Profit margins are the lifeline of any dental practice, and at 30-40%, the dental industry offers healthy potential for sustainable growth.
But don't let those numbers lull you into a false sense of security.
While these margins dwarf those of auto dealerships (3%) or life insurance companies (0.72%), they can vanish quickly through inefficient operations and procurement blind spots. Understanding, measuring, and optimizing certain key performance indicators (KPIs) can make all the difference between strong, sustainable growth and having your books in the red.
Let's explore the numbers that determine how well you’re managing your practice's procurement and cash flow.
Just as a doctor monitors vital signs to gauge a patient's health, KPIs for procurement provide crucial insights into your practice's operational wellness.
These metrics reveal not just how much you're spending, but whether those dollars are being used efficiently, from tracking price variations across suppliers to identifying opportunities for bulk purchasing discounts.
By closely monitoring procurement KPIs, you can spot concerning trends before they become serious problems, negotiate more effectively with suppliers, and ensure your practice maintains healthy profit margins in an increasingly competitive marketplace.
These metrics provide crucial insights into your practice's operational wellness. For instance, supply costs typically represent 4-6% of a practice's collections. Even small improvements in procurement efficiency can significantly impact your bottom line.
Consider a practice with $1 million in annual collections. At 6% supply costs, they're spending $60,000 annually on supplies. By optimizing procurement to bring that down to 4%, they'd reduce spending to $40,000 - a $20,000 difference that goes straight to the bottom line.
The challenge? Many practices are flying blind when it comes to their procurement processes.
Your practice might know its total monthly spending, but that’s only a fraction of the bigger picture. Without deeper insights, you’re missing opportunities to optimize their operations and maximize profitability.
That's where these seven essential KPIs come into play.
How much you're spending is a relative number. The real insights come from understanding how your procurement costs align with your revenue and collections.
A practice bringing in $2 million annually might panic at $100,000 in supply costs, while that same number could signal serious overspending for a practice collecting half that amount.
Your costs should maintain a consistent relationship with your revenue, typically falling between 4-6% of collections. When this ratio starts to drift, it often indicates underlying issues like price creep from suppliers, inefficient ordering practices, or missed opportunities for bulk discounts.
By tracking this metric monthly, you can quickly spot trends and take corrective action before small issues become major problems.
Here's a metric that often surprises practice owners: leading DSOs maintain a private label utilization rate between 30-40%.
Why? Aren’t premium products simply better?
Well, these so-called private label products often deliver comparable quality at 30-50% lower costs than branded alternatives. In fact, many of these private label products are actually manufactured by the same companies producing the branded versions, just without the premium pricing that comes with the name recognition.
For example, those mixing tips you're paying $60 for from a major brand? The private label version could cost just $25 for literally the exact same item with a different sticker on it. If your practice isn't hitting at least 30% private label utilization, you're most definitely leaving money on the table.
This measurement is less about keeping order sizes low and frequent or high and seldom. How large your Average Order Size is determined by your practices habits. Small, frequent orders may create unnecessary administrative burden and shipping costs for one practice yet another may literally not have the storage space for larger orders. By monitoring and optimizing your average order size, you can reduce headaches caused by orders that are too large or too small for your practice’s needs.
Your formulary is a powerful cost control mechanism.
When you’ve got the right suppliers and the right products set up within your procurement platform, higher compliance is better. That’s because high compliance rates (aim for 70% or higher) indicate that your team is following established purchasing protocols and taking advantage of negotiated pricing. Low compliance often signals a need for better staff training or formulary adjustments because what the staff wants is not on there.
The sweet spot? Two to four primary suppliers.
Too few suppliers limit your negotiating power, while too many create unnecessary complexity. You want the competitive process, but you don't want to burden the organization.
Monitor your supplier mix to ensure you're maintaining healthy competition while keeping operations manageable.
Depending on the practice size, specialty, and other factors, a single practice location can be dealing with anywhere from 500 to more than 2,000 different types of supplies at any given time. Price creep is not only likely but a guarantee if you’re not monitoring costs.
A small price increase here, another one there, and before you know it they’ve accumulated into significant extra costs. Track price variations across your key supplies and leverage this data in supplier negotiations.
You can't push back against price increases if you're not watching for them.
This isn’t much different than managing spend overall but still an invaluable exercise to do regularly. Breaking down your spending by category (hygiene, restorative, infection control, etc.) so you can see a different view of where your money is going.
You might find additional savings opportunities if you find you’re over ordering one category or having to rush-ship another because you keep running out.
This granular view helps you identify areas for optimization and supports more strategic purchasing decisions.
Having these KPIs is just the starting point. The real value comes from how you use them. Let’s take a look at how to make the most of these metrics:
Start by establishing baseline measurements for each KPI.
Compare your numbers against industry standards, but remember that your practice's unique characteristics might require adjusted targets. The goal isn't to hit arbitrary numbers—especially if they make no sense for your practice. Instead, you want to drive consistent, achievable, but continuous improvement.
Make KPI review a regular part of your practice management routine.
Monthly reviews help you spot trends early, while quarterly deep dives allow you to assess progress toward longer-term goals. Share relevant metrics with your team to foster accountability and engagement in procurement optimization efforts.
Dental procurement platforms make tracking these KPIs infinitely easier than manual methods.
Instead of spending your day trawling through excel spreadsheets, you can instead have exactly the view you’re looking for in just a few clicks. The right technology can turn procurement from a chore into a breeze that’ll cement a powerful strategic advantage for your practice.
Getting visibility into these crucial KPIs has traditionally been a nightmare for dental practices. With data scattered across supplier portals, spreadsheets, and paper records, tracking procurement metrics often feels like solving a puzzle with pieces from different boxes (and more than a few pieces might be missing).
Fortunately, technology has offered a better approach.
Method brings all these critical metrics together in one unified view, right out of the box. No more juggling multiple systems or manually compiling reports.
Instead of spending hours hunting down numbers, you can access real-time insights with a few clicks. From tracking private label utilization to monitoring price variations across suppliers, Method illuminates your entire procurement process from end to end.
Your practice's financial health shouldn't be a guessing game. Take control of your procurement metrics today and transform those blind spots into opportunities for growth.
