DR. ACE GOERIG
OWNER & CO-FOUNDER DDS, MS, ABE Diplomate
I don’t have a crystal ball to predict the future, but I do know that whenever there are questions floating around about the direction of the economy, people get concerned.
Business owners especially get concerned because, as we know, we are the last to get paid in our offices. We take care of our patients. We take care of our team. We take care of our operating costs. What’s left over—our profits and personal income—is where the economic cycles are felt.
Whenever those cycles are putting downward pressure on profits, there is a reflexive instinct to tighten the belt. I call it the phenomenon of hard costs.
Hard costs are real, tangible costs in our cashflow. They are not like the tax optimization expenses such as depreciation that our accountants put in our financial statements. Those are expenses we don’t feel or write checks for as they occur.
But team salaries, supply bills, utilities, occupancy costs … that’s real money. There is a gut feeling from signing checks every month. When we feel pressure financially, the act of signing checks prompts us to scrutinize cash outflows for every scrap of savings.
Economic temptations
I don’t know any doctor who is consciously or deliberately negligent in managing their practice expenses. Expenses almost always have a level of due diligence attached to them, and so renewed scrutiny often produces meagre results.
Take supplies for example. You could rigorously examine every supply order and pour over online catalogs for suppliers to find the absolute rock-bottom price available for every item. In the end, how much savings would you find? Some, yes. A substantial windfall? No, because your past supply choices were not unreasonably costly.
Where doctors are often tempted to economize are things that seem discretionary in the moment or can be put off temporarily. Marketing costs for example. You could pull back on marketing expenses and just coast for a while. But remember, coasting is only as fast as the stream you are in. Coasting a slow economic stream prolongs the situation.
The hidden cost that you miss
The phenomenon of hard costs is that because it’s real money, it’s the first thing we look at even though the potential gains are generally small. So where are the big gains found?
The answer is in your opportunity costs. Opportunity costs are found in your practice’s potential for growth, but it hasn’t been acted on yet. Because it’s revenue growth that hasn’t been achieved, doctors don’t think of it as a genuine cost.
An easy example is the value of one case. If you take your collections for last year and divide it by the number of cases completed last year, you get an average “business value” for each case.
That average value bundles in all the little procedures and fees that happen routinely in the practice, but we don’t usually count as a “case”. For the sake of this example, let’s assume the average business value of one case is $1500.
Most coaching clients, when we begin with them, are routinely completing 3 to 5 cases per day. But when we do a patient flow timing and schedule analysis, we find that usually 30% or more of the doctor’s day is open time or under-utilized time. That’s a very real cost because time is money.
That level of inefficiency in the schedule means every doctor could complete at least one or two more cases per day if they were scheduled properly, had the referrals coming in, and had their team optimized to support them.
One case a day for 180 days per year works out to $270,000 more revenues. Two cases per day yields $540,000 in revenue growth. Almost all those revenues flow to the bottom line as increased profit.
Start thinking about your opportunity costs as hard costs, like money you are leaving on the table and walking away from. That’s where your attention and focus should be. Bringing in that money vastly outstrips any other avenue of business savings.