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MailMarch 2019--Margaret McGuckin was the founding COO of ClearChoice Dental Implant Centers, steering the organization from 1 to 31 locations in 14 states in a four-year period. Now she is the co-founder of i3 Ignite, a consulting company for emerging and established DSOs and other types of healthcare companies. I3 Ignite has clear advice on which financials are key when starting a DSO.
First, Target Revenue Based on Patients
Many DSO’s start by measuring production but that is more complex than measuring if you are meeting your target revenue. Because value creation for a DSO is based on revenue, especially in the early days, we recommend you start with patients as follows.
Determine:
- How much revenue do you need per patient to get to the level you want at each location?
- Should you adjust your fees to properly value them?
- What is the average fee per procedure?
- How many patients do you need at that average fee to get to the level you want?
- What is your capacity to serve that target number of patients at each location?
Once you have capacity to generate your target revenue per location based on your target number of patients, you need to examine how many are showing up for appointments and accepting treatment. So now, you want to answer:
- What is your actual conversion rate?
Improve Your Conversion Rate
Once you know the conversion rate you need and the rate you have, you can pull on some levers to get to your target revenue. For example, you may have to figure out how to:
- Reduce the no-show rate.
- Increase the number of patients coming in the door.
- Make sure your fees are competitive? Are others charging less, about the same, or more?
- Increase case acceptance.
You will measure the factors affecting conversion and test targeted strategies to improve conversion where you are weakest. Is it a case of inadequate marketing? Is it your offer? Is your advertising attracting the wrong type of customer? Do those answering the phones need communication skills development? Once patients come through your door, is it a failure to connect with and engage patients sufficiently to accept treatment? Is it the availability of payment options?
Now, Focus on Expenses
Only when you have revenue conquered, really dig into the expense side at each location and for the DSO’s centralized management. Your DSO, as a whole, needs to be profitable, and each location needs to be profitable.
Expenses are another lever you can pull on. We like to think of every budget item as a percentage of revenue. Each needs to result in a multiple revenue return. For example, we’ve seen Marketing as a percentage of revenue from 1% all the way to 20%. Going to the high end is okay, as long as you are seeing the expense result in higher total revenue.
Your earnings before interest expenses, taxes, depreciation, and amortization (EBITDA) will be the proxy for your DSO’s profitability and basis for evaluating the DSO’s worth at the time of sale. To raise your EBITDA to a predictably high level, expenses need to be under control.
We always say manage to Revenue first and Cost second.
Additional Resources for Growing Multi-Location Groups & DSOs
Patient Prism Academy is a video library containing hundreds of videos that feature dental industry experts. Within our Blog, you will find multiple videos and associated blog articles from industry experts like Margaret McGuckin and Kathy Lynn-Cullotta of i3 Ignite. To view advice for multi-location dental groups and DSOs, click here.
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