You’re in this business for a couple of reasons: you love animals and you’re passionate about their care, and you need to make money to keep the doors open. The first reason, your affection for your patients, is readily understandable. The second reason, profitability, can feel a bit more dubious.
But it shouldn’t.
You’re an expert for a reason: you’ve dedicated your life to your profession — a profession that comes with high emotions, a need for ongoing compassion, and potentially long hours. If your practice isn’t pricing services appropriately or you don’t have the right people in the right positions on the team, you’re going to run into trouble.
When analyzing the revenue and profitability of your practice, transaction volume as well as average charge per transaction are two factors that weigh heavily on overall profitability.
Additionally, you must consider staff utilization: are veterinarians taking on responsibilities that are better left to trained staff? Have you adjusted your fee schedule recently? Are you paying your staff, including owners and other veterinarians, what they are worth?
This article will dive into a few of the components of practice profitability as well as how to increase average transaction size and make sure your veterinarians are utilizing their time and talents most efficiently and profitably.
Practice Culture: A Big Component in Profitability
Many vet clinics fall victim to a practice management culture that creates a pricing strategy based mainly on what they think clients are willing to pay, resulting in missed opportunities for profit, says Jeff Sanford, director of entrepreneurial studies at the University of Georgia’s Small Business Development Center.
“A veterinarian who is truthful, deliberate, and acts as an advocate for the pet will charge what that service and level of care is worth,” Sanford explains.
However, if that same practice skews the value proposition to one based on what they think customers want to pay, they will charge less. Practice leadership affects pricing strategy in a big way, Sanford says. He’s worked with practices whose average veterinary transaction hadn’t changed in nearly 15 years, despite price increases for services, which bears a discussion about sacrifices in level and quality of care. If a practice increases its prices but decreases preventive care, labs, or fecal tests, the average transaction value will not increase.
Sanford describes another piece of practice mentality that is often overlooked: underpaid vet technicians referring business away from the clinic when they deem it overpriced.
“You get a bit of a Robin Hood effect,” Sanford explains. Low-paid staff won’t recommend an expensive charge.
“It’s not a conscious decision. I think it just kind of happens,” Sanford says. “Technicians are doing what’s best for the patient and client.”
Additionally, Sanford explains, many veterinarians get comfortable with a certain income or salary.
“There’s a comfort level that people get to,” he says. “They say, ‘what I’m making is good enough.’”
While increasing income and salaries may come with additional costs or management efforts, if increasing your practice’s profitability and salaries is a goal, you’ll need to analyze the data behind the numbers.
Manage Your Business, Know Your Numbers
A practice owner could dive into multiple conglomerations of numbers, probably leading to more confusion, rather than clarification, regarding the health and profitability of the business.
“Each practice needs to find what it is willing to accurately measure and monitor on a regular basis. Having all the details in the world is meaningless if the practitioner does not have the time or interest to measure the numbers,” says James Waldsmith, veterinarian and president of Vetel Diagnostics.
He says the following items are relatively easy to measure and track:
- daily income and daily receipts
- number of new clients per month
- income/expense ratio of inventory
- number of client reviews or testimonials per month
- Facebook analytics
- Google analytics
Sheila Grosdidier of Veterinary Management Consultation expands on a few practice management concepts in a blog post titled “Increase Your Revenue”: ensure you’re maximizing your marketing efforts by sticking to a marketing plan, consider expanding hours to better serve clients who work late or need weekend appointments, book patients for their next visit before they leave the current visit, recommend bi-annual exams and remind clients of recommended and scheduled appointments, and make sure you leverage your veterinarians. Grosdidier recommends two exam rooms for each veterinarian so they can maximize efficiency with patients.
Increase Your Average Veterinary Transaction
Increasing AVT (average veterinary transaction) is a result of several factors. Grosdidier writes that offering the “gold standard of care” with every patient is the first step to increasing transaction size.
“Don’t pre-judge your client, practice the same excellent standard of care every time,” Grosdidier says. “Have a shelf in every exam room with commonly recommended products readily available to offer clients … Keep one of each product on the shelf at all times, so that the veterinarian can take the product down, show the client, and sell the product when appropriate … your clients NEED these products — if they don’t get them from you, they will be purchasing them from your local pet shop warehouse.”
Sanford estimates the range of average transaction from a lower end of $95 to $120 to a higher end of $200 plus, with an average of $150–$170. His estimate for average transaction size is a bit under the amount of $184 reported by the Benchmarks 2015: A Study of Well Managed Practices, as quoted in Grosdidier’s article. Additionally, the annual number of transactions per full-time veterinarian is 2,900. Simple math shows that 2,900 transactions at $184 per transaction results in approximately $533,600 per year.
With this type of calculation, one can easily determine the effect of increasing average transaction size by $15 or $20, which can come from product recommendations and resulting sales.
“Clients come in asking which pet food you would recommend, which joint supplement they should use, what flea or tick product is the best — tell them!” writes Grosdidier.
Giving your clients and patients both what they need and what they ask for will ensure you’re not only providing top medical care, but increasing revenue to your practice.
Staff Management: Get the Right People on the Team
Hopefully, you’ve surrounded yourself with a solid team of front desk staff, a practice manager, qualified vet technicians, and other veterinarians who work together to provide superior medical care and a quality customer service experience.
An article titled “Utilizing an Underused Resource: Veterinary Technicians,” published by Veterinary Business Advisors, Inc., describes the financial value of credentialed veterinary technicians: “In 2008, the AVMA Biennial Economic Survey revealed that, on average, for every credentialed veterinary technician a practice employed, the practice generated $161,493 more in gross revenue.”
The article continues: “Ultimately, hiring educated technicians makes financial sense. However, there are other less tangible benefits, as well, such as decreased risk of malpractice suits, improved practice efficiency, improved customer satisfaction and improved staff morale. A qualified technician makes a valuable addition to your team, but it is important to understand the nuance within technician education and credentialing in today’s society. Although it might be cheaper initially to hire a veterinary technician with less education, the 2008 AVMA study showed that hiring unqualified technicians results in lost revenue far exceeding the cost of a certified tech.”
Of course, the ability to hire staff members depends largely on the size of the practice; practice size has a large bearing on practice culture, says Waldsmith.
“The smaller the practice, the less formal management there is and the practice takes on a family dynamic where everyone has a place in interdependent responsibilities,” Waldsmith explains. “In these cases, it is essential to ‘hire for the culture’, as one bad apple can be a disaster. For larger practices with greater job definition, training programs, and management, it makes it easier to make sure people are coloring inside the lines.”
Whether your practice is small or large, one fact remains: whenever possible, make sure that qualified staff work in the role in which they are most profitable. Ensure that veterinarians have the support of technicians and other staff who are responsible for tasks and patient care for which a veterinarian is not needed.
Practice Gold-Standard Medicine and Price Accordingly
If you remain true to your number-one mission of providing top-notch care for your patients, you’re well on your way to a profitable practice.
“For practices that have good case outcomes, it is as simple as making sure your prices are fair and reflect both how the same service is charged for in other practices in the area and what the practice feels their services are worth,” Waldsmith says.
Get a basic understanding of the key numbers of your business. Adjust staff as necessary to ensure that people are working in the right roles. Make sure that as an owner and practitioner, you are able to delegate tasks to appropriate team members.
Bottom line: know what you’re worth. Price accordingly.