Contribution Margin in Your Dental Practice

Episode #387 with Fred Joyal

As a dentist and business owner, it’s important to understand profit. But profit margin isn't the only thing to keep your eye on — you also want to focus on contribution margin. And to explain what this is to help you grow your business, Kirk Behrendt brings back Fred Joyal, co-founder of 1-800-DENTIST, to show you a different way of looking at profit. Dentistry is one of the most profitable industries in the country — and the profit is there for you! To start reducing overhead and increasing revenue, listen to Episode 387 of The Best Practices Show!

Main Takeaways:

Have a great coach. You can't run your business without them.

Learn the different ways to leverage your contribution margin.

Once you beat your overhead, every dollar you produce is a 70% profit dollar.

Help your team understand contribution margin so that they can help you.

Every action either increases or decreases case acceptance.

Quotes:

“Every dentist should have a coach. Why you think you can run your business without coaching — everybody who’s good at anything has a good coach or a great coach. I have two.” (2:49—3:01)

“[Contribution margin is] basically about the profitability of dentistry as an enterprise. And you have to understand that most businesses, as they increase their revenue, their profit often decreases. But normally, it stays very static. It doesn't change direction. Like, if they go from making $5 million a year to $20 million a year, their profitability, their percentage of profit, doesn't increase.” (5:41—6:16)

“I love using the example of a supermarket just so people understand how a lot of businesses operate. Supermarkets operate at a 3% profit margin. So, they have to sell $33 million of groceries to make $1 million of profit. There's competition everywhere. Think about the inventory. Think about the waste. Think about the shoplifting. Think about the unions — all of these things that they have to deal with. And all they're going to make is 3%, no matter how big they get. If they move it to 3.3%, they're ecstatic.” (6:17—7:00)

“Dentistry is completely different as a business model [from other industries] because it has a very unique structure, which is, it has what you would say a large percentage of fixed costs versus variable costs. In other words, rent, leases, equipment purchases, supplies, labs, and employees, those are all pretty much fixed. The variable costs are consumables and lab. And so, what happens is, the term is, when you “crack your nut,” when you beat your overhead in the month, suddenly, every dollar you earn after that, you make about 80% profit because all you have is labs and consumables against it.” (7:01—8:08)

“Once you beat your overhead, conservatively, every dollar that you produce in a practice is a 70% profit dollar.” (9:08—9:17)

“Dentists don't experience the contribution margin advantage because they're stuck at that level, the $750,000, or something like that. So, they say, ‘Oh, no. Anything I do, my profitability is only 30%.’ And for them, it is, because somehow, they never break through. But the idea is, at $750,000, you've paid your employees. You're paying yourself $60,000 a month or something like that, or whatever. And that's all you're doing, is you're paying yourself, you're paying your team, you're paying all your fixed costs and all your variable costs. The next $100,000 that you make, it goes right in because you don't have to add any staff. That next $100,000, $70,000 of it is yours in profit. There's no expense against it. And you can keep doing that indefinitely.” (12:09—13:18)

“What's going to happen is, your costs are going to go up, but they're going to be disproportionately low, relative to other businesses, because...