by Dean C. Bellavia, PhD, MS
The three aspects of reaching realistic goals
Many orthodontic practices set yearly goals—and some even reach them—but what about those that don’t? Are their goals unrealistic or ill-thought-out, or are they just hoped for or ignored once set? The purpose of this article is to show the essence of goal-oriented management: setting, monitoring, and attaining realistic goals. Your goals for any given year should be based on the previous year’s numbers plus your ability to improve those numbers in the new year. The numbers used here are based on my observation of many practices over many years. Some practices base their goals on net income and work backward, but that doesn’t usually work. You must first determine what is realistic, and then decide what changes must be made to improve, if possible.
Setting goals should not be based on what we wish would happen, only on what can realistically happen. I find that it helps to set, in order, the seven interrelated goals that I describe below.
1) Collections per month: 2005 collections are simply equal to 2004 production (charges) plus or minus 1%–2%. A crucial factor is percentage of initial payments (total of all initial payments, payment in full, and first insurance check amounts divided by total charges). If the percentage (ideally between 25% and 35%) increases or decreases, collections will increase or decrease accordingly.
2) Expenses per month: There are a dozen expense categories, but for a typical 55% overhead, about 43% is due to the following: staff-related expenses (26% ± 10%), occupancy (9% ± 6%), and clinical supplies (8% ± 4%). While a complete budget makes everyone in a practice more aware of expense anomalies, controlling the above expenses is usually adequate.
Staffing is crucial, and the following may help, based on full starts per day (FS/D), which is calculated by adding the number of full and Phase II starts per month and dividing the total by your number of full treatment days per month. Per 1.00 FS/D you should have: 2.4 (± 0.6) clinical staff and 1.9 (± 0.6) clerical staff, totaling 4.3 (± 1.2) total staff. For example, a 0.75 FS/D practice should have 3.2 (± 0.9) team members, and a 1.50 FS/D practice should have 6.4 (± 1.4) team members.
The percentage of fixed-occupancy expense can be decreased with increased production, but the variable clinical supplies expenses can only be decreased with frugal purchasing. If you use clear plastic aligners, lab expenses will be a significant cost factor.
3) Treatment days per month: Patients are typically treated in about 15 full (greater than 5 hours is a day) treatment days per month, averaging about 7.5 treatment hours per day. Increases or decreases in days or hours will correspondingly increase or decrease production.
4) Exams per month: New-patient exams are the lifeblood of a practice, and minor to aggressive marketing can increase the number of exams by 10%–30%. Improved internal marketing programs (providing a service beyond what the patient expects) are best, since they also affect how effectively you produce treatment. Dentist marketing is effective as long as it is based on your team and the dentist’s team working together for the good of the patient. Other marketing, such as ads and mailouts, are also very effective, but starts from these exams are less fruitful. Bottom line: Your exams won’t increase unless you do something about it, and do it well!
5) Conversion rates: Increasing the number of exams you perform won’t increase production unless the patients start treatment. An exam-conversion rate (total starts minus Phase II starts divided by total exams) goal of 75% is realistic, but it is highly affected by your observation/recall conversion rate (all starts from observation/recall divided by new exam patients placed on observation/recall), which should be at least 65%. Control your observation/recall to increase your starts and production. A Phase II conversion rate (Phase II starts divided by Phase I starts) goal of 75% is realistic and a good source of extra production, but if you do many Phase I starts (an average of 15% ± 15% of your total starts), it is crucial to take control of your Phase II starts.
6) Production per month: On average, about 85% of production (after adjustments and courtesies) comes from full and Phase II start charges. Another 10% comes from Phase I and limited charges, and about 5% comes from miscellaneous charges. A 2005 production goal is 2004 production plus growth; a growth goal of 15% (± 10%) is realistic as long as you can make the changes necessary (say, a 20% increase in exams, a 0% increase in conversion rates, or possibly increased workdays when sufficient exams are available). Also, a 3% increase in fees translates to a 2%–3% increase in production, depending on growth.
7) Full starts per month: Full and Phase II starts statistics are accurately obtained from treatment contract charges, and not from clinical statistics. A 2005 monthly goal can be set by taking the 2004 full starts per month (total 2004 full and Phase II starts divided by 12), and multiplying it by the percent increase in production. If your goal is a 10% increase in production, then your goal should also be a 10% increase in full starts per month.
You must report accurate statistics to determine whether you are reaching your goals—awareness is half the battle. I collect and report on many variables to provide my clients with monthly Budget and Super Reports, but you can take control with the following minimal statistics: production, collections, expenses, exams, full starts, and days worked—although knowing the exam, observation/recall and Phase II conversion rates, and percentage initial payment really helps.
The more statistics you report, the more information you have to determine why you didn’t meet your goals; it also helps to compare 2005 to 2004. Below is a minimal monthly report example for March 2005, along with other helpful monitoring statistics.
Your monthly reports indicate whether you attained your year-to-date monthly goals; just compare what you actually accomplished with the goals that you set for the practice for that particular month. Don’t worry about the first few months of the year unless they are much less productive than the previous year—to meet your goals, the first step is to do better than you did the year before.
Now comes the hard part of the process: You have to actually do something to improve your practice’s performance if a goal that you set is not met. The basis of goal attainment is your number of new-patient exams and the conversion rates that they yield; if these goals are not met, your production goals have no chance of being met.
There are some basic things that you can do if your practice is not meeting certain goals that you have set for it.
If your production and percentage of initial payment goals are not met, your collections goal won’t be met; increase your initial payments if these numbers begin to get too low. When your exam goal isn’t being met, look to improve your marketing programs. If your exam conversion rate is lower than you want it to be, improve your selling techniques and hone your treatment -coordinator procedures. If you find that your observation/recall conversion rate is lower than the target rate that you set for it, apply more observation/recall patient control. Whatever you do, do something!
In conclusion, practice growth and profitability is not a given. It is proactive. Set realistic goals, accurately monitor and report on them, and take action to make changes to meet goals yet unmet. z
Dean C. Bellavia, PhD, MS, has been an orthodontic consultant for more than 32 years. He has worked with hundreds of orthodontic practices, published six books on orthodontics, and lectured to thousands of orthodontists. He can be reached at [email protected]