Key Assumptions:

Total Patients Currently Seen Annually: 10,500

Total UDAs (Units of Dental Activity) per patient per year: 2

Total UDAs (Units of Dental Activity) performed annually: 21,000

Average Revenue per UDA: $44.00

Current Revenue Generated from Dentists (Annual): $924,000

Current Revenue Generated from Hygienist (Annual): $115,200

Total Annual Revenue: $1,039,200

*Note: Revenue generated by hygienist is additional and not included in UDA count.

Case Study:

You have been hired to act as a business consultant for a dental practice that is looking to optimize their business and considering expansion. Your task is to determine the optimal strategy for this business to maximize their potential revenue and to manage their expansion given the following information. Based on the following information, what would be the best way for this practice to proceed? Please read the following and answer all questions and make appropriate recommendations.

Your answer should involve a timeline of activity for the business to implement for at least the next 12 to 36 months.

Questions to consider:

• Should the practice consider expanding to a new location right away?
• Should the practice delay expansion?
• Is it more profitable for the practice for the dental practice to offer traditional dental work (UDAs) at $44 per UDA or is it more profitable for them to offer hygienist visits at $60 per patient?
• Currently the practice only has one hygienist on staff. Should they consider hiring more?

Key Assumptions:

• Assume the business pays zero taxes and has no financing charges.
• Assume no depreciation or ongoing maintenance costs.
• Assume that flex staff could be hired at $15.00 per hour and that at least one full-time manager must be on site during opening hours at all times.
• For any short-term recommendations (less than 12 months), you may focus only on nominal cash flows and ignore the discounted effect.
• If your projections include cash flows beyond 12 months, then these future cash flows may be discounted at 8%.

Business Summary:

A dental practice is fully booked with appointments for the next three months but their business is not fully optimized. They currently have 20,000 patients in their database, with another 100,000 potential patients who live in the area. The majority of the 20,000 patients currently in their database presumably have an interest in visiting the dental practice, however not all of these patients are currently visiting on a regular basis. The owner of the practice feels that they are not maximizing their outreach to these patients, and this would also seem apparent by the fact that they are currently seeing only 10,500 patients per year out of their 20,000 person database.

The practice currently receives a number of inbound calls daily, but does not have the ability to meet field the large number of calls received, therefore they are not maximizing their ability to schedule appointments. They also are not optimizing their scheduling and the practice is running at less than full capacity.

The practice receives an average of 80 calls during regular business hours daily. Less than 10% of the calls are dental emergencies, with the majority of the remaining call volume being patients who are looking to book appointments. The staff feels that true emergencies will present themselves into the practice, and if they were to answer the phones they would be inundated with scheduling requests (appointment bookings). Therefore, when the practice gets busy, priority is given to walk-in patients rather than to patients calling by phone to book appointments. As a result these calls are not being answered. Even so, the practice is booked out for three months in advance.

The practice is considering launching a marketing campaign to reach out to these patients who have not been visiting the practice regularly. The cost of this marketing campaign would involve an initial outlay of $15,000. The purpose of this campaign would be to try to get them to sign up for a recurring payment scheme. This payment scheme would provide patients with a discount to a la carte services, as long as patients commit to a recurring annual payment plan. They would then be offered two dental check-ups and two hygienist visits for a total cost of $160 per year, which is at a significant discount to the a la carte services.

If the patients were to pay "a la carte" for these services, here's how it would break down:

• Dental Visits per year: $44 x 2 = $88
• Hygienist Visits per year: $60 x 2 = $120
• By signing up for the entire package, the patients would be saving an average of $48 per year: ($208 - $160 - $48)

Because the dental practice is one of the few dentists available in the area where they are located, and because it is extremely difficult for patients to book appointments, the practice owner believes this scheme would be well received by the patients. Patients in the area wanting to see a dentist have few choices. The owner of the practice believes that the majority of the people would be interested in the service since they would no longer have issues booking appointments. As part of the marketing initiative, the practice would be introducing a new online appointment booking system to make this easier for the patients. This system would only be available to members of the practice who sign up for the annual recurring billing for $160 per year.

The owner believes this proposed recurring billing scheme would be effective since the recommended service would be offered at a relative discount to the a la carte pricing. The advantage for the practice is that since patients would be committed to visiting the dentist regularly, this would result in an increase in the volume of patients coming into the practice annually. This would also result in fewer cancellations. The advantage to the patients is that they would be offered discounts to services and preference for appointment booking.

