Ep. 84: Staying Profitable as Your Practice Grows
The recent inflation and looming economic pressures can’t be ignored as a dental practice owner. While you can’t control the larger economy, there are several important things you CAN control in how you adjust to it. So this week, Jeff covers the important factors you need to be aware of and five keys to evolving with the times so you can stay profitable into the future.
Topics:
:11 – Economic factors you need to be aware of as a business owner
19:13 – Five keys to maintaining profitability going forwards
Links:
Inflation Statistics - https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
Overhead Sheet & Guidelines - https://www.mgeonline.com/overhead-materials
The MGE New Patient Workshop - https://www.newpatients.net
Schedule a free consultation - https://www.mgeonline.com/free-practice-analysis
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Questions From This Episode
Why did overhead monitoring approaches that worked fine before 2021 stop working?
For the decade before May 2021, inflation ran so low, often 1 to 2 percent, occasionally even negative, peaking at just 2.9 percent, that checking a P&L once a quarter was genuinely adequate. Once inflation spiked to 5 percent in May 2021 and later peaked above 9 percent, that same quarterly glance started leaving practices six to eight months behind on costs that had already moved substantially.
Why is it misleading to feel relieved when a monthly inflation number goes down, say from 9 percent to 5 percent?
Inflation compounds on top of itself rather than resetting, so a lower year-over-year number doesn't undo the prior years of increases already baked into prices. A dollar's worth of goods in March 2020 cost $1.17 by March 2023, a cumulative 16.89 percent increase, even though the year-over-year number had already fallen back to 5 percent by that point.
Which cost categories rose the most since 2020, and why does that matter specifically for staffing?
Gas rose almost 50 percent, food rose 22 percent, electricity rose about 27.5 percent, and shelter rose about 15.5 percent, averaging over 26 percent across those four categories, while categories like new vehicles, apparel, healthcare, and education barely moved. Since food, gas, electricity, and housing are exactly what an hourly employee spends most of their paycheck on, staff are feeling this inflation far more acutely than the overall number suggests, and that pressure shows up directly in what a practice has to pay to keep or attract them.
How should a practice actually go about correcting its fees in light of this?
Check where current fees actually sit by percentile for the local zip code, using a resource like the Wasserman guide, aiming for roughly the 60th to 70th percentile rather than the 30th or 40th, then add another six to seven percent on top of that target, since fee guides take time to compile and may not yet reflect the most recent year of inflation.
What are the five things Jeff recommends doing to actually protect profitability in this environment?
Personally take ownership of the practice's finances the way a genuine CFO would, rather than leaving that function entirely to a bookkeeper or a quarterly P&L, raise fees to keep pace with inflation and get out of managed care plans that prevent that, monitor expenses far more closely and frequently than before, make sure every dollar spent, on staff or equipment, is actually delivering the result it was meant to deliver, and evaluate any major purchase for genuine return on investment before committing to it.
Episode Transcript
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How often do you monitor your overhead? How often do you actually look at it, and check the various categories? Maybe you've downloaded one of the overhead sheets we've offered in prior episodes, maybe you've even filled it out, say six months ago. Have you looked at it since, or did you just check it once, see it was around $60,000 a month, and leave it at that?
If you're like the average practice owner, probably not very often. When I meet with a newer client, their overhead management usually consists of glancing at a P&L their accountant hands them once a quarter. I'm not finding fault with that approach, but it no longer works, at least not the way it used to. That approach worked fine prior to May of 2021. In May of 2021, we had our first real spike in inflation, up 5 percent year over year. I know some of these numbers might sound dry, but I can't stress enough how urgent this actually is. This is something you need to know, because if you don't, it can genuinely hurt you, your practice, and your team.
So, May of 2021, inflation hit 5 percent year over year, the first big spike of its kind. In the ten years before that, inflation had mostly run 1 to 2 percent, occasionally even negative, as low as minus 1.7 percent at one point. The highest inflation reading in that entire decade prior to May 2021 was 2.9 percent, back in June or July of 2018 or 2019. So it started at 5 percent in May 2021, and by the middle of last year it had peaked above 9 percent. Expenses have been climbing steadily since. Before 2021, checking your overhead occasionally was fine, since inflation simply wasn't moving much. Now, if you're not monitoring it regularly, you're going to fall behind without realizing it, and if you go six to eight months without checking, a great deal can change in that window.
