Charts:
Laboratory sales and personal income
Average fees by geographic region
Compensating for rising fuel prices
Average fees for full service vs. specialty labs
Profitability increases and decreases
Average fees by laboratory size
Outlook now and for the next five years
What a difference a decade makes
Despite perpetual dissatisfaction with fee structures in our industry, the vast majority of respondents to LMT's 2006 Fee Survey have a positive mindset about their businesses. In fact, 79% of respondents say their laboratory's business is either "good" or "booming." Optimism is especially evident among respondents from orthodontic labs and labs with more than 20 employees, 81% and 89% of whom respectively say business is either "good" or "booming".
Many respondents are also confident about their futures, as 79% also predict their business will be either "good" or "booming" in the next five years http://www.lmtmag.com/pdfs/06fee_outlook.pdf">(see Outlook now and for the next five years chart). Again, the orthodontic lab respondents and respondents with more than 20 employees are the most optimistic about the coming years for their laboratories. "Consumers are becoming more esthetically demanding, and the labs that can provide the dentists with the best restorations will be successful now and in the future," says Jim Thaeker, Utah Valley Dental Lab, a full service operation in Provo, Utah.
In describing their outlook for the dental laboratory profession in the next 10 years:
52% of respondents feel we'll see some changes because of offshore outsourcing, automated technology, lack of training and shortage of technicians, but most labs will have plenty of work. "Nothing stays the same for too long in an economy driven by technology, global competition and deadlines, not to mention an aging work force," says Thomas Smith, Occlusion Labs, St. Louis, Missouri.
22% say the profession will grow and thrive, thanks to new technology, production methods, products, business models and patient demand. "CAD/CAM and public perception brought on by TV ads and magazine articles are the two things that I think have increased sales and production and will continue to do so in the future," comments a respondent from a small C&B lab in the East North Central region.
14% believe we'll see the industry's demise. "Not to be pessimistic, but I think our profession is going to fade out due to outsourcing overseas, lack of qualified dental technicians and sharp increase in inflation," says a respondent from a three- to five-person C&B lab in New England.
12% say it will maintain the status quo. "I have been in business since 1977. Price cutters have come and gone, the quality labs are still around and outsourcing does not affect those labs," notes William Fenell, owner, Shore Center Dental Lab, South Euclid, Ohio.
Sales and salaries on the rise
A comparison of LMT's 2006 and 2002 Fee Surveys shows the percentage of laboratories with sales over $1 million has more than quadrupled in the past four years, up from 4% to 17%. However, 69% of our 2006 Fee Survey respondents had sales revenue of $300,000 or less last year, 30% of whom sold under $100,000 (see Laboratory sales and personal income chart).
Further comparison of our 2006 and 2002 Fee Surveys shows that the percentage of respondents in the higher income brackets has also increased. For example, only 3% of our 2002 survey respondents earned more than $200,000 annually compared to 11% of respondents to our current survey. Still, the majority of 2006 respondents earn less than $100,000 per year (see Laboratory sales and personal income chart).
Although about a quarter of the respondents to our 2006 Fee survey don't know their operating profit, among those who do, 59% have an operating profit of more than 20%. Forty percent of respondents say their profitability has increased in the past two years, largely due to higher fees, increased sales and greater productivity (see Profitability increases and decreases chart). The larger lab respondents are more likely than smaller ones to have experienced an increase in profit margins; for example, 67% of labs with over 20 employees report an increase in profitability since 2004 compared to only 21% of solo lab owners.
Thirty percent of respondents say their operating profit has remained stable for the past two years; another third say it has declined. The key factors for waning profitability are higher material costs and overhead, and lower sales (see Profitability increases and decreases chart).
Dissatisfaction with fee structures persists despite 9% increase
Laboratory fees have increased an average of 9% nationwide in the past two years, according to a comparison of LMT's 2006 and 2004 Fee Surveys (see A Closer Look). However, as in 2004, almost 60% of our survey respondents remain dissatisfied with the fee structures in the industry, especially considering the requisite skills, production and overhead costs, and in comparison to dentist fees. "Fees in general have historically been below where they should be given the level of technical training and expertise required to properly fill the doctor's prescriptions," says a respondent from a full service laboratory in the South Atlantic region.
