Fees Remain Flat as Laboratories Ride Out Tough Economy
A whopping 80% of respondents to LMT's 2010 Fee Survey say they've delayed usual fee increases due to the lagging economy, and that's evident in our data: restoration prices have not undergone any significant increase over the last two years.
In an economic environment that is ripe for price-cutters and offshore competition, many respondents say they've had no choice but to hold their prices. "Dentists tell me they're being 'bombarded' with offers for cheap work from cheap labs. Unfortunately, a lot of them are taking advantage of the cut-throat environment created by our own industry," says Dan Perera, CDT, MDT, MDP, owner, D&L Dental Studio LLC, Penndel, Pennsylvania. "It would be economically insane to raise your prices in the current situation."
In fact, 44% of survey participants haven't increased fees since 2008 or even earlier. And though some say they've had to enact minimal increases to keep up with rising material, utility and other costs, many respondents are simply waiting for signs of economic recovery. "When the economy is down 30%, I feel the whole country—including dentists—should hold tight until we pull out of it and people are back to work," says Ted Shearer, owner, TRS Dental Technologies, Walnut Creek, California. "However, this is the longest I have gone without raising my fees, and I hope to enact a 5% increase at the end of the year."
Some respondents commented they've actually decreased prices on select restorations, willing to cut into profits to keep work coming in the door. In some cases, this is reflected in LMT's survey data where the national average is actually down from 2008. For instance: - Pressed-to-metal crown: down $15 to $158 - Pressed-to-zirconia three-unit bridge: down $51 to $588 - Swinglock-type RPD: down $20 to $266
On the bright side, there were a couple of restorations that show a notable increase since 2008: -Metal-free, three-unit bridge with CAD/CAM understructure: up $27 to $628 -CAD/CAM titanium hybrid implant bar (per implant): up $34 to $328 (Editor's note: we could not compare all restoration fees to 2008 because we made several categories more specific—with regard to technique or material—for 2010.)
SMALL LABS HOLDING THEIR OWN
When analyzed by laboratory size, our data indicates that small laboratories are holding their own, despite industry musings that they're in danger of extinction.
For example, with regard to crown and bridge restorations, three- to five-person laboratories report prices that are 11% higher than labs with more than 10 employees. It's a similar story in the removable specialty: one- to two-person labs charge 20% more for dentures and partials than labs with more than 10 employees.
Some small laboratory owners say in order to keep prices at a profitable level, they're focusing on the value-added benefit they're best known for: personal attention. "We're selling our customer service; we're a very small, two-person lab so we can attend to our clients on a very individual basis and bend over backwards for them," says James Jarrett, co-owner, Pride Dental Studio, Conway, Arkansas.
And perhaps these higher prices are translating into higher profits for the smallest businesses in our industry. Of those laboratories with an average net operating profit of over 20%, three quarters have five or fewer employees.
Twenty-eight percent of laboratories offer more than one level of service in their laboratories—for example, an "economy" or "high-end" line versus conventional restorations—with tiered pricing based on the quality of the materials used and the labor required to achieve a desired effect.
This practice is most common among denture laboratories; half of them offer more than one level of appliance. "For example, we have a Silver Level denture with economy teeth and no rugae; our Gold Level uses a more expensive tooth and some rugae; and our Platinum Level features premium teeth, a custom-colored base and more detailed rugae, contours and surface texture," says Bart Hyde, owner, Hyde Dental Prosthetics, Fallon, Nevada.
In the crown and bridge arena, another strategy is to set different prices for anterior and posterior restorations. One quarter of labs that offer fixed services follow this practice, pricing anteriors an average of 20% higher to compensate for the extra time and risk of remakes or adjustments. In many instances, the technicians working on anterior cases are also more highly trained and experienced and, therefore, better compensated.
And, in an era when many laboratories are seeing posterior units disappear to offshore labs or chairside CAD/CAM units, some respondents say it makes sense to charge a premium for high-end anterior work dentists can't get elsewhere. "Not only does the esthetic demand make anterior work more time-consuming and therefore deserving of a higher fee, but dentists are willing to pay more for a great anterior restoration; they tend to try and save lab fees on posterior work," says Bob Cohen, president, Advanced Dental Technologies and Custom Automated Prosthetics (CAP), Stoneham, Massachusetts.
When it comes to determining fees for all restorations, half of our survey respondents say they concentrate on product cost per unit and desired profit margin; 40% also consider competitors' fees. "Any time we add a new product, we look at our cost per unit and then add in our desired margins. Then and only then do we look at competitors' pricing. If we can charge even more due to market prices, we do," says Mark Jackson, RDT, vice president, Precision Ceramics, Montclair, California.
Economically speaking, 41% of laboratory owners are optimistic about the coming year, and another 42% say they're neither optimistic or pessimistic. "My feeling is that we may see some political as well as some business-friendly changes in Washington as a result of mid-term elections, as well as some clarity on business and individual taxes," says David Hollander, CDT, owner, Bayside Dental Lab, Dennis, Massachusetts. "Hopefully that will decrease the pessimism that now prevails and get people working and spending again, increasing patient demand."
Along with hoping for signs of economic recovery, many laboratory owners will be focusing on a variety of different growth strategies. For example, the number-one choice for increasing the bottom line over the next three years is expanding dentist-client bases—71% of respondents chose this option, with nearly 40% also saying they will cut costs for better operating efficiency and try to get more business from current customers.
Even some smaller laboratories that haven't traditionally had to market their services will chart a different course. "For 28 years, I built this business by referral only," says Michael Flaws, CDT, owner, Integrity Dental Designs, Libertyville, Illinois. "But now I need to replace doctors who've recently defected for lower-priced labs, and I'll do that by promoting my high standards and offering supportive education."