So for this week's episode, I want to focus on what you should actually be doing in the face of all this. Despite inflationary pressure, rising wages, and a growing practice, how do you maintain your profitability and keep your overhead under control? My name is Jeff Blumberg, and I'm your host.
Let me start with a quick primer on the basics, since some of this may be new. When we hear the word inflation, what does it actually mean? Simply put, prices are going up. Something that cost a dollar now costs a dollar ten. That number comes from the Consumer Price Index, or CPI, published by the US Bureau of Labor Statistics, and I'll put the relevant charts on the episode webpage for reference.
The CPI is essentially a basket, a group of different spending categories, and a measure of how much those categories have inflated over a given period. You'll typically hear two versions of this number: month to month, and year over year. To be clear, this isn't an economics podcast and I'm not a stockbroker, I'm simply covering the basics you need to know as a business owner. The month to month number is usually small, up 0.4 percent, for instance, meaning something that cost a dollar last month costs a dollar and half a cent this month. The bigger number you usually hear is year over year. If something cost a dollar in April 2021 and inflation over the following year runs 5 percent, that same item costs a dollar five by April 2022.
The CPI basket itself covers several broad categories: food, both at home and at restaurants, energy, meaning gas and electricity, apparel, new vehicles, shelter, meaning rent and mortgage costs, medical care services, and education and communication. Each of these categories inflates at a different rate, and the overall number you hear reported is essentially an average across all of them.
Here's where it gets genuinely interesting. When inflation dropped to 5 percent in March of 2023, down from over 9 percent the previous June, that felt like a real victory. But what does that actually mean in practice? This is where inflation gives you a bit of a head fake. Inflation going down doesn't mean prices are going back down, it just means they're rising more slowly than before.
Let me walk through this concretely, using real Bureau of Labor Statistics figures, which I'll also post on the episode webpage. Say something cost you a dollar in March of 2020. Year over year inflation in March of 2021 ran about 3 percent, so that same item cost you a dollar three by March 2021. Now walk it forward: that same dollar item cost a dollar eleven by March of 2022, and a dollar seventeen by March of 2023. Combined across all categories, that's a cumulative increase of nearly 16.89 percent since March of 2020.
Let that sink in for a moment, nearly 17 percent cumulative inflation from March 2020 through March 2023. So say you have a dental assistant you're paying $18 an hour. Just to keep that assistant's purchasing power where it was in March 2020, treading water on their basic expenses, that wage would need to climb to roughly $21 an hour, a 17 percent increase. It isn't simply, oh, inflation's only 5 percent now, that lower number doesn't erase everything that came before it. It's a bit like saying your boat is still taking on water, just more slowly than before.
That 17 percent figure is an average across every category, but let's dig into the individual categories, because this is where it gets genuinely important, even if some of this might feel like it's veering into economics territory. This affects every vendor you work with and their employees, and it affects your own employees and your ability to field and retain a solid team.
Let's start with the categories that haven't moved all that much since March 2020. New vehicles have fluctuated, mostly tied to supply chain issues, remember when factories had thousands of finished cars sitting in lots waiting on computer chips, but overall the net change hasn't been dramatic. Apparel has also stayed fairly flat, sometimes even negative year over year. Medical care services, which includes dentistry, and education and communication have likewise stayed relatively low, running somewhere around 1.7 to 3.2 percent, while overall inflation was running 7 or 8 percent.
Now, what has changed drastically? If overall prices rose almost 17 percent over three years while some categories barely moved, other categories clearly moved a lot more to pull that average up. You already know them, because you deal with them daily: food, gas, electricity, and shelter.
