Veterinary practices require careful financial management to be successful businesses. But, practice owners are usually hesitant to hire dedicated finance managers and instead take on the financial oversight themselves. So, to effectively manage their finances, practice owners should focus on tracking key performance indicators – metrics that reveal the financial health and profitability of the business.
Key Performance Indicators to Track in Your Veterinary Practice
To quickly assess the health and profitability of your veterinary business, you can use these 7 key performance indicators for a comprehensive overview.
1. Revenue Per Veterinarian
Looking at total practice revenue generated relative to the number of full-time equivalent veterinarians provides useful insight into staff productivity and profitability. Higher revenue per vet may indicate doctors are operating more efficiently. But, extremely high levels could signal vets are overworked.
2. Revenue Growth
By comparing revenue month-over-month and year-over-year, owners can identify positive or negative growth trends. Setting specific revenue goals and regularly assessing performance against those goals is key to using this KPI. Additionally, breaking revenue down by service lines, departments, or types of procedures can uncover growth opportunities.
3. Net Income
The most critical metric for gauging overall financial health is net income or profit. Owners should monitor both monthly and annual net income versus the specific targets set for the practice. If net income consistently falls below goals, owners can dig deeper into expenses, service costs, and fees.
4. Days Sales Outstanding
Calculating the time it takes to collect payment from clients reveals potential issues with accounts receivable. You can calculate days sales outstanding (DSO) by dividing total accounts receivable by average daily charges. Higher numbers signal potential issues with outstanding balances and getting paid in a timely manner. Setting benchmarks for DSO allows owners to identify and resolve collection problems.
5. Inventory Turnover ratio
Measuring how often inventory is sold and replaced shows how efficiently inventory is managed. Higher inventory turnover ratios indicate efficient buying and selling of products. Low inventory turnover ratios might mean excess purchasing and inventory build-up. Comparing turns across inventory categories like medications, food, and retail items can identify problem areas.
6. Average Ticket Size
Looking at total revenue divided by the number of invoices helps owners assess if current fees are competitive and appropriate. If this average ticket size is low compared to expenses, it may indicate fees need to be adjusted. Comparing with local competitors can also validate fee schedules.
7. New Clients
Simply tracking the number of new clients acquired each month provides useful data for owners on the success of marketing campaigns and opportunities for practice growth. Spikes or dips in new clients can be leading indicators of issues or progress.
Using KPIs to Assess Major Expenses
One of the key ways practice owners can utilize financial metrics is to monitor major expenses that may impact profitability. Tracking spending in key categories and understanding the impact of each expense can help veterinary owners better control overhead costs.
Staff wages, salaries, and benefits typically comprise the largest expense for most veterinary practices. Monitoring revenue per employee helps assess if current staffing levels are appropriate relative to revenue.
Tracking personnel costs as a percentage of total income can identify if those costs are in line with industry benchmarks. High labour costs may necessitate efforts toward improving staff performance by enhancing operational efficiency.
Medical Supplies and Drug Costs
Metrics like medical supplies and drug costs per patient visit can reveal if material costs are too high and eat into margins. Inventory turnover of medications and other supplies identifies potential waste and excess purchasing. You can optimize inventory turnover of expirable goods by leveraging technology to manage supplies and create automated ordering systems based on current stock levels.
Diagnostic Lab Expenses
Understanding diagnostic lab expenses can help practice owners manage spending on outsourced lab tests. It can help identify options to reduce costs such as negotiating better rates with certain labs or bringing more testing in-house. Comparing the costs of individual lab tests at different diagnostic labs or leasing equipment to test in-house may reveal opportunities to shift business and save.
For veterinary practices, mortgage payments and rent on office space is usually one of the larger monthly line items. But, there still comes a time when expanding to another office to accommodate new clients is necessary. Tracking your growth in new clients can help you decide when this time has come and you’re ready to add another office to your empire.
Practices that stock and sell retail products like pet foods need to monitor the sales margins and inventory turnover of these items to minimize waste and maintain profitability. Inventory costs should be regularly assessed to ensure appropriate pricing and brand mix. Slow-moving products may need to be discounted or discontinued.
How Can a Veterinary Practice Use KPIs to Grow Their Business?
In addition to monitoring financial health, veterinary practices can utilize KPIs to identify opportunities to grow their business in terms of revenue, clients, and profitability.
- Tracking new clients each month reveals the effectiveness of marketing efforts in acquiring new business. Spikes or drops in new clients inform decisions around marketing spending and campaigns.
- Monitoring revenue growth trends in specific veterinary services or procedures can reveal untapped opportunities. Growing revenue in certain areas through upsells or promotions may be possible.
- Increasing the average transaction size creates opportunities to generate more income per client. This can occur through price increases, add-on services, or client retention efforts.
- High days sales outstanding may signal poor client loyalty and retention. Improving collections can increase client lifetime value.
- Low inventory turnover identifies potential waste in the product mix. Tightening up offerings and inventory levels could boost margins.
- Tracking revenue per veterinarian monthly informs staffing decisions needed to support growth.
Regularly tracking and analysing key performance indicators allows veterinary practice owners to maintain and improve the financial health of their businesses without needing to hire a dedicated finance manager.
By monitoring the seven key KPIs outlined in this article, practice owners can spot issues, identify opportunities, set goals, and make informed decisions to enhance profitability. These KPIs give you clear and immediate insights into the performance of your practice allowing you to take full control over your finances.