was quite apparent that not many of them understand or have the time to focus on this important Key Performance Indicator (KPI)
So, what is OCPSPD? Simply, it’s the amount of money it costs the practice to keep a surgery open whether there are patients there or not. This includes all your fixed costs. So, that would be utilities, staff wages, council tax, building maintenance and so on. To calculate your OCPSPD, you simply take your overall costs and divide them by the total number of surgery days per year.
For example, if you have 2 surgeries open 5 days-a-week for 48 weeks, that will represent 480 days. If your fixed costs for the year are £250,000, you would divide that figure by 480 to give you a OCPSPD of £52.08. That figure is the amount of money you need to earn in each surgery to cover its costs. Until each surgery has taken that much money each day, your practice will not be making any profit.
To help Practice Owners and Managers with this calculation I have developed a calculator. If you’d like one, please ask your Regional Support Manager or Relationship Support Assistant.
Why is it important to know this?
Knowing this figure is important for you to keep an eye on productivity. However, communicating this figure to your team is equally as important. By making sure everyone is aware of what needs to be achieved, you can ensure people play their part.
Without knowing what needs to be achieved as a minimum, team members have no way of measuring their performance or appreciating how they can contribute to the practice’s finances. An uninformed receptionist may see lots of patients paying fees for their treatments and could be tempted to be lenient on non- or late payers. However, a receptionist who has been told how much it costs daily to run the practice is more likely to appreciate the importance of patients paying for their treatment on time and in full.
It’s easier than you think
Many of the practices I deal with are extremely well run but they lack time to focus on these types of KPI’s. They are aware of their overhead costs but may not have worked these out per surgery, per day. In addition to the OCPSPD, another invaluable KPI is to know the average daily yield (ADY) their practice needs. This figure ensures each clinician is achieving enough to meet the turnover requirements of the business. It is important they share this information with their associates so that they are clear on what they need to achieve each day. Sadly, this is rare.
However, these are very easy, simple calculations. I think in a lot of practices the principal dentist leaves the financial details to the accountant. When the yearly accounts come back from the accountant, the principal may only look at the bottom line, but if you want your business to grow and thrive, this is not enough. They should use those figures to plan their year and know how much they need to be earning. So, if an associate leaves, they appreciate the impact on the rest of their business. Because, if they are a clinician or a surgery down, the associated costs are still there and need to be covered. These will then have an impact on how much needs to be earned in the other surgeries. Often, this is a subject where principal dentists seem to bury their heads in the sand and is not appreciated by the rest of the team, despite its importance to the profitability of the practice.
I was practice manager for many years, and in my practice, we made the subject very visual. Our principal dentist was upfront and very proactive with letting staff know ‘this is how much it costs me to run this business.’ We had a graph on the wall in the staff room which showed our baseline and our overhead cost. So, we knew we had to be above that. Therefore, if we wanted a pay rise, or the staff summer outing, we had to be above that. We knew everything had to be paid for and that we needed to chase patients’ payments, to make sure they paid what was owed. Because, as a team, we understood the value of doing that and the reward that we would get out of achieving it. This meant we worked for it, and we absolutely smashed it.
For the principal, having the whole team understand the pressures he was under, made us a tight team and we worked extremely well. I often tell my practices about the difference sharing with the whole team the pressures and costs of running the practice can make, especially when it comes to pay rises. It puts you in a position where you can explain that if people want a pay rise, it can be factored in, and you can all work towards it. You can show people ‘These are the figures that we need to be looking at and this is how we get it.’
This really is a situation where knowledge is power.
