Don't fall into the complacency trap: Track the numbers

Complacency can kill relationships, skills, marriages, businesses, teams, countries and empires.

In the last column on this topic, we discussed some human issues — certain behaviors and conduct — one should monitor to avoid complacency.

This time we will look at 15 sets of numbers that practitioners should track monthly and annually to maintain a healthy business.

#1. Employee/veterinarian ratio

This number may be the most important of all. Depending upon which survey we read, the national norm is about 3.5 full-time staff members per veterinarian.

Practices often can double gross revenues by doubling that number to 7.0 per veterinarian, bearing in mind that infrastructure and leadership must change to accomplish it. Keep support-labor costs at 25 percent of gross revenue and then imagine the effect on the expense analysis.

#2. Income analysis

We must know from where funds are derived. Track the trends and understand the income numbers within the veterinary niche we wish to serve.

Wellness clinics and specialty practices will have different income numbers. Most published generic-average lists are of limited value when studying individual practices. Whatever your niche, keep the catalogue of categories simple and easy to read, track and understand.

A healthy practice is able to look at its income history and budget to meet its targets. Use these categories:

Professional fees, vaccines, surgery, radiology, pharmacy, laboratory, hospitalization and mileage.

#3. Expense analysis

The goal is to keep things simple. While huge spreadsheets can be used to dissect expenses, it is desirable to keep these issues condensed, then micromanage as needed.

Under expenses, there are fixed-income items, variable-income items, veterinary salaries and profit groups.

Variable costs are the key to understanding how to set fees. Income is linear with support-staff numbers (not with the number of veterinarians), so objective fees can be calculated using these variable numbers.

A healthy practice can look at its expense history and plan to meet its goals. Variable expenses include drugs and supplies and support labor. Fixed costs include rent, mortgage or other regular expenses. Then add in veterinary salaries and profit groups.

The profit group is the most misunderstood of these. Some items that seem like a fixed expense, such as an investment in new equipment, actually are tied to profit because they fuel business expansion. Into the profit-group category go interest, depreciation and capital investments — items that clearly are not recurring.

All these are added to net profit to get a true picture of a practice's financial health.

Note, however, that a healthy practice must be able to purchase itself. The true purchase price can be justified, or undercut, with an analysis of the profit-group category.

#4. Diagnostic ratio

This ratio is determined by dividing gross veterinary revenues by the diagnostics, such as laboratory, ultrasound, radiology and endoscopy fees.

Specifically excluded from gross revenue are ancillary income groups, like over-the-counter items, boarding and grooming.

No matter what niche a practice serves today, tomorrow and forever, that DR number must go down because medicine is increasingly complex.

Many practices find their diagnostic ratio in the range of 6, 7 or 8; therefore, 5 is a nice target. Some specialty practice niches, such as cat and avian, can get to 3.

#5. Rabies ratio

Divide gross veterinary revenue by the number of individual patients seen per month, or at least per year to get this ratio. If the number is unavailable, then use the current rabies-vaccinated animals within a practice for tracking purposes.

With the three-year laws now in most states, the monthly numbers are going to be different than the annual calculations. The monthly patient numbers and gross revenues are the key indices.

Specifically excluded from gross veterinary revenues are ancillary services, boarding, grooming and OTC sales.

This key number is a reflection of the services provided per patient. And rabies ratios are central to understanding a niche and the development that must take place within a practice.

This ratio has been around for two decades and have yet to catch the fancy of many consultants, but a rabies ratio is the practice number that tells all.

The trend for this number is to be up. If a practice's rabies ratio is at $100, it can go to $200. If one is at $600, it can go to $700.

A good rule of thumb is: As the diagnostic ratio goes down, the rabies ratio goes up.

Find an expanded discussion on this topic in Management for Results, Chapter 12, Quality Control.

#6. Employee gross/hour

Divide gross revenues by the number of full-time employees. Ancillary sales, OTC sales and boarding income are associated with lower wages, so these are considered separately, not with this calculation.

Practices grow with the addition and empowering of support staff. In basic terms, if the desired average salary for a full-time employee is $25,000, then one can set the budget for labor at 25 percent. So for each desired $100,000 of gross revenue, there needs to be one staff member.

For a practice to gross $1.2 million, 12 full-time employees will be needed. And then it is no surprise that 12 employees = $1.2 million. If one is at $1.1 million gross with 11 employees, then add the 12th person first to reach the $1.2 million mark.

