The 20 percent solution

The Pareto Principle is an observation (not a law) that most things in life are not distributed evenly. It could mean any or all of the following:

• that 20 percent of one's clients produce 80 percent of the revenue

• that 20 percent of the technicians produce 80 percent of billable services

• that 20 percent of one's customers create 80 percent of the profits

• that 20 percent of the fee schedule produces 80 percent of the invoices

But, be careful when applying this principle.

First, there's a common misconception that the numbers 20 and 80 always must add up to 100. They don't. In some cases, 20 percent of the staff might create 50 percent of the result. Or 80 percent. Or 99 percent, even 100 percent.

Think about it: In a group of 100 receptionists and technicians, 20 might do all the work while the other 80 goof off.

In that case, 20 percent of the workers did 100 percent of the work. Remember that the 80/20 rule is a rough guide about typical distributions.

The key point is that effort, reward and output are not always distributed evenly. Some contribute more than others.

Life isn't fair

In a perfect world, every employee contributes the same amount. Every client is equally important. Every service or product we offer is equally loved by users. In that world, planning would be so easy. But that isn't the real world we live in.

Applying the 80/20 rule, perhaps one out of five new patented items will be "cool." That cool thing/idea/person will produce the largest impact.

The lesson from the Pareto Principle is that the majority of results come from a minority of inputs. Knowing this ...

• If 20 percent of your workers contribute 80 percent of results, focus on rewarding those employees.

• If 20 percent of your services produce 80 percent of your cash flow, focus on adjusting those fees first.

• If 20 percent of clients contribute 80 percent of your revenue, focus on satisfying those clients first.

My point? Focus your effort on the 20 percent who make a real difference, instead of the 80 percent who don't add much.

In economic terms, there is diminishing marginal benefit. This is related to the law of diminishing returns: Each additional hour of effort, each extra worker, are adding less "oomph" to the final result. By the end, you are spending lots of time on the minor details.

Lessons for practitioners

So, what has this to do with your practice?

FACT: Only 60 percent of American households have pets.

FACT: Only 60 percent of pet owners regularly use veterinary services.

(Those numbers, in common reference for some time, originally came from the Pet Institute of America.)

Therefore, your whole spectrum of available clients comes from just 36 percent of the population.

The bottom 45 percent of your clients visit you a pitiful average of just 0.87 times per year and ask you to provide minimal services. Need I say the familiar, "Just the rabies shot, Doc?" There is no profit here, just time lost. That time could be spent more advantageously with those who appreciate your quality of service and give you a greater return on any extra time you can give them.

The top 55 percent of clients produce 95 percent of your profits by coming in 2.6 times per year. And 55 percent of 36 percent is 19.8 percent. That's close enough to 20 percent; chalk up another one for the Pareto Principle.

Knowing that 20 percent of your current clients support your lifestyle, pay attention to them. You know who they are. Your staff knows who they are. Ignore them at your peril. Bring them into your practice family. Spoil them with cost-free incentives. Let them know they have VIPs (Very Important Pets). Give them a card with a special telephone number that has a different ring so that these calls get answered first. Put the others on hold. Take care of your 20 percent.

Analysis of practice records show your top 20 percent to be among the more affluent in your community. In most communities where the average family income is $60,000, the top 20 percent may average well over $200,000. This is taken into account when we prepare your annual fee schedule adjustments.

Study after study will tell you that the average client earns 20 percent to 30 percent more than their veterinarian. There is a reason for that. When it comes to charging fees, we are kind, considerate, spineless managers of a business we have no training for. Every veterinarian and every staff member would get a pay raise by putting their accountant in charge of their fees. Never has a less skilled staff member been in charge of? the all-important cash-flow-producing part of the business of veterinary medicine.

You may be certain that your alma mater's hospital fee schedule, producing $3,000 surgeries as required and readily published in the media, was not put together by people with DVM or VMD after their names.

Reasons to adjust fees

The economy has a negative pressure and that will continue for too many years. Our dollar has lost 88 percent of its purchasing power since 1926. The dollars coming in today will not purchase the same amount of goods as a year ago. In most areas, the transaction numbers are down by 15 percent per year. It is time to wake up. For how many more years can you continue to serve 15 percent fewer clients without reducing your professional and paraprofessional staff unless you adjust your fees upward?

Print out the same reminder list you sent out last month to see who did not come in. These were marginal clients at best. Now check who did come in. It will be your top 20 percent of clients, your best ones. They came in. They can afford the fees needed to support their pets and your practice.

Is veterinary medicine for the rich only? No, but clients have to consider hold checks, Care Credit™ and other methods of allocating their needed pet expenses today and tomorrow.

Sit down and ask yourself where your fees came from and why? Were you down this quarter? Do you need to do something about it? Just don't do anything stupid like raising exam fees or vaccination fees. That's the most common and most deadly way to try to increase cash flow.

Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity. He can be reached at 112 Harmon Cove Towers Secaucus, NJ 07094; (800) 292-7995; Vethelp@comcast.net; fax: (866) 908-6986.