By: Andy McDougall
If you’re a business owner, you likely understand your numbers well enough to follow your accountant's explanations—but the real challenge lies in influencing those numbers. How can you ensure the strong metrics stay on track and transform the weaker ones into drivers of growth and vitality for your practice?
Influencing Numbers Drives Performance
Numbers are the foundation of your practice’s success—they dictate what you can afford to invest in from the start and the value you’ll achieve when it’s time to sell. Your profitability each year hinges on how well you influence these numbers. As a dental business owner, it’s not just about clinical expertise—it’s about understanding how numbers behave and leveraging that knowledge to drive performance, growth and long-term value.
Understanding the key drivers behind your business numbers and learning how to influence them effectively can be the difference between thriving as a dental business owner and struggling to stay afloat. Whether you’re focused on growth, stability or preparing for the next chapter, your financial performance is critical to achieving your goals, especially if:
Your profits have plateaued and you want to drive better performance
You are looking to exit in 3-5 years and want to maximise the business value
You want to achieve a better work-life balance without losing profitability
You want to expand and buy additional practices
You’ve just purchased your first practice and want to run it well
Your business is in freefall and you don’t know how to reverse the trend
You are making good profit but lack financial control and want to ensure the current trend continues
With the right insights and strategies, you can take control of your numbers—and your future. Here’s a glimpse into two key principles of the Spot On Business Planning (SOBP) methodology that, once understood, will transform the way business is approached and managed.
Principle 1: Corporate Fingerprints and the Danger of Averages
Your dental business has a unique fingerprint. The goal should be to be the best you can be, not to get bogged down by meaningless industry averages.
We are frequently assailed with industry statistics from accounting and marketing bodies that compel us to diagnose our business performance based on industry averages. While these averages may offer a quick snapshot of comparative performance, they fail to capture the unique factors behind the numbers. Relying on such comparisons can lead to a false sense of confidence or unnecessary discouragement. Comparing performance to an industry average does a disservice to both business insight and peace of mind.
Even when two dental practices seem identical on the surface, there are many different factors to consider that render averages meaningless. Picture this: two practices both have the same income. They both earn $1 million. You may think these two practices are the same, right? Wrong! There are many differences, including:
Business Structure: Principal-to-associate ratios
Brand Positioning: Type of dentistry and mix of services
Competitive Constraints: Unique market dynamics
Fee Structures: Variations in pricing models
Income Streams: Contributions from insurance, dental plans, or fee-per-item services
Service Mix: Proportions of different types of dentistry
Purchasing Costs and Suppliers: Differences in operational expenses
Laboratory Fees: Variances in external service costs
Generic statements implying that dental businesses share financial characteristics are dangerous and flawed because each business will have its own uniqueness and what matters is seeing real, tangible improvements in your own business performance.
Forget about being average! Get behind your numbers, what I refer to as your corporate fingerprints.
Understanding the nuances of your business and knowing how to influence them is how you will drive your business performance to new levels and in doing so, will make you much more than average!
Principle 2: The Power of Quarters and Halves
It is common for business owners to look for the one big thing that will change their numbers from what they are to what they desire, but there is no one big thing. If there was, it would have been identified and implemented.
You would be stunned by the leaky bucket of profitability that inevitably resides in your P&L. A percentage off here and there will cost you thousands for each and every year you are in business.
The philosophy of driving through this kind of efficiency lies at the heart of our claim to double the net profits of our clients within three years. Spot On Business Planning has helped hundreds of dental practices achieve this goal simply by managing their quarters and halves, their variable cost ratios.
Business owners often report that, despite increasing top-line sales, their bottom line remains flat. This is because, after covering variable costs such as lab fees, materials, and associate payments, there’s little left to contribute to profitability. Contribution represents what remains of your revenue after variable costs are paid. Subtracting fixed costs from this contribution determines your net profit.
If the ratios of those variable costs to sales are off-kilter, even by a small percentage, the drop-through (i.e., income less variable costs to contribution) is too small, so no matter how much you grow revenue, there is little positive impact on profitability. It is hugely infuriating and vexing for practice owners because all that effort to grow the top line will only ever translate into an even bigger version of the same inefficiency.
A good analogy for understanding the impact of the “quarters and halves” is golf. Imagine you're on the golf course, lining up for the perfect drive. If you've ever struck the ball just a millimeter off, you know how dramatically that small misalignment can affect your shot. The farther the ball travels, the more pronounced the error becomes. Even being off by a quarter or half a millimeter can send the ball wildly off course over a long drive.
Now, think of your business numbers the same way. A small margin of error—just a quarter or half a percent—can compound over time, throwing your results further off track month after month, year after year. But here’s the exciting part: by identifying and correcting those "quarter and half" missteps, you can reset the trajectory and hit the sweet spot for long-term success.
Allowing your variable costs to get out of control also puts pressure on the need to chase revenue. You are effectively having to grow to compensate for the lack of control of your costs but if you get your variable costs under control, the pressure and intensity of having to continually improve your top line is mitigated.
The quarters and halves methodology is the most efficient way of running your business and taking the pressure off sales, sales, sales. By controlling your quarters and halves and bringing those variable cost ratios into line, your desired level of profit can be more easily achieved with the advantage of seeing any additional sales growth falling directly through to your bottom line – I call it the drop through effect.
Chasing sales alone will not fix the problem of lackluster profits. Changing your variable cost ratios will. The quarters and halves methodology represents the most efficient way of running your dental business, taking the pressure off the top line whilst delivering profitable growth beyond your expectations. It’s all about driving through the efficiency of the quarters and halves and remembering that small percentages applied to a big number, make a big number!
Approach your Numbers Clinically
Understanding and influencing the numbers isn’t boring accounting; it’s fascinating, logical, straightforward, and most importantly, essential. Maximize your profitability every year you are in business and ensure that, when it’s time to hang up your loupes, your exit value is at the desired level. Extend your clinical excellence to the nuances of your numbers!