Specifically note this: That $1.2 million-grossing practice might have from one to four veterinarians. So it is a wake-up call for the four-veterinarian practice grossing $1.2 million.

#7. Employee daily hours

Divide the total monthly hours worked by the days worked per month. This gives the practice managers information that can be used to assign and place staff.

If it comes to nine hours per day per employee and the practice has nine full-time staff members, it's time to add another staff member, or two.

Eight-hour shifts can be difficult for some, or is it most? (Seven-hour shifts are better.)

Shorter shifts help keep your staff fresh. It will result in better customer relations and attentive patient services, and that equals more revenue.

This has been known for decades, but has been slow to be addressed in the mainstream.

#8. Veterinarian gross/hour

Divide gross revenues by the veterinary hours worked to give a view of the practice.

A critical perspective becomes "team" production vs. individual production.

In certain niches, like wellness, individual production is key, pragmatically speaking.

Yet in some business models, like specialty practices, where the team is essential, individual production is really the sum of the parts. My messge? Track team production.

When considering compensation packages, the gross per hour can be calculated individually. For teams, ascertain a total and divide appropriately between team members.

The production per individual, or team, can be used for budget planning for each practice, for each niche.

Other issues should be addressed within some practice niches, such as emergency medicine. Some shifts generate more expensive case work and thus greater gross revenue per veterinary hour.

I prefer to think of the veterinary team gross/hour per month when considering the employee production contribution. Then I would create a veterinary compensation package to include base and team bonuses.

Rewarded team compensation begets teamwork. Think Mayo Clinic.

It can be seen and demonstrated that veterinary production per hour goes up with the effective delegation of service duties to support staff.

#9. Accounts receivable

Not as important as it used to be, with Care Credit and the assorted credit cards, but this still is a number to track.

Track it month to month, year to year and do not let it get out of hand.

#10. Bank statement

Secrets within the banking statement should be uncovered. With so many automatic draws from our accounts by government, credit-card companies, banks and others, these items can become a huge expense.

Banks these days are recording big profits, often by keeping some of their fees hidden. I recently noticed a bank charging 10 cents for each deposit.

There is a difference between debit and credit charges. Look into each and you might be surprised.

I found one instance that the free interest to the client resulted in a 10 percent bank-card fee to the clinic (Ouch!), rather than 5 percent, which is more than double the regular Visa/MasterCard fees.

Someone in each practice needs to spend a little time with each bank statement.

#11. Rabies ratio targets

This ratio tracks compliance and disease incidence within a practice.

For each 1,000 patients we expect to make an average number of diagnoses — a certain number of dry eyes, endocrine cases, dental disease conditions, etc.

Rabies ratio targets gives the practice management information to identify missed clinical issues and to direct educational programs toward these.

#12. New client numbers

It makes common sense to track new client numbers. One can expect them to increase, but various business niches require various marketing strategies to keep new clients flowing in.

Track this number monthly and annually and monitor marketing practices to assess results.

#13. Departed client numbers

Just as with new clients, it's logical to track departing clients. A certain level of departures is expected, depending on the niche and the locale.

#14. Rabies vaccine numbers

Only a finite number of rabies-vaccinated animals is needed within any community. A business goal is to increase that number within one's practice.

#15. Average client transaction (ACT)

This number may be useful in fast-food restaurants to determine the average customer ticket amount, but it has much less meaning in veterinary practices.

One way to illustrate its limitation is with recheck appointments. Rechecks generally are less profitable and thus lower the ACT, so the follow-ups, essential to excellent care, receive a lower priority.

The veterinarian with better follow-up care has a lower ACT. But that veterinarian will have a higher rabies ratio.

ACT needs only to be within a window of say $90 to $150. There are no practical differences between an ACT of $100 and $130. Instead, focus on the rabies ratio — annual services per patient.

What to do

There are two things we need to do to monitor numbers in our practices. First, get these 15 numbers to your desk each month and spend at least 15 minutes reviewing them, using the accompanying "Numbers quality-control form." Second, have annual targets and goals to consider with the 15-minute monthly review.

Then, for extra credit, watch this column in the upcoming year for more information on this topic.

Dr. Riegger, dipl. ABVP, is the chief medical officer at Northwest Animal Clinic Hospital and Specialty Practice. Contact him by telephone or fax (505) 898-0407, Riegger@aol.com or www.northwestanimalclinic.com. Find him on AVMA's NOAH as the practice management moderator. Order his books "Management for Results" and "More Management for Results" by calling (505) 898-1491.