Tuesday, September 29, 2009

Which Dental Associate Collections vs. Lab Fees Scenario is Best?

With all else being equal, what is the better deal for an associate?

A. 30% of collections, no lab fees
B. 33% of collections, 33% of lab fees

In other words, how much (in terms of a %) does no lab fees make a difference? I understand that alot depends on how much you send to the lab, but looking for a ballpark range.

You do need to assume what the typical lab cost is as a % of revenue. If it typically runs 5-8% in a GD practice lets assume 7% as a nice round #. Now we also know the typical GD practice generates 75% of its revenue from dentistry (not hygiene), so lets take a million dollar practice, where \$750k is from dentistry. Lab expense would be \$70k (7% of \$1mill), so 70/750=9.33%.

Now, lets assume you make 30% of collections which are \$100,000, you'd make \$30,000.

33% of collections is \$33,000, however, 33% of your lab (9,330 x 33%)= \$3080 and 33,000-3080 = \$29,920.

So 30% of collections is better.... in this case - assuming 9.33% lab expense.

How much lab related work will you be doing?

The less lab the more the 33% less 33% lab looks better.

BTW, some also do 100,000-9330=90670x33% = 29,921. Same result, different path, that's all.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com