How Patient Retention Affects Dental Practice Valuation

When determining the economic or fair market value of a dental practice, one key factor affecting its valuation is its patient retention figures. Patient retention significantly affects a practice’s income and cash flow and, therefore, its overall value. 

Understanding Dental Practice Valuations

A dental practice valuation estimates the practice’s fair market value or the price a party might pay to purchase it through an arms-length transaction. Practice valuations help establish a dental practice’s economic worth for purposes such as buying in or cashing out partners, selling the practice to another dentist or partnership, or obtaining financing for the business. A dental practice may hire a professional business appraiser to estimate the practice’s value by evaluating factors like revenue, expenses, market trends, and goodwill. A dental practice’s “goodwill” – its reputation among consumers in the marketplace – may derive from its ability to retain patients.

The Role of Patient Retention in Dental Practices

Patient retention refers to a dental practice’s ability to have patients return to the practice for future care rather than switching to a different dental practice, as well as having those patients stick to recommended treatment and cleaning schedules. A dental practice’s patient retention figures directly correlate to the practice’s financial performance, as the practice can derive more revenue from each patient and does not have to spend additional expenses to attract new patients to replace those who leave the practice.

Dental practices can improve patient retention by focusing on patient satisfaction. Patients who enjoy their treatment experience at a dental practice become more likely to follow treatment/cleaning schedules and return to the practice for care. Furthermore, satisfied patients may also refer acquaintances to the practice, increasing its patient rolls. 

How Patient Retention Affects Revenue

High patient retention can positively affect a dental practice’s revenue for several reasons, including:

  • Providing a stable revenue stream from long-term patients who consistently return to the practice for regular appointments
  • Avoiding the cost of pursuing new patients to replace ones who stop coming to the practice
  • Providing an opportunity to offer additional services or treatment plans that can provide an additional revenue stream

Patient Retention and Business Goodwill

Because an existing dental practice will already have a physical location or locations, equipment, and staff, a practice’s goodwill and patient retention play a significant role in dental practice valuation as the practice’s ability to bring and keep patients may represent its most valuable asset to a potential acquirer. For a dental practice, goodwill may arise from its reputation for providing caring, high-quality treatment and service, patient loyalty, and long-term relationships and trust that the practice builds with its patients.

A practice with established goodwill will have loyal patients who consistently return to the practice for all their oral care needs. In contrast, a practice with high patient turnover may consistently scramble to bring in new patients, expending money and resources better spent on improving the patient experience or facilitating strategic growth. 

Strategies for Improving Patient Retention

Dental practices seeking to maximize their value for potential transactions may take a strategic approach to improving patient retention figures. Ways that a practice can increase patient retention include:

  • Emphasizing the goal for staff to provide quality patient care and compassionate, personalized service
  • Focusing on consistent communication and follow-up with patients, including providing appointment reminders and seeking feedback or survey responses to identify areas for improvement
  • Offering loyalty incentives for returning patients, such as discounts for recurring appointments scheduled in advance or referral programs that provide coupons or discounts
  • Maintaining a positive, welcoming office environment, which can help dispel the fears and stereotypes that people may have about the dentist’s office

Contact a Dental Practice Attorney

Need help placing a valuation on your dental practice? If so, contact Mahan Law today for an initial consultation with a dental practice attorney to learn more about the process and how we can help.