Abide by 'universal laws' for business success

Our universe is governed by laws. Natural laws. Laws that are as immutable as the laws of gravity and thermodynamics and these impact each and every one of us every day and in every way.

Two laws that should seem obvious are:

• The chances of a surgical complication in a "routine" surgery are directly proportional to the seemingly unwarranted pre-surgical hysteria of the pet owner.

• For those who have abandoned bachelorship, irrespective of the evidence, the wife is always right.

There are laws in veterinary economics as well; laws that, when broken, initiate the financial decline of your practice.

Snyder's Rule of 48 states that, rating staff competence from one to 10, six 8's will always outperform (at lower cost) eight 6's.

Lay down the law

Snyder's Rule of 45 states that the maximum salaries paid to veterinarians and staff cannot exceed 45 percent of revenues.

Snyder's Rule of 9-8-2-20 states that staff salaries must be proportioned as 9 percent for technicians, 8 percent for receptionists and 2 percent for kennel and must, in total, never exceed 20 percent of revenues.

Snyder's Rule of 3 states that the hospital average transaction, including all OTC transactions of the hospital, must equal or exceed three times the sick pet office visit. (The "doctor only" average transaction must fall between 4.3 to 4.5 times the office visit.)

This is the rule that explains the lack of financial success for thousands of veterinary practices. Before we go any further, let's define financial success in our profession.

The financially successful practice owner is able to earn personal compensation equal to 25 percent of his/her personal production (Footnote 1) plus 5 percent to 10 percent of total gross for management, plus a fair profit on the owned real estate. (footnote 2).

Fair profit

* Footnote 1: The "doctor only" average transaction must fall between 4.3 to 4.5 times the office visit.

* Footnote 2: In a solo practice, 25 percent of personal production is equal to 20 percent of practice gross.

* Footnote 3: This profit should equal the difference between 15 percent of the current fair market value of the property and the amount of the mortgage payment. In a mortgage-free practice, that sum equals 15 percent of the current fair market value.

When there is not enough revenue to pay our practice owner this fair compensation, it is almost invariably due to a failure to comply with Snyder's Rule of 3.

Economic psychologists will discover someday long in the future that the reason for this rule violation is that veterinarians are pack animals. They strive to be the same as everyone else. Like other packs in nature, the group can only move as fast as the slowest member, and it is this slowest of the pack that gets slaughtered when the economic wolf appears.

This is the same logic that says that while beer destroys brain cells, it is only the weakest brain cells that are destroyed and that is why everyone acts so much smarter after a few beers.

Wanting to keep your fees the same as everyone else, irrespective of your overhead, is economic suicide and will never fail to keep you from economic success.

Dr. X, in Wisconsin, had an office visit of $27.50 and an average transaction of $65, when the Rule of 3 says that her ATF should have been $82.50. She was struggling to meet payroll in slow season, borrowing every winter and repaying the loan every summer.

Put it in practice

A demographic study showed that in 2003, her rural neighborhood (15-mile radius) could easily support an ATF of $95.90. Dividing by, you guessed it, three gave us the appropriate office visit of $31.97, a 48 percent increase! We set the office visit at $31.80 (a 16 percent increase) and a year later, her 5,526 transactions produced an additional $17.50 x 5,526 = $96,705 in additional income and no need to borrow that year. Note that this amount exceeded her break-even point and provided her with $67,000 additional take-home pay before taxes.

Dr. Y, in Texas, had a different problem. His practice was not getting his "fair" share of new clients coming to town. He had an office visit of $35 and an average client transaction of $71.83. Clearly, he was in violation of the Rule of 3.

His demographics, also a rural practice, showed that within a 15-mile radius, his clients could support an ATF of $86.25. His was only $71.83. What was wrong here?

Clearly, he tried to earn more by having a higher office visit fee than any of his clients could afford! The lesson we passed on to him was simple. The office visit is only one fee and a very visible one. The average transaction pays the bills, not the office visit. We got him to reduce his office visit to the demographically correct $28.80 and raise all of the rest of his fees to conform to a new client perception of fees schedule based on $28.80.

A year later, despite the $6.50 loss on every office visit fee, his ATF was $87.20. His 6,370 transactions produced ($87.20 - $71.83) = $15.37 x 6,370 = $97,907. His take-home pay was only $32,700 greater because he went out and bought a laser surgery unit and an ultrasound unit for cash. Clearly, the Rule of 3 rules!

Ego plays a large part in setting fees with special emphasis on the office visit fee. There are those practitioners who set their office visit to be the same as the other practices in town, and those who felt they were better and were worth more. Both fall victim to violating the rule of 3.

Power of ego

Fees should be set to what the average family in your immediate area (three- to five-mile radius for suburban practices) can support.

Injections today should be charged at 60 percent of your office visit with an incremental dollar for each 10 pounds of weight (minimum 40 lbs). If your office visit is $5 too low, you are losing $3 per injection.

Radiographic studies (one to three views) should be three times your office visit. If your office visit is $5 too low, you lose $15 per study.

I stress "too low" because "too low is 30 times more common than "too high." Pack animals suffer in groups.