I recently had a conversation with a close orthodontist friend practicing in Texas, discussing the potential of hiring a marketing agency to help new patient onboarding at their one-year-old orthodontic office. They were quoted $7,000-$8,000 monthly for these services. Frankly, I was astounded by the price tag. At $7,000 a month, that amounts to $84,000 annually for digital marketing and social media management. This got me thinking: How do we determine the tipping point for what's too much to pay for a product or service? How can we gauge affordability versus prudent spending? Additionally, what's the return on investment (ROI) for such an expenditure?
Traditionally (and regrettably), many companies offering services or products to orthodontists set their fees based on the average fees an orthodontist charges per case. They often justify their high costs with statements like, "If you start just one more case each month, my service will pay for itself." Every time I hear this, my blood pressure rises. Is it purely coincidental that the aforementioned marketing agency's charges slightly exceed the fee for starting an orthodontic case? I'll let you decide.
The exorbitant cost of services extends to orthodontic consulting firms as well. When we were launching our first orthodontic startup, I interviewed three firms but opted not to engage any due to the staggering $30,000-$40,000 price tags attached to their cookie-cutter approaches and plans. When I questioned why I should allocate about 8-10% of my entire loan to just one service, their reply echoed the previous sentiment: "We'll help you start this many more cases, which will cover our fees."
The list of remarkably high-priced services catered to orthodontists could go on endlessly. An architect firm I considered (needless to say did not hire) charged fees amounting to 10% of my total loan, in the range of $50,000. Although their designs were exceptional, I couldn't help but wonder, how much is too much?
As an orthodontist, realtor, and manager of a consulting firm serving orthodontists as clients, I comprehend both perspectives. Here are my humble thoughts:
- Understand the businesses you're engaging with. Marketing agencies often have alarmingly low client retention rates due to excessively high fees, delayed results from online marketing efforts, and ad fatigue. Measuring the ROI for marketing precisely is nearly impossible. Recognize that the decision-making process for choosing an orthodontist is more intricate than selecting a general or pediatric dentist. Patients consider a combination of factors when picking an orthodontic provider.
- The actual expenses involved in running a marketing campaign often tend to be considerably lower than the fees charged by tech companies. These companies, as you might be aware, operate with high profit margins, capitalizing on the fact that doctors may lack either the inclination or the necessary skills to manage their own marketing campaigns effectively.
- Stories circulate where a dentist enlists a marketing team and witnesses an immediate surge in case starts. However, these anecdotes should be taken with caution. Was the agency hired just before a peak season, or during a period of robust consumer spending, like 2020-21? Increased cases might occur organically due to these factors. Understand the distinction between organic growth and an agency's contributions.
- A fundamental rule in marketing is the correlation between ad spending and lead generation. The more you spend the more leads (good or bad quality) you get, It's common sense. Discuss the strategies your agency employs and comprehend the costs per lead or per click. You might be wasting ad budgets on generic ads.
- Calculating the ROI for a consulting firm aiding a startup practice is immensely challenging due to the lack of comparative performance data. While historical data from other startups can serve as a reference, every practice and doctor is unique, making these comparisons merely guidelines.
- Concerning hiring an architect, it's prudent to scrutinize the loan breakdown and spend judiciously. There are numerous areas where the $50,000 could be more effectively allocated. Patients appreciate a nice, modern practice but don't necessarily expect a Taj Mahal.
To summarize, I highly recommend conducting a comprehensive review of your current budget or cash flow and spending accordingly. While it's sensible for a new practice to allocate a substantial portion of funds to marketing or consulting, remember that there's a limit to prudent expenditure.
At WGO, our emphasis is on establishing a robust foundation for your practice by promoting self-independence. I believe new practices have ample downtime wherein the team can develop marketing strategies and overall practice systems, aiming ultimately to perform most services in-house. Our role is to collaborate with and educate you toward complete independence. It's worth noting that we do offer retainer marketing and public relations programs for practices wishing to be hands-off in these areas.
Disclosure: Dr. Kevin Baharvand is the owner orthodontist at WGO consulting.
It is always difficult to start something from scratch. You might be thinking that you have never set any fees in your associate job. How do you price your comprehensive case? How about limited treatments? Wait, what is even truly a limited treatment? Is it a short treatment or a single arch treatment? What if it is single arch but complicated? Oh man! How about my retainers or the whitening kits we give out? And more and more small but consequential questions which can give you a brain freeze.
Back in my corporate dentistry days, I learned a simple rule: "price 3 times the cost." I believe this rule is a good place to start but not accurate. For example, it may cost you less than $30 to make a set of clear retainers, but it is too low to price it at $90. It is often not customary to the current US market.
Now you might say, "I went to school for over 20 years and will set my fees solid in stone because I am a board-certified orthodontist and I do not want to sell myself cheap." Although I totally sympathize with this way of thinking, financial markets are not based on emotions and pride.
Now here is what I personally believe will eventually set our fees in case we are out of network with insurance: Supply and demand at the local level and macro-economics at a larger scale. Let me expand on each here:
Supply and demand at the local market: It does make a huge difference whether you practice in a rural area versus a metroplex. Additionally, it makes a difference if you practice in rural Alabama versus rural New York. The same goes for the metroplex Dallas versus San Antonio. In short, your local demographics make a difference. The fewer the orthodontists around, the higher you can set your fees, and vice versa. But there is an upper limit where you start pricing yourself out of the market. You may do well with a $7,000 comprehensive fee in rural NY but likely not in rural Alabama. Start by learning how much others are charging roughly around you and decide if you can differentiate yourself and charge more or else. I will dive deeper into differentiation in another article.
Macro-economics: This is what you cannot control. You cannot really control how bad the inflation is or how deep the following recession will be. You can, however, control your strategies in regard to the fluctuations of macro-economics. For example, many practices choose to run promotions with lower down payments to bring more clients during slow seasons. During peak summer seasons due to higher overall demand, you can be more firm with your fees. 2023 was not a great year overall in the orthodontic market. Many practices played around with their fees to adjust. Keep in mind that macroeconomics will affect your newbie start-up a lot harder than an established practice with internal referrals and reputation already built.
Another consequential factor is your insurance participation. If you choose to be In-network, your fees are contracted and determined by someone else. You still need to set your UCR (usual, customary and reasonable), but the difference between your UCRs and contracted rates will be passed down to your patients as an in-network discount.
In summary, I recommend for you to understand your market, make decisions about your fees based on the knowledge of the market and not pride. At WGO consulting, we help our clients understand the ins and outs of their UCRs for both the big and small procedure. We negotiate with insurance carriers to structure the most effective fee schedule for your practice.
Disclaimer: Dr. Kevin Baharvand is the founder and owner at WGO consulting.
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