HOW TO CALCULATE THE BREAK-EVEN POINT FOR YOUR PRACTICE

Every business owner, and that includes dentists, must know the break-even point for his/ her business.  The break-even point is the minimum amount of money needed to pay overhead, compensate the dentist, service debt, and allow a profit (a return on the owner’s investment – ROI).  Production/collection goals and the annual budget can be calculated once the BEP is determined.  Remember that if a BEP is based on production rather than collections, it must be adjusted if the collection rate for the practice is less than 100%.

Formula:  BEP = Total fixed costs  1.0 minus % variable costs are of gross                                      collections

Fixed costs include office overhead (staff wages and benefits, occupancy and 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 8% to 12% of collections in pediatric and orthodontic practices; 15% to 20% in general and prosthodontic practices.

Example:  If total fixed costs are $625,000 and variable costs are 10%:

BEP = $625,000     =     $625,000      =     $694,500 BEP (collection goal)  
              1.0 - .1                    .9