The value of diversifying revenue

Before we jump into how diversifying revenue streams can help your practice, let’s look at what may be a more common example.

We’ve all heard stories of the person who bought Amazon stock in 1998 or Apple in the early 2000s. They’re rich.

But what about the person who bought Chesapeake Energy 10 years ago? As the energy sector developed problems, Chesapeake Energy’s stock value has dropped 98.5% in the past 10 years. If you’d invested $100 in it, you wouldn’t even have enough to buy a cup of coffee today.

If you invest in only one or two stocks, you’re kind of just gambling. You could have found Amazon, but you also could have found Chesapeake Energy.

The same holds for dental office revenue, though not quite to the same magnitude.

Most offices have only two main sources of revenue. Changes in the economy mean that either or both could dry up fairly quickly.

First, let’s look at an extreme example. Say there’s a big factory in your town, and all its employees are covered by Alpha Dental PPO. (Well, all of them except the accountants in the factory’s business office who realized that dental insurance doesn’t add up.)

Wanting to limit administrative headaches, you decide to take only Alpha Dental PPO. About 1/3 of the town has that PPO, and you think you can make a good business out of just serving the factory workers.

And you do. For a while.

But then the factory shuts down and moves to Muskogee. This is bad for the workers and bad for the town. It’s especially bad for you. It’s kind of like you bought that Chesapeake Energy stock. And you can’t even afford a cup of coffee now, let alone pay your employees and mortgage.

Now, this is an extreme example. But most offices have only two main sources of revenue—cash patients and PPOs. And changes in the economy mean that either or both could dry up fairly quickly.

According to investopedia.com, “Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.”

Investopedia.com is talking about stocks, but the same general concept applies to dental offices.

The more—and more diverse—streams of revenue you have in your practice, the better you’ll be able to achieve your long-term goals while also minimizing risk.

The Covid-19 shutdowns highlighted this. Most offices saw little to no payments from insurance or cash-paying patients. But those who had diversified their revenue streams a bit more still had some revenue coming in.

An in-office dental membership program is a great way to add diversity to your revenue streams. Not only does it help insure against a complete loss of revenue if treatment volume drops sharply, it also gives your patients another option.

Learn how a dental membership program can help your practice attract new patients and build loyalty.

And a membership program can be countercyclical to your other revenue. This is a big word that means if one revenue source is on a downswing, the other is on an upswing.

In a declining economy, employers may look to cut benefits—such as dental—to keep the most number of workers employed.

But just because the economy isn’t too hot doesn’t mean patients care any less about their teeth. And when they lose their dental benefit through work, they may be looking for another way to budget and pay for dental care. This is where the membership program shines.

You may find the next Amazon, or you may find the next Chesapeake Energy. And if you like to gamble, we wish you luck. But for those of us who like to profit while minimizing risk, diversifying revenue streams is a great idea.

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