In my last post, I talked about bookkeeping, which is the process of keeping track of every penny that comes in and out of your business. Now, we’re going to put all that data to good use and talk about setting fees today.
First, let’s talk about your COSTS.
Let’s say a patient comes to your office for a crown on #18. The patient pays $1000 and your lab fee is $150, so your profit is $850, right? Not quite – we also need to factor in all the costs that go into providing that service for your patient – your rent, the staff salaries, utilities, the supplies (burs, cord, impression material, temporary material, air/water syringe tips, saliva ejector, HVAC tip, instruments, disinfectant wipes, barriers, etc.), and the equipment (dental chair, handpieces, X-ray sensor). Some of these are “fixed” costs, such as the rent, insurance, and utilities, that stay the same whether you’re open or not. “Variable” costs, on the other hand, are costs that go up and down depending on the volume of business, like lab fees and supplies. It is too much to calculate these costs per procedure, but you can take your monthly expenses (hello profit and loss statement !) and divide it by the number of hours you are typically open per month.
- Expenses* = $80,000/month
- Business days = 22 days/month
- Operating hours = 8 hours/day
- Dental chairs = 4 chairs
Daily operating cost = ($80,000/month) / (22 days/month) = $3636.36/day
Hourly operating cost = ($3636.36/day) / (8 hours/day) = $454.55/hour
Hourly operating cost per chair = ($454.55/hour) / (4 chairs) = $113.64 chair/hour
*Exclude any doctor salaries from the expenses, as well as CE courses and travel expenses. If you have data for the whole year, you can get a more accurate picture by substituting the monthly expenses for the yearly expenses, and counting the number of business days in a year instead of a month
The hourly operating cost per chair is the money you are spending, even if there is no patient occupying it. If you earned $113.64 in that chair in a 1 hour appointment, then you would have only covered your costs. Total profit would be $0.
So to continue with our example, let’s say a crown typically takes you 1.5 hours at the prep appointment and another 30 minutes to cement it. Your total chair time is 2 hours. Now, you can accurately calculate the profit on your crown:
Crown profit = $1000 – $150 lab fee – (2 * $133.64 chair/hour) = $582.72
Second, let’s talk about how to to set you FEES.
Now that you have an understanding of your true costs, here are a few methods dentists use to set their fees. No method is perfect, and you may find that one method doesn’t work for all your procedures and that some procedures will be more profitable than others. In the below examples, make sure you distinguish between fee, which is the money charged to the patient; cost, which is the money it takes for you to perform the procedure; and profit, which is money you earn from the procedure.
1. Multiples of cost
For procedures with lab fees, some people multiply the lab fee typically by a factor of 3-4x to determine the procedure fee (i). Alternatively, you could add the lab fee to the hourly operating cost * number of hours the procedure typically takes, and multiply that number to figure out your fee (ii).
i) Crown fee = $150 lab fee x 4 = $600;
ii) Crown fee = [$150 lab fee + ($133.64 chair/hour * 2 hours)] x 3 = $1251.84
2. Hourly profit
You could aim to profit $100/hour, for instance. With this goal in mind, you would multiply the profit ($100) by the number of hours the procedure typically takes (2 for a crown) and add it to the total cost to produce the crown (lab fee + hourly operating cost * 2):
Crown fee = ($100/hour * 2 hours) + $150 lab fee + ($133.64 chair/hour * 2 hours) = $617.28
3. By area
The ADA generates a survey of dental fees every few years, which is free to its members. You can also purchase customized reports for dental fees in your surrounding zip codes from fee analysis companies.
4. Insurance
While insurance companies will provide you with a fee schedule for the CDT codes covered by their policies, this should not be a factor in how you determine your fees. You should still determine your fees independently of what insurance companies agree to reimburse you, for 2 main reasons: 1) You will have “fee-for-service” patients that do not have dental insurance; and 2) The way insurance companies calculate their reimbursement rates is based on the fees dentists charge out. So even though you have agreed to a lower reimbursement rate by contracting with an insurance company, you should still bill the insurance your regular fee schedule. This will help raise the reimbursement rates when they update them.
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