Understanding overhead measurables leads to better practice management.
Overhead can be divided in two main categories, fixed overhead and direct overhead.
Fixed overhead includes expenses that stay consistent regardless if the practice is busy or not. Rent, insurance, utilities, and telephone costs are examples of fixed overhead.
Direct (or variable) overhead includes expenses that change with the amount of work that is performed in the practice. Examples of direct costs are Inventory, Dental supplies, Lab Costs and Staff Salaries.
We work with numerous practices across the country and we have found that the general dentistry averages for direct & fixed costs as a percentage of collections are:
- Direct Overhead Total (40%):
- Staff Salaries (Wages only) 22%
- Lab expenses 6-8%
- Dental supplies 4-6%
- Office supplies 1-2%
- Bank & Credit Card Fees 1-2%
- Fixed Overhead Total (20%):
- Rent 5%
- Marketing/Advertising 3-4%
- Continuing education 1-2%
- Insurance 2-3% (Unless full health insurance is offered)
- Utilities 1-2%
- Repairs and Maintenance .5-1%
Therefore you can see that the average profit margin is approximately 40% for a dental office (revenue minus direct overhead (40%) and fixed overhead (20%)). Increasing your revenue will increase your profit margin further since fixed costs will not change. For example:
|Collections||Direct Costs||Fixed costs||Total Overhead||Profit|
|$1,000,000||$400,000 or 40%||$200,000 or 20%||$600,000 or 60%||$400,000 or 40%|
|$2,000,000||$800,000 or 40%||$200,000 or 10%||$1,000,000 or 50%||$1,000,000 or 50%|