I had a great discussion recently with a dentist who was considering purchasing a practice from one of our clients. He said the number of patients was lower than what he believed justified the value.
He asked me what I had to say.
I responded with a question: “What is a patient worth to you?”
The conversation took us down the road of what’s worth more — a patient who spends $600 a year at a practice, or a patient who spends $1,500 a year? The answer to that comes down to which one profits more.
How much does it cost you to provide care if the average patient comes three times a year and spends $300 per appointment? That’s a short procedure, a lot of room setup and teardown, a lot more people in the schedule to juggle, a lot more appointments to confirm, a lot more predeterminations to run, and on and on. Compare that to $500 per appointment across fewer visits — longer procedures, quadrant dentistry completed in a single appointment, fewer room setups and teardowns, and less demand on admin. A higher annual revenue per patient (ARP) results in higher profit because it costs less to treat patients who say yes.
Almost every buyer I speak to starts with the question, “How many patients does the practice have?” It’s an important question. But the answer provides incomplete detail without understanding what the patients say yes to. ARP goes far beyond treatment. It suggests strong relationships, goodwill, loyalty, a modern philosophy of care, and more advanced, rewarding dentistry — which is more sustainable for the clinicians working in the practice.
You’ve heard the saying, “Don’t lose sight of the forest for the trees.” The health of the trees can matter as much, if not more, than the number of them. The same is true of patients and a practice.
Not surprisingly, the practice we had appraised received offers in excess of $250,000 above appraised value.
The quality of the trees matters.
P.S. We’ve got two new podcasts out on Spotify, Apple, and our website. One is spicy and controversially shares the opinion of ours that the dental practice brokerage industry has much room for improvement (“Brokerage is Broken”). The other is taken from the most recent inspirational keynote address to the incoming class of 2030 at the University of Toronto’s Faculty of Dentistry. You can listen by clicking the links in this message. Enjoy.
