June 2016
Volume 7, Issue 6

Murphy’s Law: A Better Way to Grow Your Laboratory

Existing accounts can be a better source of new revenue than new clients

By Mark T. Murphy, DDS, FAGD

All too often, laboratory owners say, “If I just had more new dentists!” Although new accounts may help your business, leaders often overlook a more robust way to grow their revenue, forgetting how important retention is. We should design and prioritize year-over-year growth plans as CPR in reverse: Retention, Percentage of chair, and then Conversion of prospects into customers. I have employed this method with great success with many consulting clients and more recently with MicroDental.

If a laboratory with 56 clients spending an average of $1500 per month for a total of $1.008 million has 90% retention, then it loses 5.6 clients. Warning: trick question ahead. How many new clients would that laboratory need this year to replace the ones it lost? If your answer is six, you fell for the ruse. The only way six new clients would replace the lost revenue is if they all start in January and average $1500 per month immediately. The more likely scenario is that new clients are added at different times throughout the year, so the laboratory would actually need 12 new clients to keep its revenue around the same level. A new client in January provides 12 months of revenue, February 11 months, and so on until December’s paltry one month of income. The result of adding a new account each month for 12 months ends up being similar to having six dentists averaging $1500 for the whole year.

Conversely, if the aforementioned laboratory could persuade each of its dentists to send just one more crown, implant, or other case per month at an ASP (average sales price) of $150, it would grow revenue by $100,800 with no new clients. That is the same as adding 5.6 new customers for the whole year.

Keeping and growing your existing accounts should be your first priority in strategic planning. Investing in marketing to acquire new clients is far more expensive than retaining and deepening the relationships you already have. That is why initiatives such as loyalty rewards programs make so much sense. By investing in an ongoing loyalty rewards program, you can improve retention, insulate your best customers from your competition, and give them another reason to buy more from you. Accepting credit cards costs money, but that is perceived as a cost of doing business. A loyalty rewards program should be considered a similar cost. While it is true that clients already can earn rewards via their credit cards, those rewards can be earned by using any dental laboratory, so that does not help you.

A beneficial exercise is to wipe your mind clear of all previous methods of planning for the year ahead and consider Table 1. Start fresh and fill in the boxes with answers that will keep you focused on this matrix for growth. By answering these questions, you will be well on your way to a strategic plan that works.

1. What key metrics and reports will you use to track performance? I have suggested reports such as a Change Report that shows the current month versus previous three-month rolling average; a Monthly Average Laboratory Bill report; and a Sales per Dentist per Product report.

2. After measuring retention and monthly average laboratory bills, how much do you want to improve them? Set smart goals that you can achieve and measure regularly.

3. What initiatives will you use to retain your doctors? Contacting declining accounts, rewarding loyalty via programs, and providing incredible service are a few methods.

4. How will you pay for these initiatives? This is where the rubber hits the road. Budgeting for retention and selling deeper do not sound as sexy as adding new dentists. However, they pay huge dividends. Measure the ROI against your historical cost of obtaining new trials, and you will see how cost-effective this approach is.

Mark T. Murphy, DDS, FAGD, is the Principal of FunktionalTracker.com and Lead Faculty for Clinical Education at MicroDental Laboratories.

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