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711: Why Gross Production is the Worst Metric for Dentists – Dr. Barrett Straub

A big part of having a better practice and a better life is understanding your numbers. But if you focus on the wrong ones, it can destroy your business! Gross production is one of the worst metrics for dentists, and Kirk Behrendt brings back Dr. Barrett Straub, ACT’s CEO, to explain why it doesn't tell the whole story of your practice. To learn about the metrics that truly matter and how to use them to plan your best life, listen to Episode 711 of The Best Practices Show!

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Main Takeaways:

  • Gross production doesn't tell the whole story.
  • Know how to calculate and manage your effort gap.
  • Figure out why you're not getting 100% of your true fee.
  • Save your time and energy for things that matter most to you.
  • Adding more doctors, hygienists, and chairs isn't adding capacity.
  • Doing more and producing more doesn't always result in profitability.

Quotes:

“Let's say there are two $1 million producing practices. They may not be the same. They could be very, very different, and there's a story to tell in how you get to that production. So, gross production is a very, very poor metric unless you know the values of some other metrics that help tell the story.” (3:09—3:28) -Dr. Straub

“A lot of times, if you're a dentist, you know how this works. You met with your accountant a couple of months ago, and they're like, ‘You're doing great!’ because at the bottom of my P&L statement it says my income went up $30,000. But what it doesn't show on your P&L is the fact that you probably worked 10 days more and your gross production went up $200,000 — and that's where all of our brain and our energy is.” (7:03—7:28) -Kirk

“Gross production — and in this gap will live your PPO adjustments, your contractually obligated PPO adjustments, your elective write-offs or adjustments, your guaranteed services, your charitable care to your family and friends, like Kirk talked about. That will also be in this effort gap. Your membership plan adjustments or discounts will live in here as well. Some of these adjustments and write-offs are good. We love charitable giving. We love membership plans. Our friends at Clear do a great job. But we've still got to record them properly. So, now, you can see, with those adjustments, with those write-offs, there's a gap between your true output, your gross production, and your net production, which is your collectible amount. We call it effort because it takes a lot of effort to produce your dentistry.” (8:04—8:55) -Dr. Straub

“If a crown appointment fails and doesn't show, while you have some fixed costs that remain, some of your variable costs just went away — your lab costs, your material costs. And we never want the crown appointment to fail, for instance. But if you do that crown and then you have to write off a chunk of it, those fixed and variable costs were already spent, but you can only collect on your net production. So, sometimes, we need to account for that and know what our profit margin is. And therefore, we need to report our true gross production before the rest of these numbers.” (8:57—9:35) -Dr. Straub

“You have a fee. You have one master fee. You have to look at yourself and say, ‘This is 100% of my crown fee. Am I going to get 100% of that?’ Well, if you're in a PPO, no. So, what's the amount off of your fee that you're adjusting off? And you make a category for write-offs called X, Y, Z insurance and you categorize it. If you give 10% away to Mary Sue because she's elderly and in a tough spot in life, great. Do that. Call it charity. If you do veneers for your sister, great. Do it. Call it a family and friends discount. So, just literally, ‘Why am I not getting 100% of my true fee?’ Write it off, categorize it, and have the knowledge of doing that.” (10:21—11:01) -Dr. Straub

“The effort gap before the pandemic, it was pretty normal to see a great practice writing off 25% or maybe even 30%. We even thought that was really high. Now, we're seeing it in the 30% to 40% range, and the national averages are falling to 42%, 43%. Recently, with some of the experts we've interviewed on the podcast, there are a few dentists out there that are writing off as much as 55%, which makes no sense at all. Now, if you're north of 30%, let's take 33%, that means in a real simple analysis you're working one out of every three days for free. Or better yet, let me put it this way. You don't collect a dollar until April 1st. You're going to work for three months without collecting a dollar. We're not even speaking to profitability. So, while that might be harsh to hear, what we want to do is wake you up to how this impacts your practice.” (11:18—12:14) -Kirk

“People always ask me like, ‘How can I tell how much I'm writing off?’ Well, one, very generally, if you're in “a bunch of PPOs”, you're probably in at least the 30% to 40% range. If you have just a few of the big ones, you're probably anywhere from 20% to 35%. If you just have like one left, you're probably 15% to 25%. And our most successful fee-for-service practices can get it under 10%. We're usually living in the 5% to 10% range because they have enough elective and charitable giving. Ultimately, it depends on how many of your patients pay 100% of your fee versus are in the PPOs or those other patient segments.” (12:18—12:58) -Dr. Straub

