How to remain viable and profitable in the face of economic challenges
Members of IDT's Editorial Advisory Board offer advice on business strategies they use to counter the price pressures brought on by insurance companies, multi-group practices, and other trends in the dental industry.
IDT: What business strategies can laboratories utilize to react to pressure from dentists for price reductions?
Lee Culp: Step back and really listen to your clients. They are experiencing the same economic pressures from their patients. Even high-end dentists are facing this challenge and trying to partner with a laboratory that will give them the quality they need. Price pressures are real and they are affecting everyone.
You need to openly discuss with your dentist-clients how you can work together more effectively. At my laboratory, we have faced this situation with some good clients and good friends, and we have had to negotiate a price that is fair for everybody.
Our laboratory focuses on high-end work, the more complex cases that require a high level of skill. Despite that, and the fact that we are only a four-person laboratory, we still need to produce our products very effectively and efficiently. Fortunately, technology helps us handle the same amount of work that we did with 12 people 15 years ago.
Using technology, we are also able to offer services such as diagnosis and treatment planning, surgical guides, assisting with implant placement, etc. We have tried to become experts at all stages of a case, not just fabricating a crown.
Pinhas Adar: We all experience the suggestion of price reduction. To combat that pressure, you have to know your numbers. It’s not how much you charge; it’s your profit margin that counts. You base your numbers on profits, not the price of the crown. Moving forward, I anticipate two different segments in the marketplace: a price-point market segment, and a high-quality segment with higher prices. To face this reality, I have established a structure that includes two sets of prices. I have one price for my personal service and expertise, but I also employ a team of talented people who can utilize technology to offer more attractive pricing. Technology allows us to leverage my skills, experience, and talents in certain situations at a lower price point by training other people. It is still higher quality than many of the more economical options on the market.
Jessica Birrell: Educating clients and patients on the restorative materials and options available is important as well. Dentists should focus less on price than on what material and restorative approach are best for the patient. Some patients’ restorations may not require complex detail, whereas others need additional attention. Once you educate them, some may still choose the lower price. However, once clients adopt the attitude that they are in control of making the best clinical decisions for their patients, and patients are in control of their dental health options, that often ends the price war.
Rick Sonntag: Our strategy has been to invest in technology—mainly milling machines—to refine our processes and lower our costs. We have also instituted multi-tiered pricing. This pricing strategy allows us to provide monolithic restorations at a competitive market price while charging our previous prices for more comprehensive work to cover the higher labor costs involved. We give dentists the higher priced Lexus option or the lower-priced Corolla option—whichever they prefer. Their decision is determined by their philosophy. Dentists trained in comprehensive dentistry who have attended continuing education courses continue to choose the Lexus level.
Many of our new clients had been using big-box laboratories and grew tired of the service they were receiving. Our lower-tier pricing is just slightly above the big-box laboratories’ prices, and our level of service reduces the dentists’ chairtime significantly.
Keith Miolen: Understanding your market and your numbers is critical to profitability. There might be 100 laboratories near you, but that does not mean all 100 can provide the products every dentist needs. Most dentists have built their practices to fit a particular market niche. Likewise, laboratories need to find their market niche. In order to grow and avoid dropping prices, laboratories need to provide products that fit that niche. A dentist might say to a higher-end laboratory, “I can get a full-contour zirconia crown elsewhere for $54.” My response would be, “Well, sure. But that’s not the market you serve, nor is it how you built a profitable practice. Likewise, that level of restorative work is not my niche as a laboratory.” The relationship grows, and we work together.
The reality is that there will always be someone who can do it cheaper. I recommend that laboratories make sure they build value into their product lines, based on both price and the quality. Find your market niche and focus very heavily on customer service. Even if someone can beat your price, a dentist usually will stick with you if you provide excellent service.
This strategy may not work as well for private practices that have been bought out by large DSOs and insurance-driven operations. They need to control costs in order for their dentists to make a profit. There will always be a laboratory ready to fulfill that market niche.
