Return On Investment
I was with a group of doctors recently here on the Spear campus for an Occlusion in Clinical Practice workshop and we were working in one of the operatories. As you may be aware, in addition to the Spear hands-on workhsops held here, cerecdoctors.com also offers courses on the use and implementation of CEREC CAD-CAM technology into the practice.
We have many CEREC machines in the lab and clinic. With so many around it’s hard not to have some conversation around them regardless of the course.
I found a recent comment particularly interesting, “I’m not going to buy that thing, they try to sell it to you by implying that you can eliminate lab costs and that’s a lie. You just pay them, and it’s more than you would pay the lab, what a rip.”
Before I talk about my reply I’d like to take a business moment, not something most of us were well trained for. Return on investment (ROI), is a foundational principle in business; failure to pay attention to this reduces the profitability of the business and robs owners and employees of income and of opportunities to re-invest in the business.
When I speak with owners of CEREC machines I have occasionally heard this statement, “I eliminated my lab cost,” as one of the reasons for acquiring the technology and investing in learning how to use it well. That statement is technically correct, you aren’t sending a check to your technician for that restoration, but it is financially incorrect—the cost has not been eliminated, it has been shifted.
Checks written to the technician are a variable expense. The amount varies depending on the number of units completed, it’s a per unit cost. Complete one unit and your lab cost is “X,” complete 100 and it’s “100X.” When you invest in a CEREC machine parts of that variable expense remain: the cost of the blocks, the diamond burs and the machine maintenance.
For our discussion, let’s say the block is $30, burs $10, powder and distilled water $2, for a total of $42 per unit. (I’ve left out the costs of increased chair time and the potential for increased doctor time depending on how you complete design and fabrication as well as the savings on impression materials so we can do an easy example.)
The cost of using the machine to the business is a variable expense. It will increase (vary) as the use of the machine increases. The cost of having the CEREC machine and the subscription plan is a fixed expense. It will remain the same as the use of the machine increases. When you do more dentistry, your fixed expenses are reduced as a percentage of the whole while your variable expenses rise as a percentage of that whole.
If your CEREC machine payment is $2,000 per month and you do one unit with it, the cost of that unit of dentistry is equal to 100 percent of the variable expense ($42 in our example), and 100 percent of the fixed expense, for a total “Lab Fee” of $2,042 ($42+$2,000) for that unit.
The second unit you do that month changes the cost for each unit to $42+$1,000 (50 percent of the fixed expense) for a unit total of $1,042. Do 20 units and it’s $42+$100 (5 percent of the fixed expense) for $142. Do 40 units and well, you can do the arithmetic. Pay off the machine and the only fixed expense to add to your variable expense is the subscription plan divided over the total number of units. When you upgrade, like most of us did to the BlueCam, we start the process over again.
It’s this calculation that determines whether or not a CAD-CAM system makes sense for your office. If you are not going to do enough with it to bring the unit fee equal to or less than the lab fee for your technician, it may not make sense—and I have seen some people come to that conclusion. This very simple example does not consider the benefits of single appointment dentistry or the impression of being state-of-the-art that comes with CAD-CAM dentistry in the office. It is meant to help you see that ROI, return on investment, can only be calculated when you understand and apply some general accounting principals to your consideration.
The CEREC machine does NOT eliminate “lab fees!” What it does is create a situation in which you have the tools in place to reduce the lab fee per unit as you make use of the machine by shifting part of the lab fee to a fixed expense that is reduced over time as the debt is retired and the machine depreciated. I LOVE having and using it!