Understanding Your Dental Office Overhead (and How to Lower It)

What Is Overhead?

Overhead is the total cost of running your dental practice, excluding owner compensation. It includes everything from rent and salaries to supplies and insurance. Overhead is typically expressed as a percentage of collections:

Overhead Percentage = (Total Expenses ÷ Total Collections) × 100

Healthy Overhead Benchmarks

• 60-65%: Excellent (high profitability)
• 65-70%: Good (healthy margins)
• 70-75%: Acceptable (room for improvement)
• 75-85%: High (requires immediate attention)
• 85%+: Critical (practice may not be sustainable)

Key Overhead Categories

1. Staff Salaries & Benefits (25-30% of collections)

Your largest expense category. Includes wages, payroll taxes, health insurance, retirement contributions, and bonuses.

2. Facility Costs (5-8%)

Rent or mortgage, property taxes, utilities, maintenance, and cleaning services.

3. Dental Supplies & Lab Fees (6-9%)

Consumables, restorative materials, lab work, and equipment repairs.

4. Office Supplies & Admin (2-3%)

Paper, software subscriptions, postage, office equipment.

5. Marketing (3-6%)

Website, SEO, paid ads, mailers, patient referral programs.

6. Technology & Equipment (3-5%)

Software licenses, IT support, equipment leases, depreciation.

7. Professional Services (2-4%)

Accounting, legal, consulting, continuing education.

8. Insurance (2-4%)

Malpractice, general liability, cyber insurance, business property.

How to Calculate Your Overhead

Step 1: Gather 12 months of financial data

Step 2: Categorize all expenses

Step 3: Calculate total collections (not production)

Step 4: Divide expenses by collections

Example:

• Annual collections: $800,000
• Total expenses: $560,000
• Overhead percentage: 70%
• Owner take-home: $240,000 (30%)

Strategies to Reduce Overhead

1. Optimize Staff Productivity

• Cross-train staff to reduce redundancy
• Use scheduling software to prevent overstaffing slow days
• Delegate tasks to the lowest-qualified (and lowest-cost) capable staff member
• Consider part-time or flex staff for peak times

2. Negotiate Vendor Contracts

• Consolidate suppliers for volume discounts
• Join group purchasing organizations (GPOs)
• Review lab fees annually and renegotiate or switch labs
• Bundle software subscriptions for better rates

3. Reduce Facility Costs

• Renegotiate lease terms when up for renewal
• Upgrade to energy-efficient lighting and HVAC
• Share space with complementary practices (orthodontist, oral surgeon)

4. Control Supply Costs

• Track usage and identify waste
• Implement just-in-time ordering to reduce excess inventory
• Compare pricing across vendors before auto-ordering

5. Improve Collection Efficiency

• Collect patient portions at time of service
• Reduce accounts receivable aging (follow up on 30+ day balances)
• Offer payment plans to increase case acceptance

Conclusion

Understanding and controlling overhead is essential for long-term practice profitability. Aim for 65-70% overhead while maintaining quality of care, staff satisfaction, and patient experience. Small improvements in multiple categories compound into significant savings over time.