Dermatology practice valuation starts with EBITDA—earnings before interest, taxes, depreciation, and amortization. For a dermatology practice generating $2.8M annual revenue at 48% EBITDA margins, your EBITDA is $1.344M. Current market range for dermatology practices is 7.0x–14.0x EBITDA, translating to valuations between $9.408M and $18.816M. However, the multiple your practice commands depends entirely on six quantifiable value drivers.

Start by calculating EBITDA accurately. Use your last 3 years of tax returns and internal P&Ls, adjusting for one-time items (equipment purchases, litigation, provider bonuses). Most dermatology practices run 45–55% EBITDA margins. If you're running <40%, investigate pricing, payer reimbursement, or overhead issues. Many practice owners don't accurately allocate provider compensation, supply costs, or space allocation, inflating apparent margins.

Second, analyze revenue mix. This is critical to valuation. Segment revenue by category: medical (insurance-reimbursed disease treatment), surgical (skin cancer removal, surgical procedures), and cosmetic (self-pay services like injectables, lasers, chemical peels, skin care). Calculate revenue percentage and gross margin for each. If you're running 40% medical, 15% surgical, 45% cosmetic with respective margins of 40%, 55%, 65%, your weighted-average gross margin is 51%—excellent. If you're 70% medical with 40% margin, you're heavily insurance-dependent and vulnerable to payer rate cuts. Ideal mix for high valuation: 35–40% medical, 15–20% surgical, 40–50% cosmetic.

Third, assess provider coverage. Document each provider: specialization, board certification, estimated patient relationships, tenure, and full-time vs. part-time status. Calculate total estimated patient relationships across all providers. Single-provider practices are key-person dependent—valuation discounts apply. Two-provider practices with complementary specializations (e.g., medical dermatologist + cosmetic/surgical specialist) optimize revenue mix. Practices with 3+ providers spread key-person risk and enable higher patient capacity.

Fourth, evaluate specialized capabilities. If you offer on-site Mohs surgery, document your Mohs provider qualifications, equipment, patient volume (cases annually), and reimbursement per case. Mohs capability adds 1.0x–1.5x EBITDA. If you offer cosmetic services, document: injectable volume (units administered, procedures monthly), laser equipment (inventory, age, maintenance cost, utilization), chemical peel volume, and skin care revenue. Robust cosmetic programs justify higher valuations because they carry premium margins.

Fifth, assess patient volume and retention. Document your monthly patient visit count, break down by provider, and calculate average daily patient count. Benchmark against regional peers. Track patient retention rates: what percentage of patients seen in prior year are still active? Strong retention (85%+) signals practice quality and justifies premium valuation. Practices with high churn (turnover >25% annually) signal quality or relationship issues.

Sixth, evaluate facilities and equipment. Walk through your space and assess: modernization (recent buildout, updated decor), equipment (laser systems, ultrasound, procedure capabilities), layout efficiency (dedicated procedure rooms, modern exam rooms), and compliance (proper lighting, safety, privacy). Practices in dated facilities face 0.5x–1.0x EBITDA valuation discounts. Modern facilities justify premium valuations.

Once quantified, map drivers to multiples. A practice with: (1) 40%+ cosmetic revenue at 65% gross margin, (2) 2+ providers with complementary specializations, (3) on-site Mohs capability, (4) 50%+ cosmetic service offering (injectables, lasers, skin care), (5) 30+ daily patient visits, and (6) modern facilities, commands 10.0x–14.0x EBITDA. A practice with 70% medical revenue, single provider, no Mohs, limited cosmetic services, and outdated facilities sees 7.0x–8.5x EBITDA.

Calculate weighted drivers: revenue mix (30%), provider coverage (25%), Mohs capability (15%), cosmetic services (15%), patient volume (10%), facilities (5%). Score each 1–10. If weighted average is 8.5+, aim for 10.0x–14.0x EBITDA; if 6.5–8.0, target 8.0x–10.0x; if <6.5, expect 7.0x–8.5x.

Understand buyer types. Strategic buyers (large dermatology platforms, aesthetic centers, PE-backed consolidators) pay 9.0x–14.0x EBITDA because they add patient capacity and margin through operational leverage. Competitor practices pay 7.5x–10.0x EBITDA. PE buyers pay 8.0x–12.0x EBITDA. Each buyer values drivers differently—platforms value cosmetic revenue and provider depth; competitors value patient relationships and provider talent; PE values EBITDA and margin expansion.

Final validation: revenue multiples. A $2.8M revenue practice at 48% EBITDA ($1.344M) valued at $13.4M (10.0x EBITDA) is 4.79x revenue. Medical practices typically trade 3.0x–6.0x revenue depending on revenue mix and margins; 4.79x is reasonable for a strong practice with balanced cosmetic revenue.