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Is Your Overhead Out of Control? Edwina Wood

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by Edwina Wood

There is no better time than now to implement basic fundamentals of good business management to budget overhead expenditures.

A practice budget should break down not only the total expenses incurred, but also prioritize these expenses into set overhead key indicators. The other key factor to monitor is revenue and production. This systematic approach to budgeting allows you to set specific goals or key success factors, to help control overhead while maintaining superior quality of patient care. This is not a recommendation to change your current accounting or tax procedures, but an additional tool to be used to monitor the financial health of the practice.

The Journal of Clinical Orthodontics suggests that the average overhead of an orthodontic practice today is about 58 percent. The average successful orthodontic practice has an overhead of 48 to 50 percent. As we create our practice budget, we will strive for 48 percent overhead as our key success factor, though a range of 45 to 54 percent is certainly acceptable. This is a guideline for orthodontists to use to set the goals of their individual practices. Every practice is different. The goals of one practice might be different than the next. Diversity in maturity of the practice, tenures of the staff and geographic location all affect the overhead expenditures of every practice – but the focus should remain on quality patient care.

The total overhead will be separated into the following key indicators:

Staff Expenses – 18 to 24 Percent
This includes wages, payroll taxes, insurance, fringe benefits, scrubs, continuing education, retirement and all staff-related cost. Labor cost represents the largest single overhead expense in the doctor's practice budget, and it should be analyzed closely. The following are ideas to help the practice set up and maintain salary expenses.
  • I've read reports that estimate a full-time staff member for each $200,000 of collections per year. Are you overstaffed? In today's orthodontic practice a combination of increased efficiency and declining production make overstaffing an unwelcome reality.
  • Don't overlook the value of good employees; they are among your most valuable assets.
  • Incompetent employees are among your greatest liabilities. The unproductive employee can be destructive to the rest of the staff. In your office is there one employee with a negative attitude that brings down the productivity of the whole team? How many hours are wasted on gossip, personal phone calls, personal Internet use and negative energy?
  • Instead of an automatic yearly cost-of-living increase, implement an incentive compensation program. Use it as a reward for exemplary performance and not something that is expected. A true incentive-based system is less likely to be overstaffed.
  • Monitor the way a staff member is replaced. Consider the job design instead of filling an existing position; evaluate how that position could change to serve the practice at a more efficient level. Increase efficiency and match labor cost with productivity. Review the contribution of every staff member at this time to determine if any duties can be shifted to another position, so that all employees are producing at their highest level.
  • Could the position be filled with a part-time employee? They are often more productive because when they find a job that fits their needs they are highly motivated. Part-time staffers can help gear up for peak times and fill in when needed. Part-time workers are more cost effective than full-time workers because hourly labor rates are generally less, they help avoid overtime expenses and they are excluded from most retirement, and other fringe benefits. It is a win-win situation. Think about it as taking a fixed cost and making it a variable cost that is controlled by the practice.
  • If it is decided to hire a new full-time staff member, be sure and hire the right person. Hold out for the one that has the desired work ethic, skills, commitment and positive attitude. Don't start a relationship with someone that isn't a good fit; it could be a long-term disaster! When the right person is found, ask what benefits are important to them. They might not need health insurance. It could be mutually beneficial to raise the hourly starting wage instead. Recommend a 90-day probationary period. Analyze the potential employee during this time. Make sure they are the perfect fit for you, your staff and your patients before you offer the position.
  • Delegate. Assume you have three employees; one is making $20 an hour, another $15 an hour and the third $10 an hour. If all three are equally competent to do a task, delegate that task to the person making $10 an hour. This will provide necessary training to the employee and will keep your overhead lean and simple.
  • To keep payroll balanced, make sure the team is well-educated in patient services, well-compensated for their excellent work and track the income and expense results periodically to be sure revenue is supporting the salaries paid to your exemplary team.
Facility Expenses – Five to Eight Percent
This includes monthly rent or mortgage and all expenses related to your facility.
  • This is usually referred to as a "fixed" cost, but with the shift in the real estate market, and dependant on the length of your contract, there is a possibility to renegotiate the lease, or refinance the loan.
  • In considering building a new facility, the total amount of the land and building cost should not be more than 70 percent of collections at that location.
  • Don't play the "glitz" game. Image is important, but your patients don't want to get the feeling they are paying for your expensive taste. It is possible to achieve a respectful and conservative image without paying premium prices. By choosing an efficient, appropriately sized, cost-effective facility that is tastefully decorated, the needs of the office and the patients will be sufficiently met.
  • Use your office more efficiently. If you use your facility three days a week, could it be used by another general practitioner on the other days? This would generate more income for the office and reduce cost.
Orthodontic Supplies – Six to Nine Percent
This includes all the products that are ordered in the practice: brackets, wires, disposables, as well as stocked inventory. When it comes to supplies:
  • Is there an inventory imbalance? Do you have more on hand than is needed? Too much stock robs you of spending money, not to mention storage space.
  • When ordering supplies be sure and ask the right questions:
    • Is there a price break? It's beneficial to order two or three months at a time for items you know you will use.
    • Are you charged for shipping and handling? Tax? Fuel surcharge? Extra fees?
    • What incentive does your company offer?
