Solutions for Overhead Control

Dental practice overhead continues to rise year after year, eroding profits and limiting what dentists earn for their hard work. If your overhead exceeds 74%, you're leaving significant income on the table. Learn the proven formula that top-performing practices use to achieve the industry-leading 60% overhead benchmark—or better.

Understanding the Overhead Crisis in Dentistry

The history of dental practice overhead tells a cautionary tale. According to the most recent American Dental Association data, the average practice overhead hovers at 74%—a figure that frankly should concern every practice owner.

Let me be direct: if your overhead is 74% or higher, you're working too hard for too little. You have a high-volume, high-overhead, low-net-income practice. You deserve better than that.

When we work with clients through our coaching program, our goal is crystal clear: get overhead to 60% or less. Ideally, we shoot for 50%, though we acknowledge that hitting that mark in today's economic climate is extremely difficult. It's not impossible—we have examples of practices achieving it—but it's rare.

Why Your Overhead Matters

Overhead isn't just a number. It's the difference between a thriving practice and one where you generate significant revenue but keep minimal profit. Many dentists fall into the trap of believing that high production automatically leads to high income. The reality is different. A practice generating $1.5 million in revenue with 74% overhead keeps roughly $390,000 before taxes. That same practice with 60% overhead keeps $600,000—a difference of $210,000 annually.

The 5 Expense Categories That Control Your Profitability

Here's a surprising statistic: your typical dental practice has 45-50 line items on the profit and loss statement. Yet only five of those categories matter. Why? Because these five categories represent approximately 85% of your total expenses.

If you master these five categories, you're well on your way to achieving 60% or better overhead. Don't get distracted by the small stuff. As the saying goes, don't sweat the small stuff—focus on what moves the needle.

1. Staff Wages & Compensation (28% or Less)

Your largest controllable expense is almost always staff compensation. This includes all-in costs: salaries, FICA taxes, payroll service fees, unemployment insurance, FUTA, matching 401(k) contributions, uniforms, and any other employee-related benefits.

Twenty-eight percent should be your maximum target. This is challenging in many parts of the country due to rising wage pressure from dental assistants, hygienists, and administrative team members. However, peak-performing practices across the nation consistently maintain 28% while keeping their team members among the highest-paid in dentistry.

Here's the reality check: if you're above 28%, you likely aren't producing enough revenue to support your current team size. Before increasing team members or paying higher wages, you must increase your production capacity.

2. Laboratory Expenses (8% or 4%)

Your lab expense depends on your technology investment. If you don't use CAD/CAM or CEREC technology, your target is 8% of revenue. If you've invested in CEREC, your target drops to 4%.

Don't believe the CEREC sales pitch that you'll eliminate outside labs entirely. Most practices still use outside labs for multiple units, cosmetic cases, and specialty work. The 4% budget accounts for this reality.

3. Dental Supplies (6% or Less)

Consumable supplies—burs, composite, adhesives, PPE materials—should total no more than 6% of revenue. One caution: many practices pollute this category by throwing everything from their supply vendor into it. Create separate line items for small instruments (handpieces, explorer, mirrors) and capital items (sterilizers, equipment upgrades).

PPE costs have increased pressure on this category in recent years, but state-of-the-art practices still maintain 6% or better.

4. Facility Costs (5% or Less)

Whether you rent or own, your facility expense should be 5% of revenue maximum. This includes rent or mortgage, property taxes (if owned), utilities, repairs, maintenance, and if you lease, any additional lease-related expenses like triple net fees.

Location matters less than efficiency. Strategic location choices can dramatically impact this percentage.

5. Marketing (3% or Less)

Modern practices can achieve their patient acquisition goals at 3% of revenue or less with the right digital marketing strategy. This includes website, SEO, content creation, paid advertising, and patient communication systems.

With a strategic partner and proven systems, many practices spend only 1-2% of revenue on marketing while attracting the exact number and quality of patients they want.

The Hidden Expense: Insurance Write-Offs

Now we arrive at the 5,000-pound elephant in the room.

If you add up those five categories at their best levels—28% + 4% + 6% + 5% + 3%—you get 46%, leaving 54% for profit, taxes, and reinvestment. Yet many practices struggle to achieve 60% overhead. Why?

There's an insidious, sneaky expense that doesn't appear on your profit and loss statement because you're not writing a check for it every month. It's your insurance write-off.

The Insurance Write-Off Trap

Today, dental insurance write-offs average 42-44% of your revenue. Let me be clear: you ARE paying this expense. You're paying it by delivering dental work and only collecting 56-58% of your actual treatment value.

Think of it this way. If you're a PPO provider and you produce $1.6 million in dentistry but only collect $1 million due to insurance discounts, you're essentially paying the insurance company $600,000 to provide you patients. That's your true marketing cost.

The sneaky part? You don't see a check leaving your account. So psychologically, many dentists don't acknowledge this as an expense. But the math is irrefutable.

The Real Solution: Network Status

You cannot achieve 60% overhead while giving away 42-44% to insurance companies. The math simply doesn't compute. If 70-90% of your patients are PPO, you're fundamentally limited in profitability.

This is why successfully resigning from PPO plans is so critical. When you transition to a mostly fee-for-service practice, that 42-44% stays in your business instead of going to insurance companies.

Practical Steps to Control Your Overhead

Audit Your Current Expenses

Pull your profit and loss statement for the last 12 months. Calculate each category as a percentage of revenue. Which categories are above target? Those are your opportunities.

Focus on the Big Three First

Start with staff wages, lab expenses, and facility costs. These typically consume 35-40% of revenue. Small percentage improvements here translate to tens of thousands of dollars.

Implement Systems and Accountability

Don't rely on good intentions. Create tracking systems, review KPIs monthly, and hold your team accountable to targets.

Plan Your PPO Transition

If you're serious about overhead control and profitability, begin planning your transition away from PPO dependence. This requires a strong marketing strategy to replace PPO patients proactively before you resign from plans.

Work with a Coach or Consultant

External expertise accelerates results. A practice coach can identify waste patterns you've become blind to and guide you through the transition process.

Real-World Success Story

One of our coaching clients set a goal to achieve 59% overhead within 12 months. She was skeptical—thought it might take two to three years. By implementing our five-category focus, she achieved 59% within that timeframe. When we reviewed her numbers, even with depreciation factored in, she was at 62-63%—solidly in the target range.

Her reaction? She wanted to "jump through the screen" when she saw the data. She hadn't thought it was possible. The lesson: overhead control is achievable if you focus on what matters and do the work.

Key Takeaways

• Average dental practice overhead is 74%; aim for 60% or less
• Just five expense categories control 85% of your costs
• Staff wages, lab, supplies, facility, and marketing are your focus areas
• Insurance write-offs (42-44%) are your hidden expense, not appearing on P&L
• You cannot optimize overhead while heavily dependent on PPO plans
• Overhead control requires system, tracking, and accountability
• Top-performing practices prove 60% is achievable nationwide

Reviewed by

Naren Arulrajah

CEO & Founder, Ekwa Marketing

Naren Arulrajah is the CEO and Founder of Ekwa Marketing, a 300-person dental marketing agency that has helped hundreds of practices grow through SEO, reputation management, and digital strategy. A published author of three books on dental marketing, contributor to Dentistry IQ, co-host of the Thriving Dentist Show and the Less Insurance Dependence Podcast, and a member of the Academy of Dental Management Consultants. He has spent 19 years focused exclusively on helping dental practices succeed online.