CALCULATING THE BREAK-EVEN POINT FOR YOUR PRACTICE

The Break-even point (BEP) is the minimum amount of money needed to pay overhead, compensate the doctor(s), service debt, and provide a profit (Return on Investment, ROI).  Production and collection goals and the annual budget can be projected once the BEP Is determined.  Remember, if a BEP is based on production rather than on collections, it must be adjusted to the collection rate for the practice if the rate is less than 100%.

An example of the calculation follows:

FORMULA:  BEP = Total Fixed Costs / 1 - % variable costs are of gross collections

Fixed Costs include office overhead (staff salaries and benefits, occupancy costs, administrative costs, taxes, insurance, etc.), the dentist’s compensation, and debt service.

Variable Costs are considered to be laboratory fees and clinical supplies (those costs which vary according to patient load) and are, typically, 15% to 20% of collections in general practice; 8% to 12% in pediatric and orthodontic practices;         

If total Fixed Costs are $625,000 and Variable Costs are 10%:

            BEP = $625,000 / 1.0 - .10 = $625,000 / .9 = $694,500 BEP (Collection goal)