Educational content only. This post discusses general benchmark patterns. Specific practice circumstances vary considerably. Consult your accountant for guidance specific to your situation.
Among the financial ratios used to evaluate healthcare practice health, rent as a percentage of revenue is one of the cleanest. It's calculated easily — total rent and occupancy costs divided by total revenue — and it's a meaningful proxy for whether the location is financially sustainable.
The metric is most useful as a comparison against benchmark ranges for the specific specialty. A solo dental practice with rent at 8 percent of revenue is in different financial territory than a solo dental practice with rent at 14 percent. Both might be viable, but the second has materially less room for other costs and owner compensation.
This post covers what the benchmark ranges look like, what the metric tells you about practice health, and what to do if your number is off.
How to Calculate It
The basic calculation is straightforward but worth being precise about what to include.
Total occupancy costs typically include base rent, operating expense pass-throughs (CAM, taxes, insurance), and any other recurring landlord charges. Excluded from the calculation are one-time charges (initial build-out costs that weren't financed through the lease), tenant improvement amortization (which is technically a financing cost, not occupancy), and utility costs paid directly by the tenant rather than through the lease.
Total revenue is gross revenue from clinical services and product sales. For practices with significant insurance billing, "revenue" should be interpreted as collected revenue, not billed revenue, since uncollected billings don't fund rent.
The result is occupancy cost as a percentage of revenue. A practice with $25,000 monthly occupancy costs and $200,000 monthly revenue runs at 12.5 percent rent-to-revenue.
Benchmark Ranges by Specialty
Published healthcare practice financial sources describe rent-to-revenue ratios that vary meaningfully by specialty, reflecting different revenue per square foot, capital intensity, and operational characteristics.
General dental practices. Published dental industry benchmarks commonly describe healthy rent-to-revenue ratios in the 5 to 8 percent range for solo general practices. Specialty dental practices (oral surgery, orthodontics, endodontics) often run lower, in the 4 to 6 percent range, because revenue per square foot tends to be higher.
Physiotherapy and rehabilitation. Healthy rent-to-revenue ratios for physiotherapy practices commonly fall in the 7 to 12 percent range, reflecting moderate revenue per square foot relative to space requirements.
Mental health practices. Often the lowest rent-to-revenue ratios in healthcare, commonly in the 6 to 10 percent range. Mental health practices need less space per provider and per patient visit, allowing higher revenue density per square foot.
Optometry practices. Healthy rent-to-revenue ratios commonly fall in the 6 to 10 percent range, with retail optical revenue helping support the cost of more visible (and typically more expensive) locations.
General medical practices. Vary considerably by country and model. Canadian fee-for-service general medicine practices commonly run rent-to-revenue ratios in the 8 to 12 percent range. US primary care practices vary more widely depending on insurance contracting and practice model.
Audiology practices. Healthy rent-to-revenue ratios commonly fall in the 6 to 10 percent range, with hearing aid sales producing high revenue density relative to space.
Medical aesthetic and IV therapy. Often run higher rent-to-revenue ratios, commonly in the 8 to 15 percent range, because location visibility is more important to consumer-acquisition models and rent costs in retail-style locations are higher.
These ranges are approximations from published sources. Specific practices vary based on market, location quality, practice model, and operational efficiency.
What the Number Tells You
A rent-to-revenue ratio at the lower end of the benchmark range typically suggests one of several things: the practice has efficient utilization of its space, the rent was negotiated favourably or is below market for the location, or the revenue per square foot is high relative to typical for the specialty.
A ratio at the higher end of the benchmark range can indicate the practice is operating in a more expensive location than necessary, the practice is underperforming on revenue relative to its space, or the practice is in a ramp phase where revenue hasn't caught up with the space committed to. The first is a structural issue. The second is an operational issue. The third resolves over time.
A ratio above the benchmark range warrants investigation. Persistent rent-to-revenue above the typical range for the specialty puts pressure on every other line item. Less remains for staff compensation, supplies, marketing, and owner income. Practices in this position are often locked into long leases that are difficult to escape.
Common Reasons the Number Gets High
Several patterns commonly drive rent-to-revenue ratios above benchmark.
Over-leased space. The most common cause. The operator leased more square footage than the practice actually needs, often anticipating growth that hasn't materialized or is slower than expected. The unused space still costs rent, but isn't generating proportional revenue.
Premium location for a non-premium practice model. Choosing a high-rent location without a practice model that supports the higher cost — an insurance-dependent practice in a high-rent retail location, for example. The location costs aren't recoverable through the practice's revenue model.
Unfavourable lease terms. Aggressive annual escalations, broad operating expense pass-throughs without caps, or above-market rent negotiated by an inexperienced operator can all push the ratio above benchmark over time.
Underperforming revenue. If the practice is generating less revenue than the space could support, the rent-to-revenue ratio appears high not because rent is excessive but because revenue is short. Diagnosing whether the issue is rent (structural) or revenue (operational) matters for the response.
Ramp phase distortion. New practices in their first 12 to 24 months commonly have elevated rent-to-revenue because revenue is still ramping. This is expected and resolves as the practice matures, provided the underlying ramp is on track.
What to Do When the Number Is Off
If your rent-to-revenue ratio is above the benchmark range for your specialty, several responses can help.
Diagnose first. Is the issue rent (too much space, premium location, escalated lease) or revenue (underutilization, pricing, patient volume)? The right response depends on which.
If revenue is the issue, address revenue first. Adding clinical capacity, improving conversion, increasing fees, or expanding services may bring revenue in line with the space. The rent doesn't change, but the ratio improves.
Subletting unused space. If the practice has more space than needed, subletting a portion to a complementary practitioner can offset rent costs. This depends on having subletting rights in the lease and finding an appropriate sub-tenant.
Renegotiating at renewal. Lease renewals are an opportunity to renegotiate terms. Operators who track their rent-to-revenue ratio over the lease term arrive at renewal with data supporting the case for either reduced rent, capped escalations, or improved terms.
Relocating. If the location is structurally wrong — too expensive for the practice model, too much space for the practice volume, in a declining area — relocating at lease end may be the right answer despite the cost and disruption. The math sometimes favours moving even with build-out costs at a new location.
Closing or selling. In rare cases, a location commitment that can't be made to work supports a decision to close or sell rather than continue. This is a difficult conversation but sometimes the right one. A practice paying 18 to 22 percent rent-to-revenue indefinitely is consuming owner capital that might be better deployed elsewhere.
Using the Benchmark Proactively
The most useful application of rent-to-revenue benchmarks is at the location selection stage, before committing to a lease.
Before signing a lease, calculate what your rent-to-revenue ratio will be at projected revenue levels. Use realistic ramp assumptions (50 percent of full capacity in the first year, 75 percent in year two) to evaluate the ratio under conservative scenarios. If the ratio at year-one revenue would be 15 percent for a specialty whose benchmark is 7 to 9 percent, the location is structurally too expensive for the practice model.
Adjusting before signing — smaller space, less expensive location, different building — is far easier than addressing the issue after years of operation in a wrong-sized location.
The Clinic Performance Benchmarks tool lets you compare your practice metrics — including rent as a percentage of revenue — against published reference ranges. The Profitability Calculator models projected revenue and expense scenarios you can use to evaluate the rent-to-revenue ratio for a potential location before committing.
Disclaimer: Benchmark ranges described are drawn from published healthcare practice sources and represent general patterns. Specific practice ratios depend on many factors. KlinDeck is not a financial advisor or accountant. Content is educational only.