Let's be honest, vet school prepares you for a lot of things, but running your own practice is not one of them! Staffing challenges, pricing analysis, marketing programs, and inventory management are just a few of the myriad topics noticeably absent from most curriculums. Many practice owners across the country find themselves relying on "gut instincts" and doing "what feels right" when it comes to management, and while this can help in a pinch, such a strategy can be fraught with disaster over the long term.

Thankfully, two of the most important skills in a successful practice owner's toolkit are abilities any graduate already possesses: the power of observation and a belief in tracking those observations. While you may consider these insultingly obvious, we are continuously amazed by the number of tenured practice owners we encounter who have never consulted their accountants, looked at their year-over-year financial data, observed trends, and come up with a game plan for improvement. If that sounds kind of like a SOAP to you, that's because it is.

In preparation for facilitating AAHA's upcoming ExCEllence Series program, "Practice Ownership: Fundamentals of Profitable Care and Growing a Patient Base," we asked ourselves, "Which metrics should really matter to practice owners and can provide actionable insights?" While a majority of the November 12 program will be spent on revenue-centric topics, let's focus today on the most volatile cost on any practice's income statement, non-DVM labor, and its inalienable tie to revenues.

To extract meaning from this critical metric, it is important to look at several data points together and then think about each number from a qualitative perspective. If your practice processes payroll biweekly, this can be as simple as looking past three payrolls (six weeks of data), comparing it to the practice's revenues over that time period, and then thinking about how the numbers came about.

So how do you get started? First, you need to look at your practice's overall payroll for each pay period and strip out two components: DVM compensation, both salaried doctors and per-diem assistance, and any benefits your business might pay to any employees. These are removed because you typically have little flexibility over the short term with them. Their removal isolates non-DVM labor, which is a "controllable" cost, meaning you can actively manage it in relation to revenue. Next, take your revenue for each corresponding time period and divide the two numbers to obtain your non-DVM labor as a percentage of the total revenue. The simple chart below can help you map out this analysis.

What do these numbers mean to you? First, it is important to know some rough benchmarks for the industry. At a smaller general practice, the goal we would set would be a non-DVM labor percentage of around 18 to 20 percent. For a larger practice (four or more full-time DVMs), it should be under 17.5 percent. However, like all benchmarks, regional, seasonal, and other differences can come into play. For example, during the throes of winter, revenues may be lower than they are during the summer, yet you cannot cut labor hours of your staff completely, so your percentage may be higher in those months. Likewise, if your practice is located in a low-income, rural area where there is not an abundance of trained technicians, you may not be able to raise prices to match escalating wage rates due to technician scarcity. Remember, benchmarks provide perspective; they are not hard and fast rules!

Regardless, two important issues can be highlighted by doing this analysis each and every pay period. First, trends become apparent. If revenues dip and your percentage jumps for several periods, perhaps you are not being as active in managing your labor hours as you could be. Scheduling your employees for fewer hours during back-to-school week or asking a tech or two if they'd like to clock out early on a slow weekday can help you manage through temporary revenue dry spells. Second, severe deviations from industry benchmarks now warrant further investigation. At one general practice we studied, their percentage was above 25 percent. After reviewing their staff schedules, we noticed that on their slowest revenue day each week they had 11 technicians assisting one DVM! Their rationale: "Everyone asked to work that day." Disregard for the impact of this decision, and not looking at the data caused serious consequences for that practice's profitability.

At the end of the day, data and pragmatism are an owner's best friends. We know from co-owning a group of successful practices that simple analysis like this one can lead to easily implementable plans, and that small, thoughtful changes can lead to big improvements in profitability. These are some of the hallmark ideas behind the practice ownership training series, "Practice Ownership: Fundamentals of Profitable Care and Growing a Patient Base," we are delighted to facilitate along with AAHA, beginning with a program on November 12 in Boston. We look forward to sharing more such concepts and strategies with you at one of these one-day seminars, and encourage you to learn more about the series by clicking here.


Win Lippincott is the vice president of marketing and technology for Veterinary Practice Partners (VPP).

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