There is no doubt that stable, long term and reliable staff members are very important to a business. You may also assume that Vets loved by their customers are a great source for repeat business. But you may also be surprised to learn that it does not always equate to good financial business. In the current environment for company valuations, debate involving “Growth”, “Recurring Revenue” and EBITDA (nett profit) is getting even more important. So what is more important? All these are important depending on who the acquirer or owner is. Eventually every business has to make a profit, so today, we will focus on EBITDA (Earnings Before Interest, Tax , Depreciation and Amortisation) – or Nett Profit through Staff Performance.
To raise EBITDA, a business can increase revenue or/and reduce expenses or Cost of Goods sold (COGs). The largest recurring expense in a Vet Practice is no doubt professional salaries. Vets are highest paid and they generate the majority of the revenue. In essence, their salaries become the “cost of sale” for their services. So while Practice Managers and Accountants calculate Gross Profit (GP) from Drug and Product sales, salaries are generally posted after GP and before Nett Profit. A lot of time is spent on GP optimisation through better inventory management and searching for the best deals on drug prices, and so on. The question therefore remains: “What’s your Vet’s GP?”
There is no doubt that measuring an exact “Nett Profit” from a staff member entails proportionate allocation of every expense, thereby making the entire exercise a bit too daunting. Working out a basic GP on the other hand is simple and worthwhile, especially when comparing with peers.
Have you ever tried comparing Vets’ revenue-to-salary ratios within your practice? It is possible you may be surprised by the range you are likely to encounter. So what’s your number? What is an industry standard? Some say a Vet should be billing out 2 or 3 times their salary or they are not generating profits. While popularity can be due to confidence, ability, personality and compassionate behaviour, it could also be linked to under-billing, discounting, and deferment of procedures, which ultimately results in lower levels of due care. These are things one needs to look for regardless of how popular certain Vets may be with clients:
- What are their Revenue to Salary multiple overall
- What are their $ per hour paid compared to $ per hour generated
- How do they compare with each other – useful for salary reviews – highest, lowest, average and then them.
- What are their discount profiles like? How does that compare with other Vets. Is this why they are popular?
- What are their contributions from high value low effort revenue items such as blood tests, prescription food recommendations, etc
- What is their $ per client or $ per patient revenue on average when compared to their peers
These are matrixes that will provide useful information that may surprise you. VetLinkSQL users can get all these “live” numbers and illustrations with minimal effort by subscribing to BAM – www.vetkpi.com. The alternative is to run multiple reports and use spreadsheets each week / month.