The dental practice valuation formula, and the 70% rule

What I've seen

70% of collections holds near a 21% margin, so compute your margin before you trust the number. That is the test this article walks through, and it starts with what I hear from dentists.

The 70% rule comes up in every conversation with every dentist. It's an old rule of thumb that works well as a quick check when selling a services business, though it is a check and not a method. The real range is 60-80%. On a $1M practice that is a $200K swing in price, enough to retire a few years earlier.

Sellers are all over the place with their numbers. Smaller offices tend to estimate their value high, while larger offices with steady cash flows tend to come in low.

In my view the 70% rule works best for a single-doctor practice doing about 750K in collections. Practices collecting more than that, with even a part-time associate or strong hygiene revenue, should be cautious about underselling themselves.

Recent sales have gone higher. In recent years and with the right conditions, practices have sold for over 120% and even as high as 200% of revenue. Because those results are rare, they are not published in the tables below, where the individual-buyer row tops out at 0.95× collections with a 1.75× outlier.

I don't carry a number, because it depends. There is no one set price for all buyers and situations, and every transaction is worth its own look.

We publish the multiples table because there is a severe lack of transparency in this business. We believe that the owners, the producers, should not be withheld any information. DPC also builds valuation tools, so we benefit when you use them.

The formula: adjusted EBITDA times the multiple your buyer pays

Price equals adjusted EBITDA times a multiple. Percent of collections is a cross-check on that, not a second method.

EBITDA is earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is that figure after adding back costs the next owner won't carry and after paying a dentist for the clinical work you do now; the add-backs post walks through the line items.

A multiple is the number a buyer multiplies adjusted EBITDA by, and it depends on who is buying. These are the single-office rows from the DPC valuation dataset of 2020–2025 dental transactions, using its 2025 rows, published as DPC's multiples table.

Two outside checks sit next to the formula.

The first is the cap rate. An income method divides an earnings number by a rate. DentistryIQ writes that this number "is divided by a cap rate (industry standard is 25% to 31%) to get the fair market value of a dental practice." Henry Schein Dental Practice Transitions puts it lower, writing that the rate "is typically around 20 to 30 percent."

Dividing by a rate is the same as multiplying by 1 ÷ the rate. A 25% to 31% rate is 4.00× to 3.23×. A 20% to 30% rate is 5.00× to 3.33×. Both overlap the 3.0×–4.25× row above.

The second is one legal definition of fair market value. The federal estate-tax regulation, as published by Cornell Law School, defines it as the price "at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." It is not a definition of a practice sale price, but its last clause speaks to a seller: reasonable knowledge of the facts.

Where "70% of collections" comes from, and when it holds

Published rules of thumb run from 55% to 80% of collections. Dental Economics wrote in 2012 that a rule of thumb such as "65% of gross collections" or "two times net income" "appears to be an easy way to value a dental practice," and that a common one "is to value a practice at an amount equal to 55% to 75% of average collection." DentistryIQ notes that some dentists think a practice is worth "an average of 70% to 80% of their last three year's collections." Deal Prospectors, in 2026, says a solo practice sold to another dentist "is usually priced at 60% to 80% of a year's collections."

One account is that the figure comes from sales. In 2004 Gary Schaub wrote in Dental Economics that his data from actual sales "indicates that the average general dental practice sells for 60 to 70 percent of collections. The range for the majority of practices is from 46 percent to 84 percent." He added that these "are not valuation 'Rules of Thumb.'"

A dental CPA says the same thing from the other side. Tim Lott, CPA, CVA, writes that a typical general practice "will sell for between 60-75% of the practice collections," but "it's still a statistic, a rule of thumb, NOT a valuation method." And a buyers' FAQ in DentalTown magazine answers "I have read that I shouldn’t pay more than X percent of collections for a general dental practice. Is that true?" with “The simple answer to this question is ‘No.’”

So 70% is a statistic about the middle of past sales. It holds for a practice that looks like the middle of those sales. In DPC's table, the thing that moves the answer most is margin: adjusted EBITDA divided by collections.

DPC assumes a typical general office runs 62% overhead, plus a 17% allowance for the dentist who replaces the owner's clinical work. That leaves a 21% margin (1 − 0.62 − 0.17). At the 3.5× median, 21% × 3.5 = 0.735 of collections, close to the 0.75× median on the collections row. This is a consistency check, not independent evidence: DPC sets the 17% allowance, so its own two tables are built to agree.

Run the test the other way. A price of 70% of collections equals 3.5× adjusted EBITDA when the margin is 20% (0.70 ÷ 3.5). It lands inside the individual-buyer range of 3.0×–4.25× only for margins from 16.5% (0.70 ÷ 4.25) to 23.3% (0.70 ÷ 3.0). Outside that band, 70% and the formula disagree. At 60% the band is 14.1% to 20.0%, and at 80% it is 18.8% to 26.7%.

Same collections, three prices: a worked example

These three offices are representative, not real practices. Each collects $1,200,000 a year, and collections means money actually collected. They differ only in margin. Adjusted EBITDA is margin × $1,200,000. The multiples are the individual-buyer row of DPC's 2025 multiples table.