    • Ask your sales rep for the best price. They have more opportunities to help you than the operator you talk to when you call the company directly.
  • Watch every product you buy.
  • Always know your inventory. Evaluate how the offices are stocked.
  • Educate the staff. Let the staff know the cost of every item. If they know the value, they will conserve and protect office stock.
  • Return unused stock that is no longer used in your office for credit.
  • Don't use a new bracket for every loose bond, micro-etch and rebond.
Laboratory Expenses – Two to Three Percent
  • Search for the best quality product and best pricing available.
  • Make sure the cost is reflected in your fees of service – four to five times your lab fees.
  • Would it be more cost effective to have an in-house lab? You would control the cost of the supplies, rent, equipment and salary of the lab technician.
Marketing – One to Two Percent
With PCD referrals declining an emphasis must be placed on marketing your service effectively. The objective of cost-effective marketing is to reach as much of your target audience, with as little waste as possible, for the lowest cost as possible.
  • Internal marketing (patient and staff referrals) is the most cost effective.
  • External marketing (consumers) is more expensive, but very necessary. The consumer must be educated about your specialties. Let the public know all the services that you provide, and all the new advancements in orthodontics.
  • Utilize the practice's Web site to its fullest potential. Is it up-to- date? Does it outline all of the practice's strong points?
  • There has also been a huge increase in utilizing the Internet as a marketing tool. Social networking Web sites are being used to promote the orthodontic practice. Other technological outlets such as podcasts and text messaging are predicted to become a significant part of marketing as well.
Indirect Overhead – Six to Eight Percent (all together)
This group includes continuing education, credit card fees, dues, subscriptions, bank charges, legal, accounting and consulting fees (one percent), office supplies (three to four percent), postage, computer, Internet, utilities, telephone (one percent), collection expense, license, printing, waste and storage.
  • You need a penny-saver personality, not a penny-pincher personality to monitor this group. A penny saver gets the same services for less money without sacrificing quality. A penny saver discovers and eliminates missed billing, double billing and higher rates. A penny saver regularly compares phone and long-distance rates, subscription prices, postage usage, insurance plans, credit card and bank fees interest rates, and suppliers' bills. A penny saver ensures that the practice is getting the best price and the best rate that it deserves. We don't want a penny pincher, one that under spends on the patient and makes cuts that hurt getting and keeping patients. A penny pincher reduces the value the patient receives.
  • Design and print your own postcards, letterhead, birthday cards, recall cards, etc.
  • Use e-mail to communicate with your patients: A monthly tip for patients, or a quarterly newsletter. There is no printing cost, you don't have to buy paper and the postage is free.
  • Compare utility bills from the same month last year; this is a good indicator of leaky pipes. Do you have inefficient lighting? Have you installed cost-saving water heads? Have you installed programmable thermostats?
Revenue and Production
The ability to lower your overhead is limited; the potential to increase your revenue is endless! The more you increase your revenue, the more you lower your overhead percentages. Produce more and your fixed cost overhead will decrease.
  • When production is down, focus on areas where you have knowledge and experience. Promote and focus on the strengths of your practice.
  • Develop opportunities and find a new referral source. Educate ENTs, pediatric dentists, periodontists, speech therapists, implant specialists and oral surgeons about your practice, and show them the benefits of working together.
  • Is the technology you are using contributing to overall profitability? New technology can be costly. Evaluate the return on the investment. Will it enhance your practice and your productivity? Is it an added expense that will increase or decrease income?
  • Is your schedule reflecting this new technology? Do you have today's technology with yesterday's appointment schedule? Appointment reduction will save production. Assess the intervals between patient visits. Is an appointment necessary, or are you caught in old habits? Are you being as productive as possible with your schedule? It's not how many days the office is open, but how many days it is productive. When you are clinically efficient you will be producing at a much higher level without sacrificing quality clinical delivery.
  • Don't discount orthodontic fees. Lowering fees is detrimental to long-term profitability, unless it results in a substantial increase in the number of patient starts. Orthodontists should instead look for ways to improve service so that more patients are attracted at the current fee rate. Also, find ways to make it more affordable. Offer more flexible payment options; lower down payments, third-party financing or allow the balance to be paid out beyond treatment time if controlled by bank draft.
  • Re-evaluate the current fee schedule. Is it properly calculated so you are not losing net income? Are you charging appropriately for adult cases, Phase I, limited, TMJ cases and longer projected treatment times? These cases cost more – be sure the practice is being compensated.
  • A well-educated treatment coordinator will increase case acceptance. The treatment coordinator should focus on the total new patient experience. The treatment coordinator must constantly search for the best way to relate to the new patient and parents, educate them about their orthodontic needs and initiate the new patient into the practice.
  • Have strong financial policies and systems in place. Have a goal to collect 100 percent of your fees.
Keep the business structure simple. Focus on the above key indicators and strive to make the projected goals. Overhead can only be reduced so much, but production is unlimited! Achieving a strong and balanced budget is the result of solid business systems that generate maximum efficiency while allowing the team to provide optimal patient care.
Author’s Bio
Edwina Wood has 29 years of orthodontic experience in both clinical and management roles. She continues working as office manager/treatment coordinator for Harwell and Harwell Orthodontics in Amarillo, Texas. She has spoken at the PCSO, The Damon Forum and the AAO discussing treatment coordinating, marketing and office management.
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October 2025
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