8 Ways to Improve Profitability and Drive Growth in Your Veterinary Practice

Published on: Jan 26, 2022 by Nathan Dreikosen, CPA

Updated on: August 7, 2024

Profitability is the critical success factor for every veterinary practice as it is the accurate measure of the practice’s financial health. Implementing and aligning strategies to measure profitability and growth doesn’t have to be complicated.

Many veterinary practices have had a banner year in 2021 so now is the perfect time to be thinking about how to improve profitability and drive long-term growth with these 8 key strategies.

1. Goals and Metrics

As a veterinary practice owner, one of the ways to challenge yourself is to determine what your goals are for 2022. What do you need to move your practice forward? What do you need to improve? What’s holding you back? Reflect on these questions and then set 3 goals/metrics to achieve in 2022.

Develop a plan on how to achieve your goals and metrics. How are you going to get there? Utilize benchmarks and checkpoints at the 90-day mark to determine your progress. Don’t forget to get your staff involved. Employees thrive on the team concept, and they appreciate the transparency of where the practice is going and how they can help be a part of that journey.

It’s important to monitor and reassess your goal progress at the end of each quarter. If you have a strategic advisor, they can help hold you accountable. Schedule recurring meetings every 90 days with your advisor to ensure you are on track towards your goals.

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2. Fee Schedule - Top Line Revenue

Review your fee schedule. Are your prices competitive? Do they reflect the level of service provided? In this tight market where costs are increasing, make sure your fees not only reflect your market, but they also reflect the value you're providing to your patients.

Start by analyzing the ten top service codes you're providing the most often. Determine where they are and where they should be compared to the market in your geographical area. If you find your fees are not in line with the market, develop a timeline to get them up to fair market value. Instead of increasing prices overnight, you might want to implement a more modest increase periodically two or three times a year.

Another consideration is write-offs. A key concept for any business of any type is customer incentives. What are you giving away for free? Over time this can amount to a large sum that could have been brought in as revenue. Review these write-offs to ensure you are not giving too much away.

As 2021 has proven, if fees are increased to align with the market, it bypasses overhead and falls right to the bottom line, which then increases your profitability. The amount of fee increase depends on where you are currently and if you are already high or low. But generally, if you're normally at a 3-5% increase, based on the cost of labor and supplies, it more than likely should be in the 5-7% range for a fee increase in 2022.

3. Expand Yourself

If you look at your practice and you have cash to invest, what's the next step? There are a few areas where you can invest and expand your practice.

Consider the competition in your area and determine if there's an opportunity to provide a certain service or procedure that no one else if offering.
Invest in a new piece of equipment that can move the needle and bring in more revenue.
Provide continued education for your staff to increase their knowledge base.
Expand your hours of operation if you have staff willing to work extra or off hours to accommodate your patient base.
Remodel your clinic if capacity is an issue. With the extra cash, the ability to borrow money at low-interest rates, and having equity in your business, banks are ready to lend money so now is the time for an expansion.
Update the aesthetics and the look of your practice. Make it a place that patients and staff love coming to. Just a simple refresh can potentially attract and retain both staff and patients in this challenging market.

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4. Financial Statement Presentation: Know Your Numbers

In regards to financial statements, there are three big categories that break down your income statement. It’s important to know these numbers in your practice.

Revenue (Top Line) – This category primarily comprises patient services. There can also be other sources of revenue such as if you have an online store with product sales, if you are renting space to your groomer, etc.
Overhead Expenses (Mid Line) – This is the middle section of the income statement and it’s broken down in more detail by major category.
Owner Compensation (Bottom Line) – What the owners are getting out of the clinic in terms of salary, benefits, and residual income that's available to put to good use for personal or clinical reasons.

5. Rein in Your Overhead

It’s important to analyze your overhead and look at some of the big-dollar items that make up your income statement to see if you can reduce the cost in some way.

