How to Build a Financial Model for your Dental Practice

Every business needs a financial model. Whether you want to understand what’s your breakeven, your valuation or create a budget for your dental practice business plan, you’ve come the right way.

In this article we’ll explain you how to create powerful and accurate financial projections for a dental practice.

1. Forecast patients

The first thing you’ll need to do is to forecast the number of patients you can expect to receive in your dental practice. Naturally, do this month over month. The number of patients is the sum of 2 types of patients:

Patients = New Patients + Repeat Patients

New Patients

These are the new patients who come for the first time. Unless you take over an existing practice, the number of new patients will likely be low in the early months and increase progressively.

Repeat Patients

To go a step further, you should forecast repeat patients: the patients who will come back at least twice in the future.

Repeat patients are very important as they don’t cost you a dime to attract (they come back because of the great care they had the first time, and not because of some ad you had to pay for). Also, repeat patients are more engaged and therefore likely to spend more (in regular checkups for example).

To forecast repeat patients, you should use a cohort model with a few assumptions:

  • What % of your new patients who will become repeat
  • How often the repeat patients come back (e.g. 2x a year for example)
  • The annual churn (you can’t reasonably assume repeat patients will come back forever)
In the end, you should obtain something like the chart below. As you can see, whilst the number of new patients come to a plateau (you are capped by a certain number of total patients and you can't welcome all the new patients out there as you already take care of an increasing number of repeat patients). Instead, the portion of repeat patients increase progressively over time.
Source: Dental practice financial model template

2. Forecast revenue

Now that we have the number of patients, we can calculate revenue.

Yet, before we do so, we must break down the number of patients into the different procedures a dental practice may offer. Indeed, you might focus more on general checkups & cleanings, or instead orthodontics and surgery.

It’s very important to break it down right. Indeed, as you know all these procedures have very different unit economics (prices and profit margins) you need to forecast accurately. Let’s see now how.

First, break down the services into a percentage of your total patients. For example, 80% of the patients go through a general exam, another 20% come for dental cleaning, 5% for a whitening, and so on..

That way, you can now multiply the number of patients for each service by their respective price.

Now you can obtain your revenue projections broken down by the type of procedure as shown below:
Source: Dental practice financial model template

3. Forecast expenses

Now that we have calculated your sales, let’s look at expenses.

Like any other business out there, there are 2 kinds of expenses when one start a business:

  • Startup costs: these are expenses you pay for before you open your practice. For example, you would find here the real estate, lease deposit, license fees, legal and incorporation costs, etc.
  • Operating costs: these are one-off or recurring costs you pay for to run the dental practice. This includes salaries, medical supplies, rent, bookkeeping, etc.

If you’re interested to know how much it costs to start and run a dental practice on average, read our article here. Here’s the cost breakdown of a typical dental practice firm:

Dental practice financial model template

If you’re preparing a business plan for a dental practice, we have prepared a financial model template you can use to create solid financial projections for your business.

Here’s a video on how to use it:

Any questions? We’re here to help, contact us and we’ll answer your questions within 24 hours.