3 Habits of Highly Profitable DSOs

February 8, 2022

As of 2020, around 10 percent of dentists affiliate with a dental service organization (DSO). DSOs are becoming an increasingly popular choice, especially for recent graduates. Why? They provide the necessary support to build a successful dental practice and allow the dentist to focus on what matters most: the patients.

In the partnership, DSOs manage the business side of the operation. They deal with sellers and resourcing, inventory management, and other matters in that realm. They need to build solid relationships with their sellers while also understanding their legal rights to ensure a fair and mutually profitable partnership. What are some of the other focus areas for DSOs to meet and exceed their revenue goals?

Let’s discuss three habits of highly profitable DSOs.

Don’t Allow Sellers to Hold You Hostage

One of the primary responsibilities of DSOs is to build relationships with sellers. Dentists rely on their business partners to purchase the necessary equipment and resources to see and treat patients. While many DSOs and dental owners commit to just a couple of sellers, it is essential to remember that this is a working business relationship. While you may prefer specific sellers, you must keep your eyes open to the market and do what’s best financially for your practices. It’s also important to contact multiple sellers, ask questions, take your time in negotiations, and demand transparency in pricing.

In a recent webinar presented by Becker’s Dental, Scott Drucker, president and cofounder of Supply Clinic, shared this:

You want transparency from vendors. Everyone wants a negotiation in good faith. Take your time. Do your homework. Understand your needs and take your time to gain a good sense of sellers. Have a singular running ledger for all sellers. This may save time for the individual making the payments. Have a clear organizational structure and use digital tools to track spend and consolidate all payments.

As Drucker explained, prices may change over time; therefore, keeping a running ledger is essential. It’s too easy for sellers to have pricing discrepancies; consequently, it’s your responsibility to match invoices and understand the fluctuation of catalog pricing. Too often, DSOs can feel hostage to their primary vendor, but remember that you are the one in control. Use the following principles to guide your decision-making process:

  • Understand your contract.
  • Be aware of compliance requirements.
  • Develop relationships with both distributors and manufacturers.

By following these rules of thumb, you will ensure the best possible outcome for your practices and maximize your savings and revenue.

Introduce Changes from the Top-Down

The next habit of highly profitable DSOs is to introduce changes from the top-down. When implementing new processes and procedures, it’s essential to walk the walk. Too often, organizations make the mistake of telling their employees what to do but failing to lead by example. A general rule of thumb is that when in a leadership role, you should never instruct your employees to do something you wouldn’t. This ensures that you maintain a fair and equal position, gain respect among your employees, and build stronger relationships.

As Drucker said in his webinar, “It’s always about the people in the organization. It all comes back to the people.” This should be the golden rule of leadership in any industry and company.

One example of a change in a DSO that should come from leadership is systems implementation. This includes

  • ordering frequency,
  • monthly budgets, and
  • keeping an eye on inventory.

Leadership must take accountability for their team and the tasks that must be completed. If a particular product runs out and it hasn’t been reordered, who’s fault is that? The answer is always leadership. Leadership must take responsibility for their team. That’s not to say that supporters shouldn’t step up—trust is an essential part of any team, but it’s ultimately the leader who takes the fall.

Change isn’t easy. And change management takes focus and effort. Here are some other components to consider:

1. Inertia is real.

We often think of a negative connotation when we say inertia: inaction or idleness. However, what we really mean by “inertia is real” is that we must understand that humans are creatures of habit. The more we do something, the easier it becomes, and the more likely we are to continue doing that thing. Resistance to change is expected. It’s uncomfortable. So what we can do to combat inertia is use the following change implementation outline:

  • Understand inertia
  • Gain respect
  • Observe and pinpoint
  • Explain and train
  • Define expected outcomes
  • Inspect and adapt

2. A team approach is critical.

If we follow the above steps, start small, build relationships, and educate and invest in our employees, they will succeed. Working together to create better processes and procedures is always more effective than a supervisor just demanding change.

3. Transparency in goal setting is helpful.

Transparency in goal setting is also crucial, as goals are meant to be collaborative and exciting, not daunting and frustrating. Decide as a team what your quarterly and annual goals are, post them on the company bulletin board or team chat, and track your progress together. We’ll discuss more on how to do this in the next section.

4. Track compliance.

To grow and develop your employees, they must be able and willing. Growth is challenging, and without compliance and commitment, you’ll get nowhere. Understand that not everyone is up for the challenge. Some individuals prefer to stay in their comfort zone. That’s okay. It’s ultimately up to you to decide if that makes them a poor fit for your team. Be fair and understanding while making the tough but necessary decisions, and always provide reasonable and clear reasoning.

5. Donuts are tasty and always help.

You may think this is a comedic input, but it’s not. After all, donuts are tasty. And they are an excellent motivational tool, reward, team builder, and sign of appreciation. Employees appreciate recognition, verbal praise, and physical and monetary rewards. Remember this. Show your employees that you see their progress, appreciate their commitments and contributions, and are loyal to them.

Measure What Matters

Branching off the previous section, measuring growth is another essential habit of highly profitable DSOs. It’s essential to ensure that your goals are measurable. This can include target revenue, employee growth, growth of the organization, etc. Measure what matters. You can’t improve what you don’t measure. Here are some guidelines for DSOs:

  • Identify the most important KPIs.
  • Allow visibility of performance.
  • Set goals with your team.
  • Hold your team accountable for said goals.

Each of these points is essential for one to be profitable. And in any DSO, it’s the DSO executives themselves who are in charge of the business. It’s their responsibility to themselves and their dentists to foster growth and momentum towards measurable goals.

It is the responsibility of DSOs to understand their relationship with their sellers and their rights and ensure they are not being taken advantage of. It is essential to build solid relationships, stand up for yourself, and do what’s best for the business. In addition, people are the lifeblood of any company. Staff must understand the importance of inventory management and think ahead to see their company succeed. Finally, it’s also important to introduce changes from the top-down and measure what matters. Each of these components, when brought together, will create a highly successful and profitable DSO, benefiting the dentists, shareholders, owners, distributors, and beyond.