The Price of Profitability: A Data-Driven Approach to Growing a Dental Practice
The Price of Profitability: A Data-Driven Approach to Growing a Dental Practice
“Am I Profitable?”
That’s not a question you might have at the front of your mind. For good reason. You’re probably thinking about quality patient care, getting more patients into the office, dental assistant turnover, etc. After you think about all that, then and only then do you ask, “Am I even profitable?”
However, profitability must be a top priority if you want to expand your services, open a new location, or simply ensure long-term sustainability.
Profitability is the deciding factor in whether you can grow your practice. Unlike a simple “more revenue equals more profit” mindset, true profitability in a dental practice depends on collections versus production, dental practice expenses, operating costs, and growth costs.
Let’s dig in.
Collections vs. Production: The Foundation of Profitability
At a high level, profitability means making more money than you spend. Simple, right? Yes and no. There are different levels of profitability, and knowing where you stand is critical for making informed decisions. A big part of this comes down to how your month-to-month revenue cycle unfolds:
You might see a month of high collections (due to payments arriving from previously completed procedures), followed by a month of heavy production but fewer collections. This back-and-forth can create a “see-saw” pattern in your net margins. Tracking these cycles closely is essential for maintaining stable cash flow and avoiding major commitments based on a single spike in revenue. Because if you did that, it could mean bad news bears. When managing your finances as a business, you want to ensure that revenue is sustainable, not just a random one-off.
Below is a breakdown of how collections compare to production—and how that shapes profitability:
Unprofitable
If collections are lower than production, you may be running at a loss or hovering close to it. Net margins often drop below 5%. Before taking on expansions, identify core issues—such as low case acceptance, out-of-date fee schedules, or inconsistent revenue cycle management—to get back on track.
Breaking Even
When collections match production, you generally net below 10%. You cover the basics but have minimal flexibility for unexpected costs.
Greg Essenmacher, founder and CEO of GnA Consulting, notes, “Determining the break-even point is a critical first step in analyzing the dental practices financials and identifying areas for improvement. It provides the baseline to then assess profitability margins.”
Sustainable Profitability
If your collections slightly exceed production, you’re likely netting in the 10-15% range. This setup allows for measured growth—like adding a new service line or part-time staff—without straining finances. Many practices operate successfully here, balancing overhead and revenue effectively.
Highly Profitable
If your collections significantly outpace production (netting 30% or more), you have the freedom to invest in new tech, increase pay, or even acquire another practice without risking stability. Achieving this tier typically requires disciplined revenue cycle management, streamlined operations, and ongoing expense monitoring.
Why It Matters for High-Cost, High-Revenue Services
Understanding exactly where you stand in profitability determines if you can safely add treatments that come with higher upfront costs such as full arch procedures or extensive cosmetic work. If your margins are tight, taking on more expensive cases can add financial strain. By knowing your true profitability level, you’ll have clarity on when (and how) to expand your services.
The Expenses Your Practice Should Be Tracking
Tracking how collections align with production is crucial, but it’s only half of the story. You also need a clear view of the expenses that go into delivering patient care. These typically include:
Doctor Compensation: ~26% of production
Dental Supplies: 7–10% of production
Lab Fees: 8–12%
Anesthesia: 0–4%
In total, aim to keep these at roughly 40–50% of production. If they climb higher, look for ways to negotiate with vendors, adjust compensation arrangements, or better manage supply inventory.
Operating Costs
Even when clinical costs are under control, other operating expenses can quietly eat away at your profit margin:
Staff Costs (Non-Doctor): Around 20–24% of production is typical.
Facility Costs: Rent, utilities, and other relatively fixed expenses. If your rent is high, you’ll need stronger collections or leaner operations to counterbalance.
Discretionary Spending: Meals, travel, and software subscriptions can balloon if not reviewed regularly. According to Greg, the CEO at GnA Consult, this is “one of the areas that tend to bloat really fast" for dental practices. Keep an eye out for this. It’s easy to lose money here.
Practices sometimes hire additional staff or lease larger spaces prematurely, leading to overhead “bloat.” Each significant operating cost should link back to measurable productivity or collections gains.
Growth Costs
Growth-related spending—marketing, more office space, advanced equipment—should be evaluated for its potential return:
Patient Acquisition Cost (PAC): Marketing spend divided by the number of new patients over a set period.
ROI on Marketing: Healthy practices often see a 6–15x return. If your results are lower, investigate patient conversion and follow-up systems rather than assuming the marketing itself is ineffective.
You might be attracting enough leads, but if your practice struggles with case presentation or scheduling, your marketing ROI will appear weaker than it actually is.
3 Expenses You Can Manage to Improve Profitability
Whether you’re just above break-even or already in the sustainable zone, you can look into the following expenses to take the following steps to improve margins:
Discretionary Funds
Draft a clear budget distinguishing must-have costs from nice-to-haves.
Prioritize expenses that enhance patient care or practice growth.
Check monthly to prevent small expenses from accumulating.
Supply & Purchasing Management
Keep supply expenses at 7–10% of total production.
Monitor inventory closely to avoid overstocking or waste.
Group purchasing or tools like Method can manage real-time spending and help negotiate better rates.
Salaries & Compensation
Match staff pay to industry norms without letting wages surpass your production capacity.
Implement performance-based incentives that tie bonuses to measurable goals (like revenue or case acceptance).
Track total labor costs (20–24% of production is typical for non-doctor salaries).
Conclusion
As a practice owner, you balance providing great patient care with maintaining a healthy bottom line. If you want to improve profitability in the near term, it helps to pinpoint exactly where your revenue and expenses stand. Start by targeting supply costs. Aim for supplies to be 7–10% of production, ideally less, and use data-driven tools like Method to track spending in real time.
It’s also crucial to monitor key performance indicators (KPIs) so you can stay on top of the broader financial picture. Five KPIs worth keeping front and center are:
Patient Acquisition Cost (PAC)
Collections per New Patient
The Expenses of Dentistry
Break-Even Point
Net Profit Margin
By focusing on these metrics, along with understanding your collections-versus-production balance, overseeing clinical and operating costs, and watching for the see-saw effect in monthly revenue, you can shift from unprofitable or break-even to truly sustainable or highly profitable. With that foundation, you’ll be ready to expand services, invest in new opportunities, and ensure your dental practice remains a thriving, successful enterprise. It’s your practice, it’s your money. Manage it well and it will take care of you.