Focus on your 'A' clients in sluggish economy

In the last couple of years, there's been a recurring theme in the e-mail messages I receive from veterinarians.

"In our area of the country where new housing developments are few and far between, business has been very poor lately. Appointments for sick patients and wellness patient visits are down significantly. We surveyed six practices in our area and found out that, with the exception of one other practice, our fees are the highest in the area! We elected not to increase our fees as of this date. Please advise."

Our answer is: "Don't fall into this debt-based thinking trap."

Debt-based thinking is negative from the start. Asset-based thinking builds on what you have rather than what you have not.

Nevertheless, business is down nationwide! What could you expect with the exorbitant price of gasoline and heating fuels combined with our huge national trade deficits combined with higher interest rates, the radical slowdown of housing sales, national security insecurities and an overall loss of population in northern states. Moreover, pet ownership is expected to grow 10 percent while we expect greater increases in the number of practitioners. Do you see a trend yet?

This downtrend might flatten out, but don't look for rising revenues from bursts of new clients in the near future unless you are in a strong growth area, predominantly in the South and West.

Veterinary hospital legal bankruptcies are getting more common. Bankruptcy makes it official that the bucks are not there, subsequently taking external collection pressures away. For the most part, except in areas of high construction, clients are just holding off, and veterinarians everywhere are quite unnecessarily just learning to get along with less. The drain on our country's resources due to overseas military deployments and Gulf Coast rebuilding reduces benefits for those getting aid from state and federal governments. New government laws now allow companies to default on pension commitments.

Go to the malls and watch people wandering around without buying. Major department stores have even fewer sales staff than last year, and their cash registers are not ringing. Generally, sales are down, some 15 to 30 percent. Prices are not coming down and sales are really not bargains. Why would you think that our profession is exempt? Are you getting nauseous yet?

Guess who is not coming in? Your best clients are still coming in! Your almost-best clients are still coming in. But 90 percent of the loss in transactions are from the bottom 45 percent of clients that never supported your practice anyway. Hallelujah!

Until you have good clients calling to get their pet's records transferred, simply do what every other business except yours does in this type of economy.

No surprise! The only way to survive is to increase fees to cover your increased costs of doing business. That 9.3 percent annual inflationary pressure can only be conquered by fee increases. Everyone talks about how well they are doing, but their accountants know different.

Exxon was chastised for $100 million in profits in one recent quarter. That's media nonsense, as their profit amounted to 9.9 percent of their sales. Every business needs 10 percent in profit after paying payroll and all other expenses as return for investor profit. Your business is no different. A fee increase of 3 percent per quarter except for office visit, spay/neuter/declaws is just about right. Three percent per quarter on non-shopped services and no increase in shopped services works out to a 9- to 10-percent overall increase each year.

Test yourself! Is your minimum fee for any dispensed drug $21.85? If not, then why not? How long can you continue to cheat yourself, your staff and of course, your retirement fund?

Fear is your enemy. Current clients provide our profits. They are buying you. If they wanted cheaper instead of better, they would have left you long ago. Few things bother this consultant more than hospital owners who don't want to be the highest priced in town when they provide the best service in town. Do you see gas or milk prices lowering because of the economy?

You must also review your revenue/staff ratio. You need $5 to $7 in revenue for every single dollar expended on staff for combined payroll, payroll taxes and benefits. Benefits include all health insurance, pension, 401K plans, vacation, continuing education, etc. If that ratio drops below 5, you must do one of two things: either increase revenues or decrease staff costs.

You can't drag in clients. All the reminders, coupons and ads in the world will not bring in a client whose discretionary income is gone. I'll bet exams will increase in relation to wellness exams because a pet's whine opens hearts and pocketbooks.

"We elected not to increase our fees as of this date. Please advise."

Our subscribers receive a demographically appropriate fee schedule. Do they increase their fees to the levels shown as affordable to the average family in the neighborhood surrounding their practices? Many do, but most choose to inch up slowly. Some things are better done slowly. Achieving profitability is not one of them. Profitability should be achieved at the speed of light, if possible. Profitability provides for the best staff, and keeping good staff means providing great benefits and flexible work schedules.

If your average hospital transaction was $20 (very common) less than demographically appropriate, you lost at least $100,000 in revenues that you deserve for your excellent service. With labor, rent and fixed expenses already paid for, that means you lost $80,000 in take home before taxes. Be honest with yourself! You can only blame yourself. Not using demographically determined fees eventually leads to mediocrity or worse.

A dvmcontributor for 27 years Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity and is available for in-practice consultation. He can be reached at P.O. Box 189, Hebron, KY 41048-0189; (800) 292-7995; vethelp@insightbb.com; Fax: (859) 534-526.