"Helter skelter" and "inconsistent" are the words respondents use to describe the tremendous variation among fees charged by labs nationwide. In fact, fees for the "same" type of restoration vary by more than 600%. Here are two examples (obviously, we're only comparing prices, not the level of service or the fit and esthetics of the restorations):
A three-to-five person C&B laboratory in the Pacific region charges $500 for a porcelain-fused-to noble/high noble crown (not including metal) and the same-sized C&B lab in the West South Central region charges $78--a difference of 641%.
A two-person denture/partial laboratory in the Mountain region charges $550 for a complete maxillary denture compared to a same-sized full service laboratory in the Pacific region that charges $90--a 611% difference.
Some respondents say the large labs are culpable for low prices; others point the finger at offshore outsourcing, lack of unity, no regulation/licensure, low self-respect, and fear of competition and client reprisal. Many also comment that we only have ourselves to blame. "The industry did it and continues to do it to itself. We must educate ourselves and maintain the confidence to deal with the doctors who care. To heck with the rest!" says Barb Rodriguez, owner, Precision Dental Studio, a C&B laboratory in Jacksonville, Florida.
Owner Steve Hoofurd, CDT, Aesthetic Designs, a C&B laboratory in Hermiston, Oregon, concurs, "Fees in general are still way too low because the majority of lab owners don't have the guts to (1) raise the value/quality of their product, (2) make their clients understand the importance of the laboratory and teamwork in the restorative process, and (3) get consistent continuing education and pursue new technology."
Despite the complaints, the good news is that there does seem to be a shift in attitude among some survey respondents. When asked how their feelings about raising fees have changed in the past 10 years--during which fees have increased an overall average of 50% (see What a difference a decade makes chart)--one-third say they no longer think twice about doing so. "I'm running a business. We may sell custom products but the reality is we run a service business. We have to balance three things: service, quality and price. As you increase or decrease any one of these items, the other two must be adjusted accordingly. For example, when you offer greater service and quality, you have to increase your fees to cover your added costs," notes a survey respondent from a removable laboratory in New England.
Another third of our respondents say that since 1996, developing strong client relationships has been the key to their growing comfort with raising prices. "I'm a relationship person and consider my accounts to also be my friends. The friendship was built on a foundation of quality high-end work they weren't receiving anywhere else. They've perceived 'value' as more than just a dollar sign. They know there might be cheaper and better work, but they would be hard pressed to find both together," says a survey respondent from a C&B lab in the South Atlantic region.
Half the respondents raise their fees once a year--usually between 5-10%--and 35% raise them every two to three years. When increasing their prices, 71% do so across the board rather than for services for which costs or demand have increased. Operating expenses/overhead, material costs and inflation are the top three factors they consider when determining their fee increases. One-third of our survey respondents have more than one fee schedule in order to provide different fees for long-time vs. new clients and charge higher fees for high-end restorations and lower fees for "economy" restorations compared to conventional services.
A Closer Look
In addition to determining that fees have increased an average of 9% nationwide since 2004, further analysis of our 2006 Fee Survey data by region shows that the Pacific states--including Alaska, Washington, Oregon, California and Hawaii--have the highest fees, charging an average 6% above the national average. In contrast, laboratory respondents in the South Central region--consisting of Kentucky, Tennessee, Alabama, Mississippi, Arkansas, Louisiana, Oklahoma and Texas--receive the lowest compensation for their work, with prices that are 9% below the national average.
A comparison of fees by department shows the average prices for complete denture restorations have increased the most--21%--of any department in the last two years; average C&B, partial and orthodontic fees have increased 9%, 10% and 11% respectively since 2004.
We also evaluated fees for full service operations vs. specialty laboratories for the same types of restorations. On average, full service labs charge 28% more than orthodontic labs but about 13% less than denture, partial and C&B labs.
An assessment of fees by laboratory size shows that the three-to-five person laboratory respondents charge the highest fees, approximately 8% above the national average. Solo laboratories and those with six to 20 employees have the lowest fees, charging 8% and 5% below the national average respectively.
