Going, Going, GOLD
Posted Apr 28, 2011 in Management
Rising steadily since 2001, the price of gold has soared to record highs this year, driven by the weak U.S. dollar and ongoing economic uncertainty. Two months ago, it reached a true milestone, hitting $1,000 an ounce on March 13.
Although the price fell back under the $1,000 mark--it was $898.50 at press time--there's no expectation we'll see any significant relief soon. That reality has many laboratory owners implementing strategies to protect their profitability. In fact, 45% of the 302 respondents to a recent LMT e-survey say they've changed their fee structures in order to compensate for the rising gold prices. Of those who haven't changed their fees, the vast majority were already charging separately for metal so they've been covered during the price spikes.
It's the laboratory owners who charge a flat fee (including alloy) that have found themselves in a quandary, and 40% of them have simply raised that flat fee for gold restorations. Another 60% have done away with a flat fee altogether, either adding an alloy surcharge until the market stabilizes or switching permanently to a labor-plus-metal fee structure, basing the alloy portion on the market price or what they paid for their last gold shipment.
Some respondents also report that the gold situation has made them revisit their markup practices. "Alloy has always been a profit center for us and our usual markup is 40%. But while gold is above $600 an ounce, we may temporarily cut that in half so we don't price ourselves out of the market," says John Collins, owner, BioComp Dental Laboratory, Ivyland, Pennsylvania.
Other changes owners are taking to protect profitability are unrelated to fee structures; for example, some laboratories are switching to alloys with a lower gold content. "We decided to start using a 40% high noble gold alloy instead of one with a 59% gold content," says George McCoy, CDT, Lab One, Norfolk, Virginia. "Due to the lower specific gravity of the new alloy, we're able to get more castings to the ounce and, as a result, maintain our gold costs to our doctors. It's a win-win situation."
Laboratory owner Rodney Grizzard took another approach and sent his clients a letter reminding them of cost-cutting measures they can take on their end. "We let them know that less reduction of preps, particularly in the posterior, or building up the preps that have decay with composite material will result in less gold usage," says Grizzard, Crown Works Dental Laboratory, Oakland, Oregon.
Some laboratory owners say their clients have not voiced concerns about the increased fees nor are they shying away from high gold alloys. "I never would have thought we would be selling $250 crowns, and this price has not cut into our gold crown production," says Jay Stewart, Stewart Dental Lab, Columbia, Missouri. "I don't know what the tipping point will be but $1,000 an ounce has not changed our doctors' minds."
Others say customers are looking for alternatives. Although some--29% of respondents--are recommending noble or base alloys, 60% are encouraging customers to look to metal-free restorations. They point out that, given the current gold prices, fees for high noble restorations have risen enough to be comparable to those of metal-free units. "All ceramic is now a cost-effective option; it used to be the reverse and all ceramic was seen as much more expensive than high noble," says Bob Vartanian, vice president of sales & marketing, Trident Dental Laboratories, Hawthorne, California.
The vast majority of our respondents agree, saying that the high cost of gold will continue to drive the metal-free market and persuade even more doctors to try zirconia. "Because of the gold prices, many of our clients are trying--and loving--our zirconia crowns. Because of the fit and esthetics, they say they will not go back to PFMs unless a case requires it," says David Nunnally, Derby Dental Lab, Louisville, Kentucky.
Nobody believes that dentists will stop prescribing high noble alloys altogether, but in this volatile market, laboratory owners agree that it's critical to ensure your clients are educated about all of the restorative choices you offer. "The market is what it is," says Albert Tassi, CDT, Tassi Dental Lab, Elmhurst, Illinois. "What we have to do is offer our customers alternatives; otherwise, they'll find their own alternative and it may not include us."
To see what the 302 respondents to LMT's e-survey had to say, click here.
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