Let's toast to these ratios

A Chambord martini is made by combining 2.5 ounces of vodka with a half-ounce of Chambord liqueur, shaken with ice and poured off the ice.

I am sure that 99 percent of our readers will never imbibe such a martini,but please note that the ratio of vodka to Chambord is precisely 5 to 1.Any more or any less spoils the martini.

Ratios are the key to many of the basics of life. Marriage, for exampleis best served as a one to one ratio. While changing that ratio to a 1:2mixture is touted as exciting in some of our supermarket tabloids, it doesnot bode well for the longevity of the marriage. Similarly, a 1:0 ratioas in the loss of a spouse to disease or divorce (which could also be calleda disease) does not make for a happy life thereafter and every effort ismade to finally restore the 1:1 ratio.

There are ratios that are important to practice health as well. Let'stalk about them.

Net earnings are best when in a 4:10 ratio to gross revenues. This onlyhappens when other ratios are observed.

Staff costs and drugs and supplies each occupy a 1:5 ratio with grossrevenues. That is to say that these together, when exceeding a 2:5 ratioor 40 percent of revenues, will severely hamper the ability of the practitionerto take home his/her net of four parts in 10 or 40 percent.

The secret to controlling staff costs is to remember Snyder's Rule of48. Rating staff skills on a 1-10 scale, six staff rating 8 or better willperform the hospital's mission far better than eight staff rating only a6.

Keep the winners

The major problem in veterinary economics today is retaining staff whoseperformance is marginal at best. Two direct causes are the inevitabilityof the practitioner hiring the first warm body that fills out an applicationand failure to purchase and implement one of the many high quality stafftraining programs available today.

The secret to controlling the costs of drugs and supplies, in small animalpractice, is to remember at all times that this month's purchases are primarilyreplacements for last month's depletion. As drug sales seldom exceed 15percent of gross, one must place a limit on purchases for any month to 15percent of last month's gross. Seasonal variance may alter that somewhat,but then the rule in a growing practice may be to budget no more than 17percent of the gross revenues of the same month last year.

Well, with labor and drugs/supplies taking 40 percent of the revenues,and the intended net at another 40 percent, that only leaves 20 percentor one part in five for the Chambord, oops!

I meant the miscellaneous such as insurance, utilities, accounting andthe like. He/She who exceedeth that 20 percent payeth the price twice; oneach payday and on retirement.

Calculating fees

Then there are fee ratios.

Most small animal practices have a 4:1 ratio for medical vs. non-professionalservices. Non-professional services are meant to include those daily eventsfor which a license to practice is not needed and include boarding, groomingand sales of diets and other OTC products.

Therefore, in a solo practice, 25 percent of personal production (25percent of 80 percent) is exactly equal to 20 percent of gross revenues,and the maximum your practice can afford to pay you for your professionalservices is 20 percent of a solo practitioner's gross revenues. The practicecan pay another 10 percent to a solo practitioner for management of thepractice and now we are up to 30 percent compensation for the solo practitioner.

What about net?

"Wait," you say! "You said I should net 40 percent justa few paragraphs ago." Yes, I did, didn't I? Where oh where did that10 percent go?

Oh yes! It went to the bottomline as profit to the shareholders of thepractice. What corporation would exist if it did not provide a return oninvestment to its stockholders? Remember that a practice must make a profitafter paying out 25 percent of their own personal production to the veterinarians,whether one or a dozen. That 25 percent is the maximum payable under anycircumstance, and must include all benefits to the professional(s) involved.

Before the roof caves in from the weight of all the letters to the editorfrom associates paid 15 percent compensation, I would ask these associatesto consider one issue. If the practice takes on extra expense to pay examroom technicians to expedite radiographs or clinical lab testing, to allowyou to see more clients and produce more dollars, then 15 percent of $500,000may provide the same compensation to you as 25 percent of $300,000.

Now we should deal with fee ratios. Certain persons such as myself havesurveyed clients' perception of value. What does a client think a serviceis worth? In the real world, this can be explained using the office visitor, as I prefer, the "health maintenance examination". I alsoprefer saying "patient progress examination" to "recheckexam".

Average transaction fee

The average transaction fee (ATF) for all services, including the boardingand OTC sales, should never be less than three times the office visit. Yoursis less! What a surprise. You must have found it much easier to add a buckor two to the office visit, than to add a dime or two to your other 400-500service fees. Want to lose perspective in practice, that's the way to doit! Now, rarely, we will find someone who has an ATF less than three timeshis/her office visit. This is the least popular practitioner at the continuingeducation meetings he/she usually does not attend.

Let us not confusalate the hospital ATF with the practitioner's ATF.Doctor's ATF must never fall below four times the office visit and for myregular consulting clients, we strive for 4.3 times the office visit forgeneral practitioners and 5.0 for specialists within a general practice.

Ratios are important. Run, don't walk to your books and give yourselfa ratio(nal) checkup!