2016 Fee Survey Report: Price-Cutting Remains Rampant, C&B Hardest Hit
Posted Oct 04, 2016 in LMT Surveys
Citing concerns over a still-sputtering economy and tougher-than-ever price competition, nearly three-quarters of respondents to LMT’s 2016 Fee Survey admit they’re keeping their fees lower than they think is fair or appropriate.
In fact, more than half of our respondents haven’t raised prices within the last two years, and some acknowledge they’ve even dropped prices to compete. LMT’s data speaks volumes: not only have fees remained flat since 2014, but the last time we noticed any marked increase in overall laboratory fees was in 2008, before the Great Recession impacted our industry.
But there is a divide among laboratory types, with C&B laboratories painting the bleakest picture and removable laboratories coming through as the most optimistic. For example, while a whopping 88% of C&B respondents say fees have become a race to the bottom, only half of denture laboratories agree with that statement.
There’s irony in the fact that the price wars are especially raging in the C&B arena: the specialty is using technology that seemed futuristic just decades ago and can dramatically improve efficiency, yet fees seem to be stuck in time. Respondents lament the fact that dentists don’t perceive there’s much of a difference between one CAD/CAM crown and the next, and that lower fees are the result of this commodity-driven environment.
“Here’s the truth in this business: finally we should be able to get a great price for our work with the exciting new CAD/CAM technology…but a lot of labs are lowering their prices instead!” says a C&B lab owner in the Northeast. “Are you kidding? We should be getting $200-$300 per unit.”
Interestingly, according to a comparison of LMT’s biennial Fee Surveys, the nationwide average fees in the CAD/CAM arena have tended to fall over time. For example:
- In 2008, the average fee for a metal-free crown with a CAD/CAM understructure was $205; in 2016, it’s $156.
- Eight years ago, a metal-free, three-unit bridge with a CAD/CAM understructure averaged $601; today, it’s $569.
- Since 2010, the average fee for a full contour zirconia crown has dropped from $178 to $153. (Of course, we’ve all seen FCZ units advertised for much less than that.)
With stagnant—and sometimes declining—fees and rising material and operating costs, it’s no surprise that many C&B laboratory-respondents express concern over their profitability. Nearly half say profits have decreased over the last two years; that group reports an average decline of 21%. A third say profitability has remained stagnant during the last two years and only 17% saw an increase.
Better News for Removables
Removable laboratory respondents have a decidedly different outlook on the market and stand out from the other laboratory types on a number of fronts:
- Removable laboratory owners are the most likely to say business is healthier than it was two years ago. They also are more likely to report growing profits: 40% say profits have increased since 2014; that’s more than twice the percentages of full service, C&B and orthodontic labs that report increased profitability.
- In 2016, one third of removable laboratories have raised prices, compared to only 13% of C&B labs and less than a quarter of full service and orthodontic labs.
- Although many removable laboratory-respondents acknowledge that dentists are as price conscious as ever, these respondents are the least likely of all specialties to succumb to pricing pressure.
Several removable laboratory-respondents point out that price competition is much worse for their C&B colleagues, perhaps because CAD/CAM hasn’t penetrated the removable sector to the same degree. Some also say a shortage of denture technicians—especially quality-oriented ones—increases demand for their services and therefore results in less pricing pressure.
Strategies to Compete
Although respondents voice concerns about the current market conditions—price-cutting, diminished quality, insurance cutbacks, price-shopping dentists—nearly half of these respondents are optimistic about the next two years; only 14% express outright pessimism and 41% are somewhere in the middle.
The most positive and hopeful comments from survey respondents center on their determination to provide a product that makes them proud, to work with dentists who share their philosophy and to continue to find strategies to compete in this price-driven market; here are some of their approaches:
- Offering more than one level of service. Nearly one third of respondents offer an economy and/or high-end product line alongside their standard service, featuring tiered pricing based on the quality of materials used and the labor required to achieve the desired effect.
The objective: to offer dentists more options so they don’t have to look outside of your lab to serve different types of patients. “We now fabricate economy-level crowns for one of our customers who has a lot of Delta Dental patients; he was previously sending them to a cheaper lab,” says a small lab owner in Washington. “Work has been slow otherwise and this allows me to keep my employees busy and have a more even workflow.”
This lab owner is not the only one seeing the benefits. Labs that offer more than one level of service are more likely to report higher profitability: one third of these labs say profits have increased in the last two years, compared to only 19% of those who have only one level of service.
- Providing truly personal service. Many laboratories are ramping up their customer service efforts in this commodity-driven market, but for Marta Lizza, Owner of Transcend Dental Laboratory, Southeast, NY, personal service and attention has always been integral to the way she works. For example, she offers in-lab patient consultations, custom-shade mapping, pre-appointment shade verification and, as of late, photo documentation of case progression, including post-placement pictures.
