4 Ways Labs are Protecting Profitability

Many of the laboratory owner-respondents to our 2018 Fee Survey who report healthier businesses point to an emphasis on controlling costs and making sound financial decisions. Here are a few of their strategies: 

A vigilant ROI process. When Michael Farago, CEO, Concord Dental Laboratory, Westford, MA, joined his father’s laboratory 10 years ago, he knew it was time to go digital. Farago—also a management consultant—first focused on putting administrative systems in place to ensure the business was on a firm foundation. Only then did he design a plan for going digital, based on a systematic ROI calculation, a practice he still uses today before making any big-ticket purchases. “I have a minimum expected return for purchases we’re considering, based on our growth goals for the laboratory; anything that doesn’t perform to those standards doesn’t make the cut,” says Farago.

Based on the performance of equipment already in place in the laboratory—for instance, a mill—he makes predictions for how a new mill is likely to perform. His goal: to see a minimum profit margin of 15%, a year-over-year growth of 14% and a maximum break-even time of 16 months. 

“Once the purchase has been made, I do a quarterly analysis to see how it’s performing against the predictions I initially made. So far, every single one of our investments has surpassed projections. Our first 3D printer only surpassed projections by 1%, but we viewed the equipment as more of an R&D tool so we were thrilled with how it performed,” says Farago.

Eliminate non-profitable services. Amos Harting had been offering hybrid restorations for over a decade when, two years ago, he decided to stop. “I had trained one of my best, highest-paid technicians to fabricate the cases and it was becoming costly for me. I couldn’t price them to be profitable enough because clients were telling me they could get them cheaper elsewhere,” says Harting, Owner of eight-person Harting Dental Arts, St. Louis, MO.  

Today, that same technician can fabricate up to 40 crowns in a week, rather than working on just one hybrid case in the same time period. “We’re actually generating way more revenue with high-end cosmetic restorations (we’re seeing an increasing demand), full zirconia posteriors and more straightforward implant work than we were with those bigger cases that were eating up all of our time,” says Harting. 

Charge a premium for anterior work. “It’s amazing to me that some laboratories don’t charge more for anteriors given that so much more work goes into them. Even though we digitally design and mill them, we cut back and layer to get more lifelike results,” says Lonni Thompson, CDT, Owner, Image Gallery, Dublin, OH, who charges about $100 more for these units. “We also see practically every patient for whom we’re fabricating anteriors—mostly here at the lab but sometimes in the dental office—and charge extra for that service.” 

In addition to compensating for the extra time and risk of remakes or adjustments, some laboratories say that—in an era when posterior units are becoming a commodity or disappearing to chairside CAD/CAM units—it only makes sense to charge a premium for high-end anterior work dentists can't get elsewhere. 

Fire a client when necessary. Fear of financial loss and concern about damaging your reputation can certainly make you wary about “firing” a dentist-client. But laboratory owners who have wrangled with difficult clients say it eventually becomes clear that ending some relationships is crucial to your business’ well-being—and to your peace of mind. 

“We have ended relationships with clients who weren’t willing to give us a reasonable amount of time to do quality work, or who don’t see a laboratory owner or technician as an equal,” says Jessica Hilton, Business Manager, Twin City Dental Lab, Lewiston, ME. “Doing so not only protects our profitability but also keeps morale intact because our staff members know their work is valued.”