How One Lab Owner Tackles Challenges in the DSO Market

​Reprinted with permission from LMT; LMTmag.com. Written by Kim Molinaro from LMTmag.

​​Jay Collins, Owner of 75-person [The] Dental Lab in Bristol, PA, has been working in the DSO market for the last 15 years. He now has a dozen DSO contracts servicing about 250 dentists and representing 60% of his lab’s total revenue.

While this market provides an opportunity for high volume, it also comes with an extremely tight profit margin: typically, 6 to 8% for DSO clients compared to 18 to 20% for his private practice clients. Further adding to the challenge: many of Collins’ DSO contracts are one-sided, meaning he has to guarantee pricing and turnaround time while the DSO doesn’t guarantee a certain volume of work, although during negotiations it will often provide a range of expected volume as well as an idea of what it’s currently paying.

Consequently, he takes a very strategic approach to formulating his contracts, service offerings and pricing in order to maximize profits. For instance, during negotiations with a DSO, rather than focusing on one type of restoration, he asks the DSO representative to share the full scope of business for all of their restorations for the past 90 days so he can find additional areas to offer savings.

“One DSO was focused on a certain price for its zirconia crowns. While I couldn’t meet that price—my price was actually $5 per unit higher—I found that I could offer them price savings on their partial and implant work. If they sent me all three types of cases, overall, I’d be able to offer them a 5% reduction in their monthly lab bill,” he explains.

In addition, [The] Dental Lab partners with labs in Asia, Vietnam and the Dominican Republic so Collins gives DSO clients the option of offshore or U.S. pricing and turnaround times; about 40% of his DSO cases are sent overseas. The lab also tries to minimize remakes as much as possible by being diligent about the impressions it accepts, cleaning up digital impressions with software like Meshmixer and educating the doctors on prep and impression techniques by going chairside and offering seminars.

​A Two-Part Sale

​While getting any new dentist-client can be difficult, getting a new DSO client can be even harder because of the organizational structure. Most of the DSOs Collins works with have one person or a management team that decides which labs will be added to its formulary—or preferred product/services list—which often includes multiple labs. In addition, some dentists aren’t required to use only formulary labs so it doesn’t mean you’ll automatically get their work.

“It’s a two-part sales process: getting past the initial gatekeeper to get on the formulary list and then getting business from all the dentists within the organization. Since some of our DSOs have hundreds of individual dentists and multiple locations—this can be challenging,” says Collins, who has two staff members dedicated to reaching out to these dentists via phone and email.

Another challenge: the lure of high volume can lead to becoming overly reliant on just one DSO. Collins learned this the hard way. Several years ago, one of his DSO clients crept up to 20% of the lab’s overall sales; when he lost the account, he had to lay off about 15 people.

“Today, I won’t let an individual DSO go over 10% of our overall sales. If we begin to go over that number, we back off on our marketing and outreach efforts,” says Collins. “It’s hard to turn off growth but if you get too unbalanced, you get too dependent on the work of one group and that puts your lab—and your employees—at risk.”

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How One Lab Owner Tackles Challenges in the DSO Market

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