We hear nearly nonstop discussion about where orthodontic profit margins should be. For a mature practice of at least 2 years old, that number has generally been quoted as 50% before any associate or owner docrtor compensation.
For a general breakdown of that, the cost percentages might be along the lines of: employee costs – 22%, rent 9%, advertising, 4%, supplies 5%, lab expense 2% and other costs (utilities, printing, insurance, etc.) 8%. (1)
Before proceeding further, I will acknowledge that most variable part of that equation might be the most fixed cost – rent. If you are located in a mall or retail center, that rent percentage might be substantially higher while things could be much less expensive if the office subleases from a general dentist or other professional a few days each month.
Assuming patient volume and revenue stay flat and that you don’t have any staff working just for profit or for a family member, how high can margins get. At the extreme highs, you will see margins approaching or exceeding 70%. In these cases, we see the doctor taking on a number of tasks previously handled by assistants to minimize the personnel cost, no advertising because referrals now make up all of the new patients and a pretty spartan looking office where rent is small.
Other savings come from going inexpensive – but efficient – with phone systems, computers, software systems (Marshmallow is a good fit here, just saying). Doctors will also combine functions so that bookkeeping, insurance filing, etc are handled at the front by people handling other functions or use one of the free services for that.
If you have a large practice, 60% margins shouldn’t be difficult to achieve. An efficient practice can push a larger patient volume over a fixed number of staff while cutting marketing to focus on internally generated referrals.
(1) This is all-in expenses for the practice. This does not refer to situations where owners pay practice expenses personally to show a higher margin (we’ve all been there and seen that).