Dena Lanier: We never lower our price. If asked to do so, we offer a different product. Decreasing the price is akin to admitting that the product was not worth what you were previously charging. Laboratories can adopt the same strategy as pharmacies: Offer generic or name-brand products that are lower in cost.
However, in order to implement this strategy, every business must know exactly what it costs to make the products they produce. Certain materials and procedures are more labor-intensive than others. For instance, the new translucent zirconia options require very little labor, so they provide a good option for esthetics at a low price.
When you employ this business strategy, it is important to pay close attention to your clients. I constantly track my dentists’ numbers. If they decrease, I ask if another laboratory offered them a lower priced product. If the response is “yes,” then we can discuss alternate solutions. For example, we usually supply a solid model with each case, but if the client opts out of the model, we can lower the price.
If the price point being offered by the competition is unreasonably low, it may be worthwhile to point out to the dentist that the product might have been made offshore without their knowledge.
IDT: How would you advise laboratories who are starting to work with dental service organizations (DSOs) and multi-group practices?
Keith Miolen: The future of the clinical side of dentistry will be large conglomerate groups. Even the remaining private practices in many cases will need to form partnerships in order to compete.
Large groups play a valuable role in our laboratory’s business. While these groups often demand price breaks, they send a lot of guaranteed volume to our laboratory. Many laboratories avoid large group practices and DSOs, but the focus should always be on the patient, and one of the primary reasons why these business models are becoming more popular is that patients are choosing them.
Dena Lanier: When dealing with a practice with multiple offices, we found that collection was a major challenge. They pushed the limits of our payment deadlines and refused to pay the service charge if they missed the deadline. The time invested in faxing copies of prescriptions and invoices was onerous, and they refused to negotiate remakes even though these dentists were straight out of dental school and we were teaching them for free.
For laboratories considering entering into a relationship with one of these large practice groups, it is extremely important to set careful parameters from the start. Make sure all details and requirements are in writing. Make sure a credit card is on file in case the bill goes over a certain amount without being paid. Otherwise, you can really suffer serious damage from a cashflow standpoint.
Jessica Birrell: In our experience, while these larger corporations do seek special pricing, they also want a standard level of quality. They have shown a willingness to pay just a little bit more for our restorations because they understand that our quality is consistent and they love our personal touch.
Our laboratory has three sets of fees, ranging from simple to complex esthetic. The price increases based on complexity and attention to detail. Dentists and patients generally understand that. The higher the esthetics, the more time it takes, so we charge accordingly. But we do have a simple level at a pretty competitive price.
Rick Sonntag: At our four-person laboratory, our focus has been on supporting private practice. DSOs are really looking for the cheapest work possible, and many have overseas operations already. For small laboratories, I think most DSOs are completely out of the question. Small laboratories cannot compete against the aggressive pricing of offshore operations.
Pinhas Adar: If a patient is seeking quality, he or she will need to find it somewhere, regardless of the dentist’s affiliation. I had a patient request my services and pay me directly when my price point was not what the dentist was willing to pay.
Mediocrity is spreading as the industry relies too much on technology. Most mediocre restorations will need to be replaced, probably sooner than later, and at that point either the patient or the dentist will usually seek better quality. At that point, it is vital for your business to have a strong presence online via a website, Facebook, YouTube, and other social media outlets, so that the patient or the dentist can find you. Do not just post work that you consider beautiful, especially if you are trying to catch the eye of patients; you need to create a definition of what is special about you and what problems you are solving. Most patients, with their untrained eyes, have a different definition of quality than we dental technicians do.
IDT: What single piece of business advice would you offer to laboratories of all different sizes?
Jessica Birrell: Do not be afraid of the big laboratories; they can be an asset to small businesses who partner with them to provide services and products that they may not be equipped to offer alone. Smaller laboratories can also help each other, forming support groups and even teaming up when necessary. Even if small laboratories or technicians prefer to remain on their own, they can still pool their resources with others to form a stronger business.
