Keep your practice finances on track by watching these key performance indicators.
Monitoring your practice’s financial data is a surefire way to better manage your business and stay on a growth track. Not all metrics are created equal, though. Prioritizing your time is essential to keeping your hospital running, which is why these five metrics should be at the top of your list.
1. Gross revenue per full-time-equivalent DVM. Don’t just track year-over-year revenue growth. In practices with more than one veterinarian, it’s equally important to track the total revenue generated by each full-time-equivalent (FTE) doctor.
The 2020 Well-Managed Practice Revenue Benchmarks (WMPB) study found that each FTE DVM generated a median of $687,408, which broke down to:
- $476,806 in medical services revenue
- $157,299 in medical product revenue
- $53,303 in other revenue
Use these benchmarks to set goals for your team, and reference them in coaching sessions with your veterinarians. If you see big differences in revenue between veterinarians in the same practice, it might be a result of communication styles, support staff training and/or possibly degrees of price sensitivity.
2. COGS/variable expenses. Your practice’s cost of goods sold (COGS), or variable expenses, include anything directly related to practicing veterinary medicine (inventory costs, laboratory expenses, white goods, X-ray supplies, etc.). These variable costs go up and down based on production and should be tracked relative to gross revenue. The variable expenses that typically top the list, according to the WMBP study, are:
- 10.1% Drugs and medical supplies
- 4.6% Heartworm/flea/tick medications and products
- 4.2% Laboratory expenses
- 2.3% Therapeutic and retail diets
If your COGS are consistently higher than the benchmarks, your fees may need adjusting.
3. Payroll expenses. Non-doctor wages account for an estimated 22.5% of gross revenue in Well-Managed Practices. Today, the veterinary profession faces competition for qualified support staff candidates from higher-paying jobs outside our field. To compete for and retain the very best employees, practices need to assess their own fee schedules and make upward adjustments to increase their support staff pay rates, while balancing the practice’s profitability.
4. EBITDA. Earnings before interest, taxes, depreciation and amortization, or EBITDA, is the practice’s current operating profitability. A veterinary hospital’s EBITDA can fluctuate throughout the year. But if you maintain tight controls over COGS and payroll expenses, you will see less variance and maintain a higher EBITDA. When working with veterinary clients, I coach practices to shoot for EBITDA of 21% to 23% or better.
5. Revenue per unique patient. A unique patient is what you track when you total up all transactions related to a single patient during a given time period. The average amount spent per unique patient is a solid indicator of compliance variability and/or the need to adjust fees.
Ongoing communication training with your team is the best way to support these KPIs, along with consistent fee reviews and adjustments as costs to your practice increase.
Ask your PSIvet Practice Consultant about resources to help you get started, including a PSIvet education module about the basics of practice analytics.