Collections are fun to celebrate. What you actually take home is the number that pays for your life, and overhead is what sits between the two.
If your take-home is not where you expected, the answer is almost always somewhere in your overhead. The trick is knowing which line to look at, because a percentage that is a red flag for one practice is exactly right for another.
We are going to give you our benchmarks by category, and we are going to tell you when to ignore them.
What is a normal overhead percentage for a dental practice?
Industry-wide, dental practice overhead “averages around 62%” of production, according to an ADA News practice-finance column (ADA News). That column dates to 2022, so treat it as a reference point, not a target.
The same column splits overhead into two buckets. Fixed expenses like rent, insurance, taxes and utilities should account for about 4% to 7% of production.
Variable costs like payroll, lab fees and supplies should run around 45% to 55%, which makes them the bigger bucket by a mile.
That split tells you where to look first. Variable costs are where overhead actually lives, so the next question is how each one should look in your practice.
Why one overhead number can mislead you
We think of overhead as a control panel. There are different knobs (staffing, marketing, lab, supplies, rent) and each one moves your P&L differently depending on what you are trying to do in that season of your practice (watch Omar explain it).
An established practice manages overhead very differently from a startup or a practice in a growth push. The same benchmarks do not apply the same way to both.
If you are a startup and your overhead looks terrible, it probably is not. You should be heavy on marketing and light on collections, and that is exactly where you are supposed to be. With that caveat on the table, here are the category benchmarks we use.
Staff cost is the biggest line
Non-doctor labor (front desk, chairside, assistants) typically runs around 25% of collections for most offices, somewhere between 22% and 26% (Omar on labor). Where you land in that range depends on whether you are one location or several, and whether you are a startup or well established.
Payroll is also where overstaffing hides. Two people doing overlapping jobs look fine on the schedule and terrible on the P&L.
Before you cut anyone, check production per team member and how full the hygiene schedule really is. We cover the full method in our guide to managing labor costs for dental practices.
Lab and supply costs: the quiet leak
Supplies typically run 5% to 8% of collections, depending on your procedure mix (Omar on budgeting).
Lab usually runs higher, in the 10% to 15% range in the same budgeting discussion. A practice doing a lot of implants or crowns will sit toward the top, and that is expected.
Low is not automatically good, either. When we review a practice for a buyer, a lab percentage far below peers can be a red flag that the practice is not doing the dentistry the collections suggest (Omar on lab benchmarks).
Let’s look at an example from our own client work. We had an established practice whose supply costs suddenly dropped, and when we asked why, the answer was that they had been overpaying the same friendly vendor for about a year and a half. We tied a quarterly bonus for the front desk to finding a better price, the team called vendors between patients, and the price difference was drastic with nothing else changed.
Rent and facility costs
Facility costs (rent, utilities and other office expenses) average about 7% to 9% of revenue (Omar on facility costs).
For rent alone, we like to see 5% to 9% of collections (Omar on rent). The sweet spot sits around 8%.
Newer practices usually run well over that early on, because collections are still ramping. That is normal at the start, and a problem if it is still true in year five.
Rent is the one lever you cannot pull later. You can adjust wages, staffing, marketing, lab and supplies over time, but the lease you are stuck with, which is why practices with lower lease structures scale their profitability faster. If you are about to sign one, our breakdown of the cost to start or build a dental practice covers what to negotiate first.
Overhead changes with practice size and stage
A one-doctor practice with three operatories and a five-operatory, two-doctor practice can both be healthy at very different overhead percentages. Size changes the math because rent, software and the front desk do not double when collections do.
In a smaller practice, every fixed dollar weighs more, so rent and administrative costs take a bigger share of collections. As a practice grows, those fixed costs spread across more production, and staffing and supply discipline start to matter more than the lease.
That is why we compare a startup to a startup and a two-doctor office to a two-doctor office. Comparing yourself to a national average that blends every size and stage tells you very little.
How much should a dental practice spend on marketing?
It depends on what you are trying to do. A practice in a growth phase should expect marketing at or beyond 10% of collections (Omar on marketing budgets), and a mature practice with strong recall and referrals can spend less.
Marketing is the knob owners cut first when cash gets tight, and it is often the wrong one. Cutting it saves money this quarter and shows up as a thinner schedule two quarters later.
Track what it produces, not just what it costs. If you know what a new patient is worth to your practice, the marketing budget stops being a guess, and we walk through that math in how much is a dental patient worth.
Administrative costs: the silent overhead
Administrative costs are what we call silent overhead. Office expenses, software subscriptions, billing services and forgotten auto-renewals build up quietly because nobody checks them.
Once a year, pull every recurring charge from your bank and card statements and ask whether each one is still earning its keep. It is common to find a subscription nobody has logged into in months.
How do you benchmark your own overhead?
Benchmarks only help if your books are categorized the same way every month. If lab and supplies share a line, or the owner’s car sits in staff cost, no benchmark in this article will tell you anything useful.
There are three steps we recommend:
- Clean up your chart of accounts so each category above has its own line
- Compare yourself to practices at your stage, not to a national average
- Review the numbers monthly, so a leak is caught in one month instead of one year
That monthly review is exactly what our dental bookkeeping and dental CFO services are built for. The five numbers worth pulling every quarter are in our dental key performance indicators guide.
About the Author
Omar Virjee, CPA, CTC is the founder of Virjee Consulting, a CPA firm that works only with dentists. He and his team handle year-round tax planning, monthly bookkeeping and CFO work for solo and small-group dental practice owners across the United States.
Want to know which of your overhead knobs to turn first? Book a call with Virjee Consulting and we will walk through your P&L against practices at your stage.
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