The owner needs guidance optimizing her practice. There are a number of options to consider:

• Should she consider opening a second location, or do they just need to better handle call volume so that they can maximize their appointment bookings (without offering a discount)?
• If so, how many additional part-time employees would they need to employ to handle the call volume?
• What would be the expected Return on investment of hiring these additional staffers?

Expansion Option:

The cost of leasing an additional location would be $2,500 per month, and there is sufficient availability to continue to expand indefinitely at the cost of $2,500 per month. Each expansion would involve adding four dental chairs at a time at a cost of $30,000 per chair. This means that per year, the fixed cost of expanding would be ($2,500 x 12) + $120,000 = $150,000 in property, plant & equipment. Each additional year would cost the practice $30,000 in fixed expenses. (Their current location can only accommodate four dental chairs, and so if they were to expand beyond their current capacity then they would need a second location (four more chairs), and so on)

• If the practice expands, they would need to staff it with two full-time managers, and two part-time flex staff.
• If the practice elects to maximize capacity in its existing location, it anticipated staffing needs would increase by the percentage equal to the expansion, and people cannot be hired as a fraction of a whole. You must only hire whole managers. However, you can hire additional part time staff to meet the additional hourly needs in proportion to the expansion. (For example, if you determine the current capacity to be 70% (meaning the staffing needs would increase by 43% in order to achieve full capacity (1/.7 = 1.43), then you could increase hourly employees by 43% to the nearest hour. However, if you have two managers and you decide to increase capacity by 43%, since you have 2 staffers currently working, then you would need to account for one additional full-time manager (since one manager would be able to accommodate up to 50% increase in capacity). 2 x 1.50 = 3. 2 + 1 = 3.
• The practice anticipates that it would need approximately three months to gain the permits and planning permission for the new location (the costs of which are negligible), however each additional dental chair would cost an added one-time expense of $30,000. Each additional location would cost $2,500 in monthly lease, or $30,000 per year. (This means that for each location, the practice will incur $150,000 in fixed expenses relating to property, plant & equipment). Each subsequent year would result in an additional $30,000 in fixed property, plant & equipment expenses.

Your assignment is to come up with a 12 to 36 month timeline for the business that can help you to communicate your recommendations to the practice owner.

Use Excel to generate your forecast models. It might be helpful to run more than one scenario. Assume that the most any one employee can work is 40 hours per week. Some questions to consider:

1. What is the current maximum capacity for the practice without expansion?
2. How should the practice handle the significant call volume coming into the practice?
3. How should the business handle the expansion?
4. Should the business lease a new space right away?
5. Should the business delay expansion?
6. Where should the business focus their efforts in the near term?
7. Assuming that patients had booked onto the scheme for $160 per year, what would be the maximum revenue possible without expansion for this business? (Each dentist appointment takes 15 minutes, and each hygienist appointment takes 15 minutes. The patient should ideally be able to see both the dentist and hygienist in the same visit).
8. What would be the most cost effective solution for the practice to expand?

Here is some pro forma information based on their current operating capacity that should assist you in your recommendations. UDAs are Units of Dental Activity. UDAs are how the practice measures its production (based on revenue). The total revenue is based on current UDAs, with each UDA being worth $44.00. Revenue from hygienist services is in addition to UDAs. If the practice is currently seeing 10,500 patients, their annual UDAs are 21,000, which results in $924,000. If we include revenue from the hygienist then we can estimate current annual revenue at $1,039,200.

Total Patients Currently Seen Annually	10500
Total UDAs (Units of Dental Activity)	21000
Revenue per UDA	$44.00
Revenue from UDAs only (Dental Checkups)	$924,000
Monthly Revenue
Total Revenue generated by three dentists:		$77,000.00
Revenue generated by one hygienist:		$9,600.00
Expenses
Fixed Monthly Expenses:
Lease		$2,500.00
Full Time Manager (40 hour per week Salary)		$3,200.00
Full Time Manager (40 hour per week Salary)		$3,200.00
Dental Hygienist Salary		$4,800.00
Variable Monthly Expenses:
Dentist 1 (7000 UDAs per year)		$12,833.33
Dentist 2 (7000 UDAs per year)		$12,833.33
Dentist 3 (7000 UDAs per year)		$12,833.33
Flex Part Time Office Staff (30 hours per week @ $15/hour)		$1,800.00
Flex Part Time Office Staff (30 hours per week @ $15/hour)		$1,800.00
Total Monthly Expenses:		$55,800.00
Operating Profit:		$30,800.00
(Monthly x 12) = Annual Profit Per Year	$369,600.00