Q: How much should an office spend on dental supply and lab services?
A: Supply and lab costs should collectively be 11-12% of collections. Individually, dental supplies should be around 6% and lab costs should be 5-6%.
When you’re looking at offices that you’ll potentially buy, let the supply costs be your canary in the coal mine. How they manage their supplies and labs may be an indication as to how well, or poorly, the office is managed in general.
However, keep in mind how production mix relates to this number.
Implant supplies are going to cost more than the supplies for bread and butter procedures. Orthodontic offices are going to spend more on supply costs. Pediatric offices are going to essentially have zero lab expenses.
Occasionally, sellers will put their personal expenses as office expenses. Usually when this is done, they lump it into supplies.
All this to say, if supplies are high, ask questions: Are costs high because nobody is price shopping? Is it consistent throughout the years or was one year an outlier? Did the doctor buy a boat and write it off as a business expense?
The nice thing about these expenses is that they are variable—versus fixed expenses like rent. “Variable” in this case can mean “fixable.” If the office is slightly overpaying for supplies and labs, you can actually do something about that when you’re the owner.
Once you’ve found the answers to why the office you’re buying pays what it does for supplies, then you can create your plan of action. You may realize that you want to use a different supplier or you may prefer another lab. Maybe there’s a way for you to reduce the expenses without sacrificing quality or providing subpar services.