Economic Advantages of the Preventative Care Model
Economic Advantages of the Preventative Care Model
There are three growing disadvantages to the current Small Animal General Practice Business Model that erode margin. These are:
- Failure to charge appropriately for professional time
- Failure to successfully use Loss Leaders to drive revenue
- Failure to respond efficiently to unpredictable, daily caseloads
Failure to Charge Appropriately for Professional Time
A typical 1 to 3 doctor general veterinary practice incurs around 3-5 dollars of expenses for every minute of operation. In other words, from the moment that the lights go on at the practice at 8am until they shut off and the doors are locked at 6pm, the practice must generate 3- 5 dollars in revenue just to cover it’s fixed expenses. This amount of money does not cover debt service or any COGS. With this in mind, review the fees that you charge your clients for services. A typical shopped–surgery fee can be as low as 150-300 dollars. If you calculate that a single surgery requires 1 hour of your team’s attention from start to finish (including admission and discharge time), then at best this surgery has a return of 120 dollars (before the cost of any COGS) and at worse, loses 150 dollars depending on your expenses and your fee structure.
Hospitalization procedures can provide a similarly weak return on investment. A typical invoice for one day of hospitalization at most practices is between 350-600 dollars. Match this against the roughly 3 hours of time you and your team invest in each hospitalized case and your ROI calculates to be a loss of 650 dollars to a net gain of only 60 dollars not including the cost of goods sold.
It seems counterintuitive that services and cases that are more complicated and time consuming would provide lower or negative returns on our investment, but it is often the case. A combination of lower fee schedules, charge capture issues, higher standards of care (more time and more expense), means that the more involved, time-consuming cases tend to be less economically productive, than their shorter, less-involved counterpart cases.
Failure to Use Loss Leaders to Drive Revenue
The above diagram shows the typical prices and costs of an annual dog visit. The far right column keeps a running total of return on investment with each service provided. Because of our loss-leader pricing on many vaccines, annual exams provide little to no profit. It’s not until a wellness panel is added to the list of annual patient services that profit moves strongly in a positive direction.
In general practices, we are quick to match the loss leader pricing strategy of competitors in hopes that we too will profit, but we are not concurrently driving the sales of higher margin products and services once the clients are in our practice. In short, we’re only employing the ‘loss’ part of the loss-leader profit strategy.
Discounting for new clients has become as popular as dunking donuts, but in the case of the sole practitioner, the strategy doesn’t fatten up a business, it leans it down. In the past 10 years there has been an explosion of discounting strategies that have mobbed the veterinary scene, but too few seem to be counterbalanced with a way to make a positive, growing impact on revenue.
It’s arguably embarrassing. To date, we apply heavy discounts to exams, new client visits, multiple pet owners, veterans, the elderly, rechecks, chronic medications, flea and tick medications, shopped surgeries, vaccines, referrers, puppy kitten exams, wellness packages…and not a single strategy of counterbalancing the discounts with a way to grow revenue. Were anyone of us to come up for air long enough to actually think about what we were doing, they would wag their heads at our folly.
Failure to Respond Productively to An Unpredictable and Diverse Caseload
Most general practices are built on the model that they will be all things to all clients and their pets. And it’s true that many veterinarians have endeared themselves to their client base using the formula, ‘if the phone rings, bring it in’, but anyone who’s operated under this model for some time realize that it’s pitted with flaws. A diverse caseload strains any team that is trained unevenly…typically the case with most general, veterinary practices. A-see-them-all caseload also taxes our fee schedule which is often unevenly thought through. We end up seeing the cases, but fail to charge appropriately for them or miss some of the charges involved in delivering the service.
Lastly, practices built on this model tend to operate under a steady level of duress. Each day, teams arrive to work at the mercy of what the telephone says they’ll do for the day, leaving them no chance to prepare adequately. The depth of our care and expertise is constantly mitigated by the small, petty, but inevitable mistakes that are bound to happen when our work schedule is programmed by chance. Without the benefit of training and practice, our team members fumble the client handoff. As individuals, we typically achieve great client care goals, but as a team, scattered as we are in the be-all and do-all business model, we routinely fail and our clients perceive their overall final service experience as uneven or haphazard.