Walking the same math forward for these specific categories: something costing a dollar in food back in March 2020 cost a dollar twenty-two by March 2023, a 22 percent increase. A dollar's worth of gasoline in March 2020 cost a dollar forty-nine by March 2023, nearly a 50 percent increase, and at one point during that stretch it was even higher. A dollar's worth of electricity cost a dollar twenty-seven and a half by March 2023, a 27.46 percent increase. And shelter, rent and mortgage costs, rose from a dollar to a dollar fifteen and a half, a 15.5 percent increase. Average those four categories together, food, gas, electricity, and shelter, and you get 26.33 percent.
Here's why this matters specifically for your team. Take that same $18 an hour dental assistant from March of 2020, and say their wages haven't moved much since. Where are they actually spending most of their paycheck? Food, gas, electricity, and housing, exactly the categories that rose the most. Meanwhile, categories like new vehicles, apparel, education, and medical care, the more elective or occasional purchases, barely moved. So the everyday, unavoidable expenses your staff faces have climbed sharply, while the categories that moved the least are exactly the ones people can more easily put off.
That puts real pressure on your employees and on your practice. And remember, this same pressure is hitting every vendor you work with too, your lab, your supply reps, your implant company, all of their employees are facing these same cost increases, which means those companies either have to raise their own wages or lose staff, and either way, it eventually shows up as higher prices for you. We're already seeing this with clients, overhead that used to sit around $85,000 a month now showing up closer to $100,000, purely from rising costs.
I wanted to walk through this compounding effect specifically, because I don't think people naturally think about inflation that way. We tend to look at an isolated number, 5 percent sounds better than 9 percent, but that 5 percent is on top of everything that already happened the year before, and the year before that. Even if inflation drops to 4 percent next year, that just means prices climb a bit further on top of an already elevated base, we've still had a cumulative increase of over 20 percent since March of 2020 by that point. Your practice's own expenses have very likely climbed in a similar way. And the one thing you don't adjust just because of inflation is your profit, that's simply what's left over. So the real question is, who's actually absorbing that squeeze?
I'm not an economist, but given how debt-based our economic system is, businesses, governments, all of it, sustained deflation, meaning falling prices, might sound appealing on the surface, but it rarely plays out well in practice. Even if prices did eventually fall, it wouldn't simply undo the increases already baked in from prior years. And if prices did meaningfully drop, that usually means businesses are making less revenue, which often means layoffs, which then ripples through the economy as those newly unemployed or lower-earning people spend less elsewhere too. Meanwhile, businesses and governments have taken on debt they still have to service regardless of falling revenue. So sustained inflation, at some baseline level, tends to be the more likely reality under the current system, whether or not that's how we'd ideally want it to work.
So if you're not factoring this into your business model and figuring out how to work through it, you're going to run into real trouble, especially since healthcare, your own category, has been one of the slowest categories to actually adjust its pricing over the past three years. So that's why I opened with urgency. Picture a train coming down the tracks, still fairly far off, but you can already hear the whistle. I'm asking you to step off the tracks now, or at least get moving fast enough to outpace it.
So what would you actually do in a situation like this, where your costs are rising and your practice is hopefully growing at the same time? There are five basic things worth doing.
Number one: you have to wear your CFO hat. I've talked before about the different roles a practice owner carries, dentist, salesperson, and business owner or executive by default. One piece of that executive role is specifically your CFO function, your Chief Financial Officer. You don't need to be a Fortune 500 company for that function to matter, it's still your job, whether you enjoy it or not. There's a real distinction between a CFO and a bookkeeper. A bookkeeper pays your bills, reconciles your accounts, keeps QuickBooks current, and preps everything for your accountant, which is genuinely valuable, but they're not the one making financial decisions. Those decisions belong to you.
You might not love working with numbers, but you still have to be able to handle and understand them, this is an executive responsibility. A CFO's real job is making sure the business stays financially sound, profitable, and positioned to grow, and that means controlling both expenses and income. Financial control is genuinely half the equation, you could generate enormous revenue and still end up with nothing if you're not managing what goes out the door. And it isn't only about cutting expenses either, it's equally about making sure you're investing in the things that actually grow the practice's income.
