It should not be difficult for a single store to earn an above average profit margin in today's China. For any dental care provider, the largest possible cost expense is labor, followed by material processing, while rent costs and marketing expenses determine whether profits can exceed 20 percent to get higher.
Among the dental clinics we researched, the net profit margins of those that were started by doctors, where the owner is also the backbone of the business, has been in business for more than 5 years, has accumulated enough word-of-mouth from regular clients, and has a stable team, usually exceeded 20%, and in some cases even reached 40%.
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For a dental practice to continue to operate in a stable manner, it needs to be built on a profitable foundation, and growth in both clinic volume and sales is essential.
Let's look at the business profit model from a financial perspective: profit = sales - costs.
Costs, in turn, include "cost of goods sold" and "expenses," which simply means expenses directly related to the sale of a product or service, and expenses are other expenditures in the operation of the business that are not directly related to the product or service.
We also refer to "cost of goods sold" as "variable costs" and "expenses" as "fixed costs". ", which is more in line with the cost characteristics of dental clinics.
Variable costs are positively correlated with clinic performance, i.e., variable costs rise as performance rises.
Typical variable costs include: material costs, processing costs, performance commissions, and of course items like utilities.
Typical fixed costs include: rent, equipment depreciation, wages and benefits, advertising, office expenses.
So which is more important, profit or sales?
For dental clinics, because every additional doctor and every additional patient is an increase in cost to the clinic, profit is more important, and clinic expansion is built on profit.
But for some Internet companies, they are more concerned about sales than profits, such as the current very hot new e-commerce Pinduoduo, adopted the strategy of subsidies in exchange for sales, so that sales grew rapidly, even if it is a loss from the financial point of view, relying on the strong sales growth and growth in the number of active people, the market gives more than $200 billion market value now.
Costs can also be broken down by controllable and uncontrollable.
Q: What are controllable costs?
A: Rent costs and market costs.
Q: What are the uncontrollable costs?
A: Personnel costs, materials and equipment, and processing costs.
The marginal cost of controllable costs is a lower and lower percentage of costs as the scale of sales gets larger and larger. Let's then focus on three cost items: rent costs, marketing costs and personnel costs.
The cost of rent, with the clinic's operating ability is closely related to an annual rent of more than 1 million yuan (5% per year) of the dental clinic, even if the opening of the initial rent accounted for 30-40%, but with the growth in sales, rent accounted for a straight-line decline in the overall rent is controllable.
A mature dental clinic, rent costs 5-10% is reasonable, less than 5% is excellent.
Rent is very important to a newly opened clinic over the break-even time, sometimes clinics in order to break even as soon as possible, will try to choose the location of the property with cheap rent, there is a comprehensive clinic in Hangzhou is operating in accordance with this line of thinking, their new clinics are selected in the urban and rural areas, property rent is very cheap, a single store invested about 1 million, and soon over the break-even, and has opened more than 30 stores. More than 30 stores have been opened, and received a round of financing.
In contrast, there are also different situations, there are some chain of oral health care institutions of the initial investment is the cost of the initial investment is increasing, the first clinic spent 3 million, the second spent 4 million, the third clinic spent 5 million, which led to these clinics can not quickly over the break-even, and even led to the operation of this part of the chain of dental institutions in the loss.
Market costs in the oral health care industry is generally lower, most of the clinic's market costs accounted for less than 1%, in addition to China's medical advertising management approach to medical advertising is a very strict limit is also one of the reasons why the market costs accounted for a low percentage.