by How to maximize profit in any dental organization.
Maximizing profitability is the goal for any business, and the DEO Profitability Path empowers all types of dental organizations to achieve that goal. Some dental organizations may be working on profitability as a current constraint within their business, while others may be preparing to act for the future when profitability becomes a focus.
Getting to passive profits starts with knowing where most businesses stumble on the entrepreneurial journey and how to keep moving forward. This article will discuss the pathway to passive profits, and you’ll leave with an understanding of where most organizations fail in their entrepreneurial journey, how to fix it, and solutions on how to build an action plan to increase profit.
As an entrepreneur, the keyword is journey. Your success is multifaceted, encompassing both a leader’s personal and professional aspirations. Profitability may be a place in your business that needs support, and every business, no matter the stage they are in, starts at the launching profits stage and works to achieve passive profits.
The Five Stages of Profitability
The DEO guides dental organizations with steps to achieve maximum profit and have consistent passive profits:
- Launching profits
- Optimizing profits
- Duplicating profits
- Scaling profits
- Passive profits
The launching profits stage happens early on within the establishment of a dental organization, or each time a new practice or specialty service is started. In this stage, dental leaders are innovating and trying to figure out the customer’s needs, practice procedures, and how to create a viable financial model. A dental organization in this stage is at negative profitability and is trying to break even. The team here is going to be lean enough to slowly build out the patient flow.
Optimizing profits is the second stage, where leaders develop the business’ clinical capabilities for a procedure mix, with the goal of taking the organization above 20% profitability. Here, evaluate the current net income of the company and determine if you’re close to 20%. Consider net income along with marketing strategies for patient flow and cost structures for ideal profitability. The net profit margin should be above 20% after associate pay within an ideal cost structure for profitability.
Optimization starts from the bottom up. Look at corporate costs and determine if there is anything to optimize, such as the IT team, before cutting dentist’s salaries. Optimize first at the DSO corporate level, and then move up through the staff, labs, supplies, etc. The accounting piece of the puzzle is important and considers the combined clinical cost between hygienists and doctors. The optimizing profits step takes the core business model of an organization to the next level by considering ways to optimize and vetting vendors, developing practice leaders, and following systems for higher performance. The optimizing stage is a constant and ongoing step for a dental organization looking to build out new locations.
Duplicating profits, the third stage of the Profitability Path, involves the transition from full-time clinician to clinical leader. Clinical leaders in this stage effectively recruit and mentor additional clinical team members. Here, profit is created by new clinical team members and are being integrated into the culture and systems of the practice. Profit from extra staff adds doctors to a single location.
The core of any business is building overhead and putting income through to fall out as profit. Duplicating profits is understanding how to add new clinical team members to build this profit. The duplication step aims to get more out of associates to build a clinical standard of care and in turn, profit gets created by additional team members. Emphasis in this stage is on adding associates and growing them. Growing associates is ultimately one of the most powerful business tactics a dental organization can focus on within their business model.
Growth and expansion to maximize profit
As dental businesses continue to expand, they encounter increasing opportunities to maximize profits within growth.
The fourth stage of the Profitability Path, Scaling profits, identifies ideal practice locations for expansion. These locations should meet the core competency of the team for the organization to acquire or build from scratch. Eventually, scaling must happen, because a dental company only has so much facility space, or an organization has already tapped the local market completely, and the time has come to open more locations. Profit in this stage comes from adding locations and additional profit in a “copy and paste” format.
Within scaling, copying, and pasting, or taking the exact structure of an organization and starting a new one, is important. There is a distinction, however, between the scaling and duplicating stage. When duplicating, you’re adding an individual or individuals to a practice. When you’re copying and pasting entire locations, this is known as scaling, which includes adding locations within the organization. Scaling requires an understanding of patient demographics and then “copying and pasting” to follow the successful practice model in a new location to scale profits.
Launching profits refers to when a dental company copies and pastes locations and includes when they add a new service when opening this new location, such as adding orthodontics to a pedo dental practice.
It is important not to launch multiple different models at one time, as this can be difficult to keep up with and manage. If you are going through the process of scaling correctly, it should feel like “copy and paste,” and be a smooth process. Entrepreneurs especially can struggle with this process because it is straightforward and systemized, so for them, it can be less exciting and innovative. Remember that success in this stage is about moving from dopamine hits to serotonin hits, and it should be a time to be operationally grounded and develop things out, not be looking for the next hot thing. If you are feeling frazzled and overwhelmed, you are not scaling correctly or effectively.
Begin scaling only when you are clear on the systems and processes required to manage the organization as a whole. The scaling step is about profit, and here dental leaders must centralize operations and add additional management to help build out additional locations. Copy and paste in this step and add services only by what you’ve optimized at single locations so far.
Finally, achieving Passive profits means that dental leaders have minimized their active involvement in the operations of the business through delegated operational leadership. Here, a leader presents a strong, strategic executive mindset, and middle management is focused on driving expansion and efficiency. An owner’s income within the passive profits stage is strictly from net profits, which allows them to work where they want, when they want, and as often as they want.
Passive profits are about knowing how to delegate and lead as an individual and doesn’t necessarily mean you have a full executive team. A leader should aim to go from being paid as an associate to being paid strictly from income within passive profits.
Passive profit and financial clarity
To begin the process of moving across these steps and scaling up, dental leaders should refer to the profitability cycle first for financial clarity on their business. The DEO has created this tool to allow leaders to go deep into their business’ financials and understand where they are within the Five Stages of Profitability.
Once leaders understand their financials, they can start to identify where their core constraints are in the profitability cycle. Whether you’re moving toward passive profits so that you have a lifestyle business, or so that you can sell the business, you’re going to build out the organization the same way.
Overall financial clarity will provide a business with the strategic levers needed to move a business forward. Start with financial clarity, and then look at the revenue and collections piece. For most of dental, there is a revenue cycle management piece (RCM), team alignment, and expenses to financials, and once we solve all of this, it is a continuous process within the Profitability Path to continue to review financials repeatedly.
The Five Stages of Profitability matter because maximizing profits effectively can be a messy journey, but if leaders follow this process, they can start to understand the why – so dental organizations can scale, optimize, and organize much more efficiently.
The Profitability Cycle Assessment ultimately determines an organization’s best way to maximize profits. If your organization is in multiple phases at the same time, start with the practice that is in the earliest stage first. This may mean that you need to stop doing profit launching activities for a period to better understand other aspects of the business, such as going back to the optimizing stage before scaling.
Start by getting a clear idea on the stage that your organization is in within The Profitability Cycle, understanding that it may be multiple stages at once. When scaling, limit launching profit activities and focus on optimizing profit activities. Talk these steps through with teams, and get clarity on the stages that each one of your practices’ is in.