Here's a useful way to think about it: if you buy a head of lettuce at the grocery store and notice it's rotting on the bottom once you get it to the register, you're not going to pay for it, you'd put it back or grab a fresh one. That same consumer mindset is worth applying to every expense in your practice. If you're paying an employee a certain wage and expecting a specific result, and that result isn't happening, that doesn't necessarily mean firing them immediately, but it does mean having a direct conversation, since you're paying that salary specifically for that outcome. If it's genuinely not being delivered, even after proper training, you need someone who will deliver it.
Point two: raise your fees, and improve your sales and marketing enough that you can actually afford to get out of managed care. This is doubly important as your practice expands, since it's actually harder to catch a brewing financial problem in a larger, growing office. A practice collecting $400,000 or $500,000 a month can absorb a rough month or two more easily than a $50,000 a month practice, simply because it has more cash reserves and credit available. But that also means problems take longer to surface, and when they finally do, they're considerably more serious to untangle than in a smaller practice, where a couple of bad months is painful but far easier to turn around.
When it comes to managing profitability and overhead, the very first place I'd actually look is income, not expenses, even though that might sound counterintuitive. If you're not generating enough revenue in the first place, tightening expenses becomes almost beside the point. So first, make sure you have a steady, healthy flow of both patients of record coming back for recall and genuinely new patients coming in, that's the basic marketing side, and something we cover in depth at the MGE New Patient Workshop. Second, make sure you can actually close treatment once those patients are in the door. Bringing in a hundred new patients a month means very little if you're only converting 10 to 20 percent of the opportunity in front of you, that's a bit like buying a whole pie, taking one bite, and throwing the rest away.
Beyond sales and marketing specifically, there's the fee side. We've had roughly 17 percent overall inflation since March of 2020, with categories like food and gas rising even faster, while healthcare, your own category, has barely moved at all. If your expenses are climbing around you and your fees aren't, you have to raise them, and I'd ask directly, if you've heard me say this before, have you actually done it yet? Start with a real fee analysis. I've mentioned the Wasserman guide before, and I'll link it on the episode webpage, it's a bit dated technologically, but it's thorough and I genuinely like it, I have no affiliation with them. It shows what dentists are actually charging for a given CDT code in your specific zip code, broken down by percentile. If you're at the 30th percentile for a given code, that means 30 percent of doctors in your area charge that amount or less. You'll generally want to land closer to the 60th or 70th percentile.
This mattered less over the prior decade, when inflation was largely a non-factor, but it matters considerably more now. The one caveat: I'm not certain how frequently a guide like this gets updated for current inflation, compiling fee data across every CDT code for every zip code in the country understandably takes real time. So say you're currently charging $950 for a given code, and the guide shows that's your 30th percentile, with the 60th percentile at $1,150. I'd raise the fee to that $1,150 target, and then add another 6 or 7 percent on top of it, landing closer to $1,200, to account for the most recent year of inflation the guide likely hasn't caught up to yet.
Which brings us to something I probably mention often enough that I could rename this show the Get Out of PPOs podcast. You need to get out of managed care. If your fees are being artificially suppressed to $700 or $800 for a code where the 30th percentile alone is $950, you're going broke slowly while effectively working for the insurance company. Yes, dropping a plan means you may lose some patients, and I've covered exactly how to do that properly in an earlier episode, worth going back to. But if you don't change anything, and your lab costs, supply costs, and everything else keep climbing while that specific fee stays frozen, you won't be able to stay competitive or pay your team properly. Don't be surprised if that dental assistant eventually takes a job across town paying $7 more an hour, especially with how tight staffing already is.
I'm not suggesting you need to hand out raises to everyone immediately, but you do want to make sure your pay is genuinely in line with current market rates, since your staff is facing the exact same inflationary pressure you are. And this isn't just about staff, it's about you too. You went to school, earned a doctorate, built a business, and support an entire team, you deserve to actually be paid what you're worth. Getting out of PPOs is what lets you actually raise fees in the first place, rather than staying stuck accepting artificially suppressed reimbursement you have no control over. And the reason most practices end up leaning on PPOs to begin with is usually that they couldn't reliably attract new patients on their own, which is a genuinely solvable problem, it just takes learning how.
