I recently wrote about Reichheld'­s book, The Ultimate Question, and the power of asking one very predicting item in a survey (see Murphy'­s Law; JDT Unbound August 2007).

"How likely is a client to refer a friend or colleague to do business with your laboratory?" 

That simple and single question, when scored as described in the book and article, is the most predictable measure of long term sustainable profits for a business.

I occasionally get a chance to work in a consultative role with dental laboratories on business development and strategic planning. A year ago, I began working with a fantastic laboratory that had great people and awesome quality but, and that is a pretty big but, they were not making the kind of operating income they should based on their revenue and quality. The most obvious factor to me when visiting with them was the discrepancy between how much labor and material (time and money) they put into the creation of a very high quality restoration and the fee they charged for it. The obvious solution would simply be to raise fees and get back to a parity that restored the operating income to appropriate levels. But that can carry some risk: losing accounts!

Before we wade into that river to swim, let'­s test it'­s current and depth for safety.  If we could gauge the loyalty and engagement of our clients, we could at least make an educated guess at just how much we could raise our fees without losing significant numbers of clients. We know from past articles and the Kodak model,  that at a 20 percent operating income, I can raise my fees 10 percent and lose 1/3 of my business and retain the same operating margins. And if I discount my fee 10 percent, I would have to sell twice as many crowns to make the same operating income that I did at 20 percent. Crazy stuff I know, but it is true mathematically.  Just how many clients would I lose if I raised my fees 5 percent, 10 percent or even 15 percent? Well the correct answer is ...it depends. It really depends on how engaged and loyal your clients are. If they perceive a very high value on your goods, services and experiences and cannot imagine doing dentistry without you as their laboratory, you might be able to raise your fees and get out of this sticky wicket without losing too many.

So here we come full circle in the lessons I have preached and their ultimate application in the field. If the business model we have chosen and executed is a high touch, relationship based, partner styled dental laboratory with impeccable quality, then the customers may place the high value we hope for that allows us a fair fee increase. The good news is we can test the validity of this premise with a survey that includes The Ultimate Question from the first part of this article. To make the long story shorter, this laboratory scored very well, raised their fees appropriately and returned quickly to solid operating income and profitability (they only lost one client). When we make decisions about our laboratories they should be based on sound information and observational measurement. There may still be some risk to losing a client when a fee is raised, but the risk can be assessed, calculated and minimized by measuring three things in advance.

1. Are the actions of the laboratory congruent with its mission, vision and values?
2. How sensitive have clients been in the past to fee increases?
3. How engaged (net promoter score for example) are our customers?

With this information in hand, we can design strategies and minimize the risk associated with their execution. I do not currently have the time to work with a large number of laboratories in a consultative role. I choose to work with laboratories who can commit to making sound decisions based on the available information that are strategic. In fact, that is the best and most sound advice I can ever give them, and if they follow those suggestions, they really will not need me to work with them very long. Planned obsolescence!

Give someone a fish, you feed them for a day, teach them to make these kind of sound business decisions and you feed them for a lifetime.

Mark Murphy is a featured presenter for National Dental Network and President of the National Lab Network.  He served as the VP of Operations for DTI until taking a position as Director of Professional Relations at The Pankey Institute until taking on his current role.  Mark is active on the NADL'­s Business Management Committee and is the Dentist Representative to the Identalloy Council.