Don't be an unintentional not-for-profit practice
Learn how to charge appropriate fees to maximize your profits.
Perhaps, veterinary practices should only be franchises. A franchise is proof that someone, somewhere, after years of bumbling confusion and errors, finally figured out how to provide services in a way to make a profit consistently.
Missed fees: If you're not charging clients appropriately-or at all-for services, then you're throwing money out the practice window.
When you start a franchise, you get a book. A franchise bible that says, "Do it this way and no other way on pain of debilitating economic losses." Staff training is detailed and comprehensive with videos and testing requirements. You buy XYZ equipment at a pre-negotiated price and the equipment actually works the way it is supposed to work. The computers are even pre-programmed the right way the first time, which is unique today.
If you believe that the growing veterinary chains all operate this way, I have a bridge in Brooklyn, N.Y., that you might be interested in purchasing. Many of these chains are just buying groups with 27 problems arising out of the 20 unique personalities of the former owners and now franchisees. Only those that started from scratch have any hope of reaching the efficiency of a Dunkin' Donuts or a KFC franchise. That means standardized size, standardized equipment and standardized staff.
McDonald's franchisees can tell you the labor cost per order of fries and the man hours per day in brewing coffee, and if you are off 10 percent, all hell will percolate. Watching Subway's portion control is an act of elegance. No waste, no excess and maximum profit.
Isn't profit what business is all about? Last I heard, there were very few veterinarians attempting to deliberately operate an official not-for-profit practice. Don't get me wrong, there are many non-profit practices, but I don't believe that was their original intention.
Why practices underperform
The No.1 reason why practices fail to produce sufficient profits is failure to charge appropriate fees—or fees that are high enough to produce a respectable bottom line yet are affordable to the local residents. I use the fee/complaint ratio, in which a higher fee based on local affordability can still produce little or no client dissatisfaction.
Colleague and fellow contributor Mark Opperman recently published a survey of 300 practices (available at dvm360.com/missedfees) that he is associated with which demonstrates that many services (and fees) are missed on a regular basis. He showed that the average hospital missed four fecal examinations each week (for 50 weeks) with an average cost of $19 each for a loss of $3,800 per year.
I could not disagree more. My surveys show that clients will pay 61 percent of the exam fee for that service without complaint (that's the key) if it is more properly labeled on the invoice as an "intestinal parasite screen."
According to easidemographics.com, the average family income in the United States in 2010 was $67,609. That calls for an affordable exam fee of $41.80. Sixty-one percent of that means the intestinal parasite screen fee should be $25.45, and with a loss of four each week, that computes to $5,090 in one year or a difference of $1,290. That is adding insult to injury, but as these practices missed those fees, it really does not matter because their bottom line will not notice the difference.
But, wait! What about the 1,000 intestinal parasite screens that were performed at a lower fee than the client was willing to pay? Mr. Opperman's average practice charged $19 when $25.45 was feasible and attainable. The $6.45 difference in a 1,000 procedures would bring $6,450 in pure profit to your bottom line.
In a practice netting 35 percent, it would take $18,428 in gross receipts to produce the amount lost. In a $600,000-a-year solo practice, it would take almost two weeks (9.5 working days) to produce the same results.
If you are at all impressed by the effect of just one demographically appropriate fee, let me slam you with another. Injections in that average practice were billed out at $16 or $19 each. (The fact that the fee for an in-patient injection was different than the fee for an out-patient injection—of the same injection—boggles my mind!) The injection fee is the fee in our armamentarium that clients respect most. Anyone charging just $19 had better have an exam fee of less than $30, and I believe that is darn rare today.
Injections are well-respected at 65 percent of the exam fee for a small dog, with a dollar added for each 10 pounds over 40. That means that a $50-exam-fee practice would charge $32.50 for an injection for a small dog, and a $60-exam-fee practice would charge $39. Before you get overwrought considering these higher fees, allow me to explain that some 3,000 veterinarians are already using my fee schedules with few or no problems. Stop for a second and ask yourself, "In my entire career, how many complaints have I ever had about my injection fees? The psychology is right.
Table 1 compares the Opperman survey average to what the average U.S. practice with an exam fee of $41.80 should be charging. As you can see, missing these charges at the frequency Opperman found causes a huge but evidently insensible loss to your practices. Please read Opperman's article. It makes the valid point that we need to be more thorough in providing necessary services. He sees a loss of $64,050, which in practices using their own demographics adds up to a loss of much closer to $100,000 NET.
Service prices based on exam fees
Setting an appropriate exam fee
Table 1 shows the appropriate fees for many other services, which are dependent on an appropriate exam fee. To figure out what your exam fee should be, all you need is the demographics of your local neighborhood. You can probably get the average family income in your area for free from your local chamber of commerce. (You can also purchase them at easidemographics.com like I do.)
If you multiply that income by 0.0006167, you will come very close to the affordable-but-most-profitable exam fee for your area.
Don't blame me if the local competing practices have such low self-esteem that they are afraid to charge an appropriate fee for their services or if the egos of the area's practitioners have caused them to raise their exam fees far above the comfortable level to the neglect of the 700 or so other fees that are used by a practice today. With 4,000 exams/vet/year, $5 too much for the exam and 10 percent too little for the rest of the fees means a loss of about $35,000 NET per year. Think hard about that!
Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity. He can be reached at: 112 Harmon Cove Towers Secaucus, NJ 07094; (800) 292-7995; Vethelp@comcast.net; fax: (866) 908-6986.