The arithmetic, line by line:

• 15%: $1,200,000 × 0.15 = $180,000. × 3.0 = $540,000. × 3.5 = $630,000. × 4.25 = $765,000. $840,000 ÷ $180,000 = 4.67×.
• 21%: $1,200,000 × 0.21 = $252,000. × 3.0 = $756,000. × 3.5 = $882,000. × 4.25 = $1,071,000. $840,000 ÷ $252,000 = 3.33×.
• 27%: $1,200,000 × 0.27 = $324,000. × 3.0 = $972,000. × 3.5 = $1,134,000. × 4.25 = $1,377,000. $840,000 ÷ $324,000 = 2.59×.
• 70% of collections is $1,200,000 × 0.70 = $840,000 for all three.

Read the last two columns against the row's 3.0×–4.25×. The 21% office has a flat 70% inside the range. The 15% office has a flat 70% above the top of the range: $840,000 against $765,000, so the rule gives that seller more than the whole 3.0×–4.25× row supports. The 27% office has it below the bottom: $840,000 against $972,000, so the rule leaves money on the table.

At the median the gaps are $210,000 over for the 15% office ($840,000 − $630,000), $42,000 under for the 21% office ($882,000 − $840,000), and $294,000 under for the 27% office ($1,134,000 − $840,000). Every point of margin on $1,200,000 is $12,000 of adjusted EBITDA, and $42,000 of price at 3.5×.

The buyer type changes the picture too. DPC screens a single office for platform buyers at $1.2M of collections and $300K of EBITDA. The 27% office, at $324,000 of EBITDA, clears both. A buyer could pay $1,296,000 to $2,592,000 if the platform row of 4.0×–8.0× applied, and $1,944,000 at its 6.0× median ($324,000 × 6.0), which is 162% of collections. The 21% office, at $252,000, is under the $300K line. That is arithmetic on a table, not a prediction that a platform buyer would bid.

DPC's platform EBITDA row and its platform collections row disagree for this office. The 162% is above the 0.90× high on the collections row, though within that row's 3.2× maximum, which DPC reserves for atypical deals. Treat it as an upper case, not an expected price.

Where this breaks

Another published EBITDA range is lower. Jaffe Law writes that "General dental practices typically sell for 65% to 80% of annual collections, or 2x to 3x adjusted EBITDA." On the 21% office, 2× to 3× is $504,000 to $756,000, against $756,000 to $1,071,000 for 3.0×–4.25×. The two ranges meet at $756,000.

Some methods start from a different earnings number. Henry Schein's average-annual-earnings method gives "between 150 and 200 percent of the average annual earnings available to the owners." That base counts what the owners take out, including the owner's own pay. Adjusted EBITDA is after paying a dentist to do the clinical work. The percentages are for different numbers, so they can't be set side by side without converting one to the other.

The argument I hear most. No one group disagrees with me, but the argument I hear most is that the buyer brings the price. I agree to some extent. I'd counter that the seller sets the price floor, and the more a seller knows about their own asset, the higher that floor can be.

The case for a flat percentage is real. A percentage of collections is simple, and a margin is only as reliable as the books and add-backs behind it. If you cannot support your margin, the flat figure may be the only number a buyer will take at face value.

The table is one year of one dataset. The multiples are the DPC valuation dataset (2020–2025 dental transactions), 2025 rows, for a single general office. Specialties and multiple locations move them. The worked example uses representative margins, and your own margin depends on add-backs your buyer may accept or cross out. A margin from your books and a margin a buyer agrees to are not always the same number.

What to do this month

1. Seller: compute your margin. Take your last twelve months of collections and your adjusted EBITDA, built as in the add-backs post, including a market-rate dentist for your clinical work (DPC assumes 17% of collections), and divide one by the other. This needs only your books.
2. Seller: price it both ways. Multiply adjusted EBITDA by 3.0, 3.5 and 4.25, then multiply collections by 0.60, 0.70 and 0.80. If your margin is outside 16.5% to 23.3%, expect 70% of collections and the formula to disagree. DPC's free estimate takes an adjusted EBITDA under its "I know my EBITDA" option. It cannot judge whether a buyer would accept your add-backs.
3. Seller: ask whoever gave you a number which earnings base it uses and which kind of buyer it assumes. A figure of 2× to 3× on adjusted EBITDA and one of 150% to 200% of owner earnings are not comparable.
4. Seller: write down your floor, and the records behind it: the lowest price you would take, the adjusted EBITDA it rests on, and the documents that show each add-back.
5. Buyer: cap what you will pay at adjusted EBITDA times the multiple for your buyer type, such as 3.0× to 4.25× for an individual buyer of a single office, and compare that with 70% of collections. If the margin is far from 21%, trust the EBITDA figure, once you have checked the add-backs.

If your margin sits near 21%, 70% of collections is a fair cross-check. If it does not, the formula will say more, so start with step 1 and work out your adjusted EBITDA.