Point three: you need to monitor your expenses more closely and more frequently than you may have three or four years ago. How often is enough? I'd do a full monthly review, and then some random spot checks in between, similar to spot-checking recorded phone calls. Pull your P&L monthly and ask specific questions, what are we actually paying for composite material right now, what's this specific line item costing us. If a category starts climbing, dig into why. You'll also want a solid baseline understanding of what your overhead should look like category by category. We offer a detailed digital overhead sheet, and a companion overhead percentage by category guide showing target spending ranges for things like rent and supplies, both available as downloads on the episode webpage. If your supply spending climbs past that roughly 7 percent target, you'll want to know whether that's a one-time equipment purchase or simply prices outpacing your revenue growth. This is exactly why staying in heavy managed care compounds the problem, your lab fee keeps rising regardless of whether you're only collecting $600 on a given PPO crown or your full private fee.
Point four: get the most out of what you're actually spending money on, and eliminate waste. If you're paying for something, make sure you're using it, and if you're employing someone for a specific function, make sure they're actually delivering it. If you hire someone specifically for patient reactivation and they're not actually scheduling anyone, that's not acceptable, they need to deliver the outcome you're paying for. Think about it this way: if I hire you as my scheduler, I'm hiring you to keep the book full, productive, and organized the way I want it, primary procedures in the morning, and so on. If I come in and find the schedule half empty while you're booking six crown preps at seven o'clock at night, you're not fulfilling what I hired you for. That's genuinely the whole point of the role, and I think we sometimes lose sight of that. Yes, you're part of the team and there's real camaraderie involved, but you're also there to fulfill a specific function, and if that function isn't being met, either that needs to change or the role needs to go to someone who will meet it.
This connects to something worth being aware of as you're hiring: our sense of what a given dollar figure represents tends to get fixed in our minds at whatever point we first learned it, and doesn't naturally update over time. If you're over 40, a $100,000 salary might still sound genuinely impressive to you, the way it did 20 years ago, even though it doesn't stretch nearly as far today. The same thing can happen with what you're willing to pay staff. Sabri was telling me about a client recently struggling to fill an administrative role, advertising it at $12 an hour. These days, $15 or $16 an hour is closer to the real entry-level rate, the same way 40 has quietly become the new 50 in other contexts. Even entry-level fast food positions are commonly starting around $15 now. That same client was also advertising more skilled roles at $15 to $16 an hour, positions that realistically need to be $18 to $21 an hour today. Wages have simply moved, because the people you're hiring are facing the exact same economic pressure you are.
Point five: manage what you actually spend your money on wisely, applying that same consumer mindset to purchases, not just staffing. Before buying new equipment, a laser, advanced imaging, whatever it may be, the real question is whether you actually need it, and just as importantly, whether you can actually sell it. If you buy a cone beam scanner specifically to start doing implants, how many implants are you realistically doing or closing each month? If that number is low, you've added a real ongoing expense without the revenue to offset it. We saw this happen with CEREC machines when they first came out, practices leasing them for $1,600 a month while only producing three or four crowns monthly with the machine, when using an outside lab would have been considerably cheaper. The assumption was often that patients would specifically seek out same-day crowns, but that turned out to be a weaker selling point than expected for a lot of practices. Whatever you're purchasing, it genuinely needs a real, realistic return on investment, or at least a credible path to one, before it makes sense.
So those are the five things: wear your CFO hat, raise your fees to actually match inflation and get out of managed care to make that possible, monitor your expenses more closely and more often, make sure you're getting the actual deliverable from everything and everyone you're paying for, and spend your money wisely, especially on major purchases. I hope this helps.
If you're looking at your own practice right now and genuinely not sure where to start, we offer a free practice consultation focused specifically on overhead and expense management, I'll put a link on the episode webpage, just fill out your information and pick a time that works for you. I've also got the overhead sheet and the overhead percentage by category guide available as downloads there, along with a link to the CPI data itself if you want to explore the category breakdowns yourself.
That's everything I have for you this week, folks. Have a great week, and we'll see you at the next episode.