The other day I was asked why I think the median orthodontic pracrice is doing less than a million in production and, even if most orthodontists are producing in the 800 k range, how can they be broke. The logic being that if an ortho is collecting 800 k a year (or at least 95% of the 800k production) and keeping 50-60 percent after overhead, then how can they be struggling or even broke? It’s a good question and I hadn’t considered why there is such a discrepancy between what is and what is perceived to be in orthodontics on this point before. After some consideration I think I’ve got a good idea of why our beliefs and our reality are misaligned.
First, the stats on overhead percentage and production largely come from surveys done by journals – very few people answer these surveys and the ones who do rarely answer honestly in my experience. Plus the better you are doing (or the better you think you’re doing) relative to others the more likely you are to report your stats. This introduces huge bias to the results. The next biggest source for info on overhead percentages and gross come from the info we receive casually on the sale of practices. Think of the last few times you’ve been aware of a practice selling or of someone considering buying a practice – were they multimillion dollar operations? Generally not – the recent rash of young doctors selling large practices to corporate groups not withstanding (these are usually much bigger practices). For those of us under 50, we all have friends who are looking at buying a practice and asking friends or posting on FB groups the practice stats and asking for advice. This means, most of the time, the stats will be from older doctors who have been in practice for decades. In this context we often see practices for sale that collect from 400-800k and have very low overhead percentages – and this is why many people think the average orthodontist has an overhead in the 40-50 percent range.
But there is a big difference between a 60-80 year old vs a 30-40 year old collecting 800 k. The older folks generally have low debt levels, don’t use the most expensive supplies or tech and aren’t too concerned about the shag carpet and wood paneling in their waiting room. Whereas a 35-45 year old who associated for a few years and then bought or started a practice who is collecting 800 k generally likes the latest toys, has massive student/buildout/purchase/equipment loans, a large marketing budget and, as a result, an almost all consuming overhead. Seeing how we have graduated many more orthodontists in the last couple decades, it’s reasonable to assume that there are tons of relatively young orthodontists who fit this profile – they are much more common than the older cohort and  way, way more common than those superstar young orthodontists who produce more than 2 million per provider (or the unicorns who produce 4 million plus per doctor). Thus the median orthodontist is not doing millions but hundreds of thousands in production and they aren’t keeping 50 percent of revenue – they are barely getting by…
Why is this important?
It’s vital information for several reasons.
  1. Doing things the way we always have or the way the baby boomers did/do is not necessarily a good idea. Thinking it is can be catastrophic for younger orthodontists.
  2. Student debt (among other kinds of debt) are part of the new reality for those who choose to become orthodontists. Minimize it, deal with it, plan realistically for it.
  3. Marketing is not optional and those who hope to thrive must invest in their brand and marketing strategy while understanding the modern consumer.
  4. Starting a practice from scratch is immensely expensive and time consuming. It takes a very long time to get to break even, much less profitability, and it’s important to have a realistic view of this process and the funding to get you through it.
  5. If you’re buying a practice that gives you cash flow but it comes with other issues. The biggest being that if you radically change the office/equipment/technology/etc you’ll radically change the overhead structure plus you have to pay the debt acquired from the purchase.
  6. Finally and most importantly it’s vital to know the reality of starting an office or buying a small office BEFORE doing so.
Knowledge truly is power and discussing reality instead of pretending things are as we wish they were is always preferable. Or at least it should be.