Understanding the Magical Power of the Next Dollar of Practice Revenue
At first glance, this seems pretty simple.
And sometimes more.
As a practice owner, if your revenue goes up, you earn more. That doesn’t feel like a concept that needs much explanation. And yet, most dentists don’t really understand why the next dollar of revenue matters so much more than the earlier ones. Once you see it clearly, it changes how you think about growth, profitability, and even exit value. Fair warning. There’s a little money math ahead. It’s not glamorous, and it’s not why you went to dental school. But if you own a practice, it’s information you can’t afford to ignore.
If you personally produce that incremental revenue, or your hygienist
does, the economics become even more attractive. There’s no additional provider compensation to pay. In those cases, you might keep 85 cents or more of every incremental dollar after variable expenses.
That’s what Dan Kennedy refers to as your “present bank.” It’s money you enjoy today. Cash flow that improves your lifestyle, reduces stress, and gives you flexibility as an owner.
The place to start is with a basic distinction: fixed costs versus variable costs.
But this is where things get really interesting.
You live with fixed costs every day, whether you think about them or not. Your rent or mortgage payment doesn’t change based on how busy the practice is. Insurance premiums show up on schedule. Equipment payments, depreciation, property taxes, and salaries for non-production staff all have one thing in common: They must be paid in fixed amounts at fixed intervals.
That same incremental dollar doesn’t just reward you in the present. It also creates value in your future. When your practice is evaluated by a buyer, particularly a DSO, the value is driven by adjusted EBITDA multiplied by a market multiple. Over the past year, general practices have typically traded in the 5.5x to 7x range, occasionally higher for especially attractive opportunities.
They don’t care whether it was a great month or a slow one.
Variable costs behave differently. These expenses rise and fall with production. Supplies. Lab fees. Provider compensation tied to collections or production. When you do more dentistry, these costs increase. When you don’t, they ease back.
What does that mean in practical terms?
It means that every additional dollar of profit you create today adds 5–7 dollars of value to your practice when you eventually transition.
That distinction matters more than most dentists realize.
One dollar. Two benefits.
Here’s why.
Income now. Equity later.
Once your fixed costs are covered for the month, every additional dollar of revenue behaves very differently from the early dollars that came in the door. I had a good friend with a successful solo practice doing about $1.7 million a year. He used to joke, only half joking, that he worked the first three to three and a half days each week just to pay overhead and taxes. Thursday and Friday were the days he actually made money.
That’s the “future bank.”
This is why understanding the power of incremental revenue matters so much. Growth is about deliberately adding revenue that falls through to profit and compounds into long-term value. When you look at growth this way, priorities start to shift. You become more interested in efficiency, margin, and systems that allow revenue to scale without exhausting you. The math is simple, but the implications are powerful. Earn more today. Build more value for tomorrow. That’s the real magic behind the next dollar of practice revenue.
Unfortunate? Maybe. Accurate? Absolutely.
Those early production dollars are busy paying fixed expenses. Rent. Payroll. Insurance. Equipment. By the time you get past that point, those bills are already covered. Which means the next dollar of revenue only needs to absorb variable costs. In most general practices, lab and supply costs tend to run in the low-teens as a percentage of revenue. Provider compensation, when applicable, might take another 30% to 35% of collections. You should always use your own numbers, not industry averages, but the principle holds.
And with that, as Perry Mason used to say for those old enough to remember, I rest my case.
Roughly half of each additional dollar you generate can drop straight to profit.
6 · DentalGrowthAndExit.com
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