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Why the cost sharing model is dead

Practice Development, Ross Martin

By Ross Martin, Accountancy Director at Hive Business

The cost sharing model was once a mainstream hit with dentists but it seems to be finally dying out. The dynamics don’t seem to work in the 21st century, and here’s why I think that is.

Sharing costs can look compelling. What’s not to like about splitting the pain between two motivated and committed owners? It did indeed work in a world where patients and referrals were nurtured as a personal service.

But the patient journey is different now. It’s more sophisticated and treatment values are higher. The consumer is more discerning and has more power. (It’s hard to imagine that dentists used to fire their patients.)

Another difference is that successful practices usually have more good clinicians delivering core revenue than, say, 20 years ago when more people shared costs. It worked nicely when marketing wasn’t permitted but might not in the digital world, where there can be fundamentally different agendas between you and your partner. You bought in at a considerably higher price point than them and want to push on with a new website and growth tactics and they don’t, and so guess what: you’re stuck in a terrible deadlock.

You find out with horror that the only way to grow your business is to get their permission and, for an inexhaustible number of perverse reasons, they may not feel like giving it to you. They might be preoccupied with other stuff or they might just not need the growth because they’re OK thank you very much. Still, you will need their sign off on every little decision: the sixth iteration of changes to the new website copy, the colour of the new logo, the paid advertising budget for next month.

Your partner can veto anything simply by not responding. It’s likely therefore – especially with more than one partner – that nothing will ever happen in your business. Decisions won’t get made for months, even years, and this is why cost sharing isn’t so much a business model as an anti-business model.

It’s not impossible for it to work, but it has to be a deal between people who think the same, operate the same and are at the same stages in life. If not, the resentment builds up and you’re back to the deadlock. We have seen people get stuck and it’s tragic — and toxic.

Being friends is definitely not a reason to share costs, yet amazingly we do see groups of three, four, five and even six partners who got together to do just that on the basis of little more than familiarity with one another.

There is another cost to the cost sharing model: it promotes a skills gap. In most businesses partners lead with complementary skill sets, but what we still see in some dental practices is two or more people who come to the party with their clinical skills and nothing else. What they know and don’t know is the same — sometimes they have even been to the same universities and had the same life experiences – so they’re duplicating their weakest traits.

To summarise, here are three ways cost sharing is likely to backfire:

  • Decision making grinds to a halt and your business stagnates
  • Friendships are strained because you put more or less effort in than others
  • Your business suffers because it lacks distinct roles like investor and leader

If you’re in a cost sharing business you probably chose it because you wanted to reduce costs in the interests of growth. But there are much easier ways to grow. They do however require investments of cash, time, energy and learning – things that aren’t about being a clinician.

But maybe you don’t want to grow your business, you like ticking along in a cost sharing model and you don’t want to contribute more than you are doing. In that case it’s not a bad deal at all. Talk to us if you ever change your mind. Get in touch on 01872 300232 or [email protected].

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