11 Key Performance Indicators Every Dentist Should Know
Roger P. Levin, DDS
For most people, good health is important. As the saying goes, "If you're healthy, you're wealthy." The same is true for a dental practice. A strong, healthy practice will have flourishing production and, subsequently, a robust bottom line. To help determine the health of their practice, dentists should consider its key performance indicators (KPIs).
KPIs are firm statistics or measurements that represent the most important factors in practice success. They should be measured and summarized in a routine single-page report every month. While most practitioners may say they already review their profit and loss (P&L) statements monthly, many KPIs are not found on a P&L statement. In fact, P&L statements often fool dentists into believing that their practice is performing better than it actually is. KPIs, as outlined below, are based on real data and provide a true picture of practice performance in numerous areas. A practice that fails to measure and track KPIs is operating blindly-without the benefit of early warning signs or indications of declining practice performance.
1. Practice production. Practice production is the single most important KPI. Without growing production, the practice eventually will decline in business performance. Even in situations where production is not growing but overhead is being reduced, the pattern can be sustained only for a limited period. Production must grow; it should be tracked daily, weekly, monthly, quarterly, and annually. By comparing production to a KPI goal or target, the practitioner can quickly determine whether there has been any reduction in overall practice performance. Rising production is a positive sign for any practice.
2. Collections. Although production is a powerful KPI in analyzing overall practice performance, collections ultimately make or break cash flow and income. The author recommends collecting 98% of all money owed to the office after insurance adjustments and other discounts. Practitioners must remember that a business may collect just what is legally allowable and actually charged to a patient.
3. Practice profit. Tracking profit is important because it combines factors from production, collections, and overhead. Each practice should have a specific KPI for practice profitability. This is a simple calculation of collections minus overhead. Everything left may be considered profit in regard to what goes to the dentist. The profit may be spent in any manner, including buying new technology, funding retirement, or adding to the dentist's personal income. It is not a matter of how profit is spent, but rather how much profit is accumulated.
4. Percentage of active patients currently scheduled. While the percentage of active patients currently scheduled should be 98%, most practices fall below 85%, according to proprietary data from the Levin Group Data Center. Dentistry has entered an era of increased challenges and competition, and every practice needs to retain as many patients as possible. Any patient who is not currently scheduled is potentially a lost patient. An increasingly active patient base indicates excellent practice health and potential growth.
5. Overhead. High overhead is often the silent killer of any business. Fixed expenses-those that cannot be reversed or reduced easily-often put significant pressure on practices and decrease income. Practice overhead should be at 59% for general practices, 49% for orthodontics, 49% for pediatric dentistry, 50% for oral and maxillofacial surgery, 51% for periodontics, 64% for prosthodontics, and 42% for endodontics (proprietary data from the Levin Group Data Center).If the overhead is higher than these KPI targets, an analysis should be performed to ascertain why, determine which categories are higher than acceptable, and create and implement strategies to bring overhead in line.
6. Average production per patient. The average production per patient demonstrates a patient's worth to a practice financially. Every good business regularly analyzes the average revenue per customer and works to improve from that point. The average production per patient should increase annually. When it is not increasing, it is most likely leading to a decline. Dentists and office managers must understand the average production per patient and which strategies may improve performance. For example, increasing the number of whitening cases, adding a periodontal diagnostic program, or implementing a new service such as sleep apnea treatment all are ways to potentially increase the average production per patient.
7. Average production per new patient. This KPI is different from the average production per patient. The key metric is that the average production per new patient should be two to three times higher than the average production per patient. Dentists routinely find and diagnose larger cases with new patients, either due to the lack of care the patient has received in the past or because the dentist is offering a set of fresh eyes and suggesting treatment to the patient for the first time. In most dental practices, while the average production per new patient is higher than the average production per patient, often it is not high enough.
8. Case acceptance rates .Case acceptance rate is one of the most variable KPIs in dental practices. Most practices have a relatively low average production per patient, so the level of case acceptance is high because case acceptance on smaller cases is usually higher. The author recommends 90% case acceptance on all single-tooth procedures, with an understanding that the larger the case, the lower the level of case acceptance. However, the target should be at least 85% overall case acceptance on all cases being presented.
9. Number of new patients. The number of new patients is critical in any practice. In certain specialties, such as oral and maxillofacial surgery, orthodontics, and endodontics, most patients are new. Each practice needs to calculate a model for the amount of new patients. For these aforementioned specialty practices, new patients represent more than 90% of all revenue, according to proprietary data from the Levin Group Data Center.In a general practice, the number of new patients must be calculated to create a target. For example, a model could be used in which 75% of practice production is produced by the dentist and 25% by the hygiene department. Further, the dentist's 75% may be divided as 50% of production coming from hygiene patients, 40% from new patients, and 10% from emergencies. Once a practice understands its annual production goal, it may then calculate its target KPI for new patients.
10. Patient attrition. The patient attrition rate refers to the number of patients a practice loses on an annual basis. In 2017, the author's firm conducted a study that focused on highly successful practices. Such a practice was defined as one that produces $1 million or more per year, not including hygiene. The study found that the average attrition rate in highly successful practices was 7% less than the average attrition rate in all other practices.
11. Staff labor percentage. The staff labor percentage is a category of overhead, but it should be considered as an independent KPI because labor is the single largest expense in a practice. The author's firm targets the staff labor percentage in general practice at 25%, orthodontics at 19%, pediatric dentistry at 19%, oral and maxillofacial surgery at 18% excluding registered nurses, periodontal at 25%, and endodontics at 18%.
In conclusion, although a practice may seem to be running smoothly, one way to know its true health is to track critical KPIs. As these 11 KPIs are studied monthly, they will gradually begin to tell a story, revealing areas in which the practice is doing well and shortcomings that need improvement.