“If you run an adjustment report and you get a number like 15%, 20%, don't trust it because you have to make sure that your team is billing out the true fee. And here's where this issue comes to lie. There are a lot of people coaching out there to bill the UCR or the contracted fee of a PPO. Now, why? One, because yes, it might make life a little bit easier for your admin team. But two, they also don't want you seeing how much you write off. So, what is happening is people are like, ‘I'm only writing off 18%.’ Well, actually, it's 40%. But if your team puts the contracted fee as the top of the ledger when they bill out, of course you're not going to be able to calculate that write-off. So, there's a little bit of work and investigation, and it's pretty easy once you understand this concept.” (13:01—13:56) -Dr. Straub

“Here's a scenario we see all the time. A practice is busy. It has some PPOs, and they're busy. Capacity is near 100%, booking out hygiene eight months, booking out new patients six, seven, eight, nine weeks. We're busy, and we don't feel the profit. And so, we want to “produce more”. And likewise, because of this effort gap they have, the overhead is too high. So, ‘Team, we've got to produce $100,000 more, and we've got to restrict and cut our overhead.’ Well, how are we going to do that? If our chairs are already full, the only way to produce more is to do more per hour. But often, it's work longer, work harder, add a hygienist, etc. What does that stuff do? It takes more materials, more salary, more overhead. So, my point is, when we spend for a production and we have a big gap between that production and what we actually collect, our overhead, one, will always be out of whack. And two, we’ll never be able to reduce that overhead until we affect our profit margin or reduce or manage this effort gap.” (15:18—16:31) -Dr. Straub

“Let's say we have these two hypothetical $1million producing practices. One is 3,000 active patients for a single doc. That's like $333 per patient. The other has 1,000. So, that's $1,000 per patient. While they both got to $1 million, the energy and effort and blood, sweat, and tears to produce that $1 million is way different than the other. So, we can see, gross production, $1 million. Well, we're going to tell two very different stories. One had to see a lot of patients and do $333 per patient, and one saw one-third of the patients and had $1,000 a head to get to the $1 million. Both got to $1 million. One gave a lot more energy.” (18:46—19:28) -Dr. Straub

“This equation is for planning your future, days worked times production per day. Your gross production is nothing more than, how many days was your business open, times how much did you produce per day. That equals your gross production. I know it's easy math. But when we simplify it and we really think about it, now when we know those two numbers, we can plan for the future. I was open 200 days last year. I want to be open 190 days. Therefore, I need to produce X amount per day to reach my production goals. Is that doable? That's the number-one question we start our clients on goal setting, is day's work times production per day. Now, day's work is literally day's work. It's, how many days was your business open? Now, I know Mondays and Wednesdays and Thursdays and Tuesdays all look a little different in terms of doctors and hygienists. It all evens out over time. How many days were the doors open to have butts in chairs times production per day?” (22:50—23:51) -Dr. Straub

“Time is the new rich. And so, number of days worked — don't take that lightly. I am shocked by the number of dentists that actually don't know the number of days that they worked. If you're at 220, it's good to know that number — but don't stay there. The true mark of a master who understands this says, ‘I was at 210, and now I'm down to 190. My kids are getting older, and I'm going to go to 185 next year. Then, I'm going to go to 175. Then, I'm going to go to 165, and yet still make more in this whole process.’ That's how you can use these to create a better practice and a better life.” (24:08—24:47) -Kirk

“Our mission is this better practice, better life. We can get to $1 million in 180 days, or we can get to $1 million in 220 days. 220 days is the average for general dentists, through the ADA. That's too many days, in our opinion. So, that's 40 days off, both getting to $1 million. Which one, according to our definition — because time is the new rich, time with your family — has a better practice, better life? The one that can get to $1 million with less days. So, the question is, how many days did it take me to get to my gross production, and why? Because that's energy. Remember, we're in this effort gap. How much blood, sweat, and tears, and stress and anxiety do I have to give of myself to get to my gross production? Am I good with that, or do I need to improve that so I can get to my same production or more with less energy and effort, work smarter, not harder? And unless we tell this story, we're always going to default to work more, more, more, more, harder, harder, harder, harder. So, that's why day's work times production per day is the basis of our gaps goal setter calculator for planning for the future.” (25:00—26:12) -Dr. Straub