“It didn’t take long to realize how valuable these services were to the type of client I want to work with: one who recognizes the value of a little pampering and was willing to accept a higher fee because of it,” says Lizza. “Collectively, these little extras have better equipped my laboratory to compete with the larger, less expensive production-type laboratories. Because my clients and I have cultivated successful, loyal relationships, they’re far less likely to be seduced by the flood of solicitations they will inevitably continue to receive.”
- Emphasizing buying local. About four years ago, Dan Pfluger, Owner of Assured Dental Arts, attended an event sponsored by Winnebago Buy Local, a grass roots organization in the Winnebago, IL area that encourages citizens and businesses to buy local goods and services. What he learned hit home: for every dollar spent locally, 60 cents is recirculated into the community.
Because he’s so passionate about the concept, Pfluger makes a point of using this angle when talking to local dentists; some have even switched from large East and West Coast labs to his Rockford, IL lab because of it. “Every dentist I talk to about buying local agrees,” says Pfluger, who’s now a member of Winnebago Buy Local. “They realize spending money here helps our community prosper and, ultimately, may lead to their patients having more money to spend on dentistry. It’s a no brainer and we’re proud to be at the beginning of an awesome movement.”
- Taking advantage of new technology.Although some respondents say CAD/CAM is fueling the price wars, many other labs are extolling the technology for improving their efficiency and productivity. For example, profits are up at Harting Dental Arts Lab in St. Louis, MO, and Owner Amos Harting credits this to the lab’s investment in two mills and three scanners that have dramatically reduced operating costs.
“There is a learning curve but investing in digital dentistry has increased our profitability simply because we’re saving time in so many areas,” he says. “Just one example: we now mill pre-op waxups—which takes considerably less time for our design tech to do than it would manually—and that’s a tremendous amount of labor reduction. And, using the same pre-op digital file, we mill beautiful PMMA temporaries 75% faster than we could create handmade temps.”
- Positioning yourself as a specialist. When you find your niche and establish yourself as an expert in a particular area, you opt yourself out of the price wars. With more than 30 years’ experience and lots of continuing education under his belt, Paul Edwards, CDT, Owner, Paul Edwards Dental Studio LLC, Stockton, NJ, focuses on full-arch rehabilitation cases, precision partial combination cases using crowns and partials, and chairside conversion of All-on-4 cases. Due to the complex nature of these cases, many of Edwards’ clients seek his guidance when planning, sequencing and executing them, and he often works closely with periodontists and oral surgeons.
“Over the years, I’ve found that to do this level of work you must demand more time than the industry standard and your fees must be higher. I sometimes joke with clients that ‘I’m expensive and slow,’” says Edwards. “But maintaining that high level of workmanship is vital to my reputation and successful business. If you’re educated and experienced in what you do, have a track record of success and deliver consistently, dentists will pay for that.”
Survey Respondents Share Mixed Outlooks for the Future
"The economic downturn has forced us to settle for a smaller profit margin while we continue to expand into new markets. However, there’s a considerable uptick in our removable side and we have added a 3% price increase to that area.”
~Owner of a mid-size, full service lab in the Mid Atlantic region
"With so many dental offices now being owned by corporations, it’s difficult for the small lab to gain or maintain these accounts. Some dentists say they would like to use us, but they’re told they must send their work to the cheaper lab chosen by the corporation.”
~Small C&B lab owner in the South Atlantic region
"Price-cutting is going to bottom out. The large labs won’t be able to keep employees if FCZ crown prices get any lower. The profit margin is too thin and the venture capitalists won’t want to invest in a business with such low profits.”
~Owner of a small C&B lab in the East North Central region
"There is a market for all kinds of work out there: high quality, low quality and everything in-between. Find the market that best suits your business and pursue it. Work hard, treat people right and be consistent. You’ll never starve.”
~Owner of a one-person removable laboratory in the Mid Atlantic region
"Quality is an over-used word in our industry. One cannot have high standards when your prices are so low that you’re mass producing with a turnaround time that doesn’t allow for true quality dentistry.”
~Small C&B lab owner in the East North Central region
"It’s hard to raise prices when dentists can get a zirconia crown for $40 to $60. Insurance companies are putting pressure on dentists to lower costs, and the dentists are pressuring the labs. Also, the public doesn’t have home equity lines of credit and other sources of credit anymore to spend on elective dental procedures or needed full mouth reconstructions.”
~Owner of a mid-size C&B lab in New England
"Race-to-the-bottom pricing is for labs with no relationships and/or poor workmanship.”
~Owner of a large C&B lab in the Mountain region
"Many labs are competing on price, but we choose not to run that race. We’re running in the opposite direction by consistently raising our quality and supporting our clients. We’re stronger, wiser and focused on our game plan for the future.”
~Small C&B lab owner in the South Atlantic region
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