Rick Sonntag: Small laboratory owners need to be aware of the direction in which dentistry is heading. We need to face the tough reality that DSOs had a 25% market share as of 2015, and that is expected to reach 35% or more by 2017. More than one-third of dentistry’s customer base will be gone from private practices, and it is not coming back.
We are in a deflationary spiral in dentistry. It is more important than ever for small laboratory owners to build relationships and support private practice in any way they can because the existence of private practice is under more pressure than ever before, due to the deflationary spiral brought on by the big insurance companies and the private equity groups that are investing in the DSOs.
Lee Culp: First, embrace a digital platform because it allows you to be more efficient. It allows you to work better, faster, and more predictably. I have found this to be true both in my four-person laboratory and in the past when I worked for a large company.
Secondarily, this is still a relationship-based business, so do things that are out of the ordinary for your customers, and differentiate yourself to a certain market. Personally, I aligned myself with Dr. Peter Dawson of the Dawson Academy 20 years ago. Then I built a strong reputation for my work with esthetics, and I helped Ivoclar Vivadent develop products for all-ceramics and veneers. A sizable market exists for implants today, so that is our main focus now.
If everybody is doing the exact same thing and you don’t stand out above the crowd, then you become invisible to potential clients. Aligning yourself with an educational institution can help you differentiate your business. Their events draw 100-200 dentists every time, but technicians rarely attend. I have always built my clientele base at these events.
Pinhas Adar: It is important to identify your core business. What problems are you solving? How do you value your time? Based on that, you build a business. If you plan to provide every service yourself, then you need to put a premium on your own time. You need to be aware that if you are not in the laboratory, you will not make money. If you want to utilize technology, skills, and training, then decide what profit margin you need, and build around that.
Give more than clients expect. Give more value because that is what makes you different. Learn more than numbers and trying to cut down prices. Communication is important; sometimes success can destroy your communication skills because you get too arrogant and don’t care as much about people as you once did.
Dena Lanier: Pay attention to the details and know how much it costs to make each product, with labor included. This can be difficult when you face price pressures. It can also be particularly challenging for family-owned businesses that have been operating a certain way for many years; teaching new skills to your employees is one way to adapt to the changing environment.
Maintain close contact with your clients, whether by visiting them or talking on the phone frequently. The market is completely different than it was even 2 years ago, thanks to zirconia and intraoral scanners. If one of your clients is sending less work, call and ask why, and perhaps you can address the issue. Know your numbers, but know your customers, too. Our 17-person laboratory, with technology, handles the workload of a large laboratory, but we personalize our business by making sure we always talk to our clients.
Also, talk to other laboratories about new technologies and techniques. Our door is always open for other laboratories to visit and see how we are set up and how we operate, because we have been through the digital transition. Many laboratories are willing to help each other.
Keith Miolen: Our laboratory recently expanded from 32 employees to 54. Laboratory owners need to stay positive. I recently lectured at a college, and a student asked me, “Is this a good time to get into the dental industry? Because I hear CAD/CAM has taken over, outsourcing has taken over, etc.” The students wondered if they had chosen the wrong profession. My answer was that the profession may look less positive now because of the struggle businesses have undergone to remain profitable while reacting to the rapid digital transition that has transpired and the corresponding downward pricing pressures, but in the near future much of our competition will be out of business, whether due to retirement or other reasons.
In a couple years, this will be a very different industry, and the new dentists coming into the profession will need knowledgeable, skilled technicians. Technicians who possess superior skills and knowledge along with digital acumen will be in demand. If you are educated and technically skilled, and you make smart business decisions, I don’t see how you will not succeed.
Pinhas Adar, CDT, MDT
Owner, Adar Dental Network
Employees: 4 (+subcontractors)
Jessica Birrell, CDT
Owner, Capture Dental Arts
Lee Culp, CDT
CEO, Sculpture Studios
President and Owner, The Lab 2000
Keith Miolen, CDT
COO, Aurora Dental Lab
Rick Sonntag, RDT
President, 4Points Dental Designs