7.4% on supplies sounds close to 6%. In dollars it isn't.

A client was spending 7.4% of collections on dental supply costs. The benchmark for a general practice is around 6%. On paper, a 1.4 point difference does not look like much.

The practice collects $2 million a year. At 7.4%, supplies cost $148,000. At 6%, they would cost $120,000. The gap is $28,000 a year, and it had been running at roughly that level for five years. Call it $140,000 of cumulative margin that went to supplies instead of to the owner.

That is the difference between glancing at a percentage on a financial statement and understanding what the percentage means for the business.

Why a small percentage can carry a large dollar value

Practice owners tend to read overhead as a list of percentages: supplies, labor, occupancy, everything else. The percentages are useful, but the percentage alone is not the decision. The better question is what that percentage costs the practice in actual dollars.

It also scales with you, which is the part owners miss. The same 1.4 point gap is $28,000 at $2 million in collections, $42,000 at $3 million, and $70,000 at $5 million. Growing the practice without closing the gap means the leak grows with the practice.

That $28,000 could otherwise fund owner compensation, a retirement contribution, cash reserves, debt reduction, or reinvestment. The point is not that every practice needs to land exactly on 6%. The point is that a gap deserves investigation once you can see the dollar value behind it.

Do not automatically cut supply spend

Seeing 7.4% does not mean the answer is to cut until you hit 6%. The right question is why the practice is running at 7.4% in the first place. There are four usual explanations, and they call for completely different responses.

• Purchasing. Are supplies being bought at unfavorable prices, or spread across several vendors with no consolidated pricing leverage?
• Waste. Are materials being opened, expired, discarded, or used inefficiently?
• Inventory. Is the practice carrying more stock than it needs, tying up cash on the shelf?
• Production mix. Does the practice perform procedures that legitimately carry a higher supply cost?

Only the first three are problems. The fourth is a reason, and if it is the reason, 7.4% may be exactly the right number for that practice. A surgically heavy general practice will not run supplies like a hygiene-heavy one, and forcing it to would cost more in production than it saves in materials.

The benchmark tells you where to look. It does not tell you what to do.

How to run this on your own P&L this week

Pull your trailing twelve months of collections and your trailing twelve months of supply expense. Divide one by the other. Then take the difference between your percentage and 6%, multiply it by your collections, and write the dollar figure down.

That single number tells you whether this line deserves an afternoon of your attention or none at all. If it comes back at $4,000, leave it alone and go look at payroll. If it comes back at $28,000, you have found something worth a conversation with your vendors.

Good financial management is not about making every percentage look perfect. It is about understanding what drives the number, deciding whether the spending is justified, and making better decisions with the profit the practice produces. A percentage can look small. The dollars often tell a different story.

Frequently asked questions

Austin Moffat

Founder of DSO CFO, a dental-specialized CFO firm serving practices and DSOs nationwide. Cash flow and profit work, taught in plain language.