“We define capacity differently than the industry does. People say, ‘Increase your capacity! Increase your capacity!’ Which means, for most people, increasing your capacity is increasing your hours or increasing your chairs. That is not capacity. Increasing your hours is not increasing capacity. It's increasing your hours. Increasing your chairs is not increasing capacity. It's just increasing the number of your chairs. Capacity is using what you have. So, of the 100, how much did I use? That is your capacity. So, what we really recommend is that capacity has to be at its highest level. And if you expand, you can — but it's from a position of strength. What a lot of people do is they have hygienists that are undercapacity, or doctors, and they add more chairs thinking, ‘Well, that's more capacity because it adds more patients,’ and it becomes more of a problem.” (30:33—31:26) -Kirk  

“The number-one thing to do is fill the chair time you already have. Even if it's 85% to 95%, that's a lot of production and revenue just by filling the chair time that we have.” (31:47—31:58) -Dr. Straub

“Number one, you're going to determine your gross production. And even before that, you're going to determine, is my team billing my master fee or the UCR? That's number one. Number two, annual patient value. How many active patients do you have, divided by your collections in that same time period. Then, days worked times production per day. Then, production per hour, production per visit. But most importantly, capacity. Draw these numbers and write them on a piece of paper, and they're going to tell you a story. You're going to be able to determine where there's a gap, where there's an issue, and where you should spend your time and energy. That might be on write-offs. ‘I'm writing off too much. I need to reduce that.’ That might be on, ‘I need to do more production per patient. I don't need to get any more patients. I've got to just do more on the ones I have.’ It might be, ‘I need to fill our chairs a little more. I thought we were at 95. We're actually at 82.’ And so, pull the numbers. Put them on a piece of paper, read them, and analyze them, and you'll know what the next step is to do.” (33:26—34:35) -Dr. Straub

“The biggest problem in the world is not the fact that PPOs are ruining it. It's the fact that we don't give our best energy to things that matter most. You're spent when you don't know these numbers. When you're chasing gross production and you're going to courses, sitting next to another dentist who doesn't know anything either and they're like, ‘Yeah, I produce $4 million,’ my first thought is, ‘That sounds terrible.’ You know what I mean? Like, who cares what you produce? What did you keep, and how hard did you work?” (34:58—35:24) -Kirk

“The majority of dentists — and I did this for much of my career — their annual goal setting sounds like, ‘I think we should do 10% more. Let's produce 10% more,’ and they never ask themselves why. I will encourage and challenge all of us that want to produce more in gross production to be able to explain the why using these numbers that we just went through today. And often, you don't need to produce more. You need to maximize your profit margin. But if you do, you're going to be able to explain and support your decision based on PPD, days worked, PPH, capacity. Be able to tell the story of production so that when you say, ‘Boy, if we could do $80,000 more,’ you can prove it, that that extended effort and energy is going to result in profitability. Or maybe it won't even require any extra effort because it's just working smarter, not harder.” (36:06—37:07) -Dr. Straub

“We always default on, do more, do more, do more. And I'm going to ask, well, why? Why do you need to do more? Be able to be a business owner and support that goal with some data.” (37:08—37:18) -Dr. Straub

“I love the idea of better practice, better life because we're literally using these numbers to plan a better life through a better practice, versus just reacting to what's left over at the end of the day, or end of the week, or end of the month and giving that to our life. We can literally plan a great life via business metrics, business strategies, and knowing what it takes to do our production and what we're taking from our life in order to earn that net production.” (38:26—38:55) -Dr. Straub

Snippets:

0:00 Introduction.

4:00 The effort gap, explained.

4:20 Gross production, explained.

9:39 The more data, the better.

11:01 Trends in the effort gaps.

12:14 How can you tell how much you're writing off?

16:31 Annual patient value, explained.

19:52 Active patients, explained.

21:45 Days worked times production per day, explained.

27:51 Production per hour and production per visit, explained.

30:32 Capacity, defined.

34:35 Have energy left for your life.

36:01 Do you truly need to produce more?

38:21 Last thoughts.

Dr. Barrett Straub Bio:

Dr. Barrett Straub practices general and sedation dentistry in Port Washington, Wisconsin. He has worked hard to develop his practice into a top-performing, fee-for-service practice that focuses on improving the lives of patients through dentistry.

A graduate of Marquette Dental School, Dr. Straub’s advanced training and CE includes work at the Spear Institute, LVI, DOCS, and as a member of the Milwaukee Study Club. He is a past member of the Wisconsin Dental Association Board of Trustees and was awarded the Marquette Dental School 2017 Young Alumnus of the Year. As a former ACT coaching client that experienced first-hand the transformation that coaching can provide, he is passionate about helping other dentists create the practice they’ve always wanted.

Dr. Straub loves to hunt, golf, and spend winter on the ice, curling. He is married to Katie, with two daughters, Abby and Elizabeth.
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