The phrase “Rule of Thumb” has been around for centuries. It refers to a quick, rough estimate—not an exact measurement—and that’s exactly how it’s used when people talk about dental practice values.
The Common Rule of Thumb
In dentistry, the most common rule of thumb is that a practice is worth 65% to 70% of the previous year’s collections.
For example:
- If Dr. Smith’s practice collected $750,000 last year, the “rule of thumb” suggests a value of roughly $487,500 (65% of collections).
It’s neat, simple, and often repeated. But is it accurate?
The Problem with Rules of Thumb
Rules of thumb don’t take into account the unique details that make one practice more valuable than another.
- Overhead: A $750,000 practice with 50% overhead is far more profitable—and valuable—than one with 70% overhead.
- Location: A high-demand area increases value, while a low-demand area can lower it.
- Equipment & Technology: Modern, digital, well-maintained equipment supports a higher value than outdated systems.
- Patient Base & Staff: Stability, loyalty, and experience all play into the practice’s worth.
So while 65–70% of collections is a common starting point, it’s a coincidence when the real valuation lands there—not the conclusion.
The Right Way to Value a Practice
A true valuation goes beyond a shortcut. It analyzes:
- Tax returns & financials
- Production & procedure reports
- Fee schedules
- Patient demographics & retention
- Employee compensation and structure
- Local market demand
Only by reviewing these factors can we arrive at a value that reflects the real strength of a practice.
Bottom Line
The rule of thumb is useful for ballpark conversations, but not for serious decisions. Every practice is unique, and so is its value.
Thinking about selling your practice or curious about what yours might be worth in today’s market?
Contact us for a confidential consultation—we’ll give you a clear, data-driven valuation specific to your practice.
– Bill Otten & Kim Rey
