Businesses need key parameters

Businesses need key parameters

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Jan 01, 2003

All managers need to monitor certain key indicators that tell them if their business is meeting their goals, and if it is moving in the right direction for the future.

Dairy practitioners have widely divergent goals, so it is difficult to identify a list of key parameters that are appropriate for every practice. However, profit is needed in almost every situation if the business is going to continue, and a stable or expanding client base is also crucial.

The following items are ones that I think every owner or manager should track at least monthly. I have suggested some goals that were appropriate for me when I was in practice, but your own numbers may differ dramatically. The initial value is less important than how it moves in the future. Knowing this information will help you know where your practice is headed, and allow you to make decisions to alter that course if needed.

Gross variables

1. Gross income per doctor per day: The actual number will vary a great deal among successful practices, depending on the level of dispensing that is done. My goal was $1,000 a day, with roughly one-fourth comprising dispensing or lab fees and the rest service.

Suggested goal: $1,000 gross income per doctor per day.

How many hours?

2. Billable hours per day: To know this number, you must identify an hourly rate for your time. In most cases, using this rate as the basis for charging is the best way to bill for your service, but in any case it is needed to determine your billable hours. Take your daily service income and divide it by your rate, and you will see how many billable hours you generated that day. This is essentially a measure of your productivity. Do not include weekends or holidays, unless you strive to work a full day on those occasions. Personally, I like to see very low numbers on those days.

Suggested goal: Six to seven billable hours per doctor per day.

Tracking total hours

3. Percent billable hours: While total billable hours measures productivity, the percent of total hours worked measures efficiency. You want to generate high billable hours by being efficient with your time, not by working long days. To know this figure, you need to know how many total hours you worked. Include driving time, truck stocking time, telephone time, and desk cleaning time -in short, all working time.

Suggested goal: 65 percent of total hours worked.

Production medicine cost

4. Percent production medicine: This value will differ substantially from doctor to doctor, and from practice to practice. The initial value is less important than the trend it follows. I believe the most secure practices are those that provide both production medicine and sick animal services. Those that provide mostly one or the other are more susceptible to changes in client philosophy and the overall dairy economy.

A challenge with this measurement is defining what constitutes production medicine. My answer is that production medicine services are those that impact herd management vs. individual animal management. In general, reproductive exams are not production medicine, as the results of a palpation usually impact that cow, but not overall management. The same principle applies to sick animals, surgeries, dehorning, etc. By contrast, record review, discussions of timed insemination programs, ration balancing, milking equipment evaluation and housing discussions impact the entire herd, and fall under production medicine.

Suggested goal: 20 ­ 50 percent production medicine.

Sustainable clients

5. Percent of net from sustainable clients: This will be kind of a "soft" number. To derive it, you will need to look over your client list and make a judgment call about their future. Then make a realistic estimate of the percentage of their gross billings that represents profit. You can then build a spreadsheet that would track this number on a regular basis.

Suggested goal: 80 percent of net income from sustainable clients.

Practice mission

6. Is the practice mission being fulfilled? Obviously this is not a parameter that uses hard numbers, but rather causes you to step back and ask yourself if the overall strategy is working. If the first five parameters are right on, but you are frustrated and tired, then changes are due.

Many of you will take exception to both the indicators I listed, or the values I suggested. That is a good thing. It is important to identify a few key measurements that will tell you if you are meeting your goals, or moving in the right direction. They should be important to you, and relatively easy to monitor on an ongoing basis. You should set-up programs that will give you these numbers consistently each month. Your billing forms may need to be modified to make this easier.

Of course it does little good to produce the numbers if you do not use them to make changes. If your percent billable hours is low, then determine where you are wasting time or giving service away. If production medicine is non-existent, find a way to get some programs started.

Know your business

The goal is to give yourself the means to know what is happening in your business and to make adjusments in a timely manner, rather than being vaguely aware that things are not as they should be, and eventually having to lay off staff, move or do work you do not enjoy.