Office labor costs are increasing: Pass them on

The mean hourly wages of veterinary technicians and assistants were recently reported to be $12.90 and $9.90, respectively, as of March 2005. That was two years ago, so I would predict those figures will increase by 10 percent – to $14.14 and $10.90 – by the time you read this.

Why bring this up now? There are two reasons.

The first is that these expenses soon will be skewed by the new minimum-wage act. It does not matter that our staff is not at minimum wage. Whenever the bottom tier gets a raise, everyone else wants one, too.

The U.S. Senate voted overwhelmingly in February to increase the minimum wage from $5.15 to $7.25 over a two-year span. That $2.10, as we speak, is slithering through the management maze of your future to find its way to your profit-and-loss sheet.

Look for the numbers above to work their way to $16 and $13 per hour.

Now we're talking a 15 percent increase in addition to the 4 percent to 5 percent inflation rate we are experiencing. What to do? What to do? The answer leads into the second reason for discussing this topic.

Let's do something innovative. Instead of digging deeper into our own pockets, let's let clients pay for our staff's time. I realize this is a whole new concept for many, but stay on the trail and perhaps you may keep from drowning in debt.

Right now we spend about 9 percent of our expenses for technicians and 8 percent for assistants. Throw in a bookkeeper and some casual labor and we're at 20 percent of the average practice's gross earnings these days. (These figures do not account for health insurance and other benefits.)

That is already too high. Practices simply cannot afford to increase these expenses. They must pass them on to clients or they will not remain in business.

How do we pass on these costs?

First, realize that our (national) average cost will be $16 + $13 = $29/2 = $14.50 per hour.

Then we must multiply by 5 to make that come out to 20 percent. $14.50 x 5 = $72.50 per hour.

But, is the entire hour billable to clients? The answer is a resounding... No!

Much of our staff time is for non-billable services. In fact, about 50 percent of their time is spent cleaning up, doing prep work, taking telephone calls, ordering supplies, etc.

To find the billable rate, we must double the $72.50 to $145 per hour, or $2.08 per minute, billed to your client.

Yes, that's $2.08 per minute invoicing a client for a $1.50 cat toy! That's $31.22 for the 15 minutes they spend with a client in the exam room.

You say you don't charge that much? That's why you will not be able to sell your practice when the time comes to retire.

Do I seem cynical? It's not cynicism at all. It is pure unadulterated frustration.

We cannot afford to practice as in days of yore. We can no longer absorb the expenses as they come rolling along.

Thirty years ago, a practitioner could take home 40-plus percent of every dollar coming into his practice. I doubt that tomorrow's practitioner will take home more than 20 percent of practice receipts.

Thirty years ago, one could sell a practice for a year's gross. Today the average practice is selling for a third of that.

The reasons are clear. There are fewer clients, fewer pets, higher overheads and less profit.

But, the biggest reason is that we as a profession were not taught to value the economic benefits of our skills during our academic training. The true costs of providing quality veterinary services comes as a shock to practitioners and staff alike as they enter the the business side of providing these services.

Does the rate of $2.08 per minute of staff cost shock you? How about nearly $5 per minute for the average veterinarian? Salary.com says that the median pay for a veterinarian (before benefits) is $65,800. Now add 20 percent for benefits to arrive at $78,961. At 22 percent to 25 percent of personal production, that works out to about $4.71 per minute.

Add it up: $2.08 for staff added to $4.71 for the average veterinarian and you get close to $7 per minute total. That 20-minute office visit has to generate $140, or you will be in the hole. You will not be whole!

As a practice consultant, I have spent nearly 30 years bailing veterinarians out of trouble. Every one of them is a multi-skilled, consummate professional. Veterinarians break their legs trying to save money by painting their own house or barn. They lose tens of thousands of dollars playing at day trading, opening restaurants,and countless other endeavors they just were not trained for.

The secret to success is to practice quality medicine and surgery, charge for your services and keep your ego in check. Nothing else will do. Show me a rich veterinarian, and I'll show you someone who sold his/her real estate at a huge profit.

Veterinary medicine is not about getting rich. Building a million-dollar hospital is truly, for the great majority, a field of dreams. Because you build it does not mean that clients will come.

Our feasibility studies of any proposed practice location will tell what one can gross in that location and, just as important, how much one can spend on a facility without going broke. You cannot sustain more than 8 percent to 10 percent of your mature gross for housing costs. Every dollar over that amount undermines your ability to support your family.

Gerald Snyder VMD

And isn't that what my management columns are all about?

Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity. He can be reached at 10737 Knight Castle Drive, Charlotte NC 28277; (800) 292-7995; vethelp@insightbb.com Fax: (859) 908-6986.