Cost of Sales – This is all the different inventory items such as drugs, supplies, prescriptions, vaccines, microchips, etc. For many veterinarians, this is one of the biggest parts of their business to get a real handle on. To some extent, you are at the mercy of vendors, but here's where having expertise in buying smartly can pay off (i.e., taking advantage of rebates, having a good relationship with the vendor representative, etc.).
Staff – Examples in this category are wages, benefits, payroll taxes you're paying on their behalf, investment in staff continuing education, and reimbursements such as for uniforms, among others.
Lab – Take a look at what you're paying for lab fees. Feel free to shop around or process whatever you can internally to reduce this large amount of overhead.
Rent – This is the single biggest building-related expense that is on the income statement. Whether you own the building that you practice from or you're renting from a landlord, make sure your rent is at a fair market value. There can be some big cost savings on this line item because a lot of times rental agreements are based on a year-over-year multiplier where the amount continues to increase into the future.

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6. KPIs to Track

Key Performance Indicators (KPIs) are quantifiable measures of performance over time for a specific objective. They provide targets for your practice to strive for, milestones to gauge progress, and insights that help you make better decisions. Important KPIs to evaluate include:

Total Revenue – Understanding where your revenue is coming from by source can be important to help determine if your expenses are in line with those items. A big component of total revenue is understanding what you're letting walk out the door in terms of write-offs and discounts. Continuously reviewing these metrics can help you remember what you're giving away and if you’re giving away too much.
Production by Provider – Used especially for associate DVMs, compensation for a provider is based on their production, usually with some sort of pro-sale agreement. Oftentimes that equates to 20-22% of their overall gross production. A big component of this KPI is making sure production by provider is tracked accurately and staff are inputting that data into practice software to the correct provider. There needs to be a system of checks and balances to ensure accuracy.
Expenses as a Percentage of Total Revenue – This can be valuable once you've identified the quality of your revenue and what sources it comes from. You can then line up the related expenses to revenue which can be helpful for benchmarking against industry standards and your peers overall.
Total Transactions and Average Charge per Transaction – These relate to the overall efficiency of the clinic as well as the quality of the services provided. They also relate to fees because as you benchmark across industry standards, some of the inputs related to these KPIs are efficiency and also price. If something's not lining up, it's generally one of those two components.
Number of Active Clients and Number of New Clients – Tracking the number of active patients over a period of time and then tracking the number of new patients is of utmost importance because these are the lifeblood of your business.

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7. Is Staffing Holding You Back?

Reviewing staffing can affect a practice’s profitability and help to drive future growth. Look to potentially add an associate. With the current labor market, it may be tough to find one, but if you can find a good one, it can build out your practice.

Are there tasks you or your staff complete that are taking time away from seeing patients, and thus affecting your revenue? If the answer is yes, can you outsource these items (i.e., cleaning, payroll, bookkeeping, etc.)? The more time you have to generate production, the more it helps your practice grow.

Could continuing education for your staff expand their skill set and increase flexibility? By offering additional education or incentivizing employees to earn additional certifications, there is the potential to offer your customers extra services which can help your bottom line.

Make sure everyone is in the right seat. Do you have your most talented people in the roles that best suit them? If not, is there potential to move them to a different role within your organization? Is it possible to give them additional responsibilities? These are considerations that can help alleviate the bottleneck of staffing.

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8. Culture Matters More Than Ever

Culture now matters more than ever as it's one of the biggest things that can help with employee retention. Keeping a good, efficient employee is much cheaper than trying to hire and train a new employee.

Take a look at your staff benefits and talk to your staff to see if there are specific benefits they may be interested in that you don't currently offer. If you're consistently hearing some pain points from them, see what you can do to address those items.

The most common benefits offered are health insurance, 401(k), and dental insurance, but there are even simple benefits such as offering flexible scheduling or an education assistance program. Not only are these great for the employee, but they also offer some tax benefits for you as the practice owner as well.

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What's Next?

As we begin 2022, here are a couple strategies to adopt as we move forward:

Prioritize what you want to change or accomplish in 2022. Write it down, have a plan, set deadlines, get your staff involved, and hold each other accountable.
Know your numbers. No matter how often you look at them, look at them more in 2022 and understand them. Find an advisor who will explain them to you. Don’t just work in your business, set aside time to work on your business.

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Biz Tip Topic Expert: Nathan Dreikosen, CPA

Nate is a Senior Manager at SVA Certified Public Accountants focusing on the healthcare, dental, and veterinary industries. He works with practices in the southern Wisconsin and Fox Valley areas to manage cash flow, assess financial performance and growth, and evaluate expenditures. He also has experience in designing compensation models, tax planning, and providing guidance on tax implications for clients. He works with corporations, partnerships, and individuals of all sizes and ownership structures.

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