Highs and lows

Apractice will have three basic sets of services — those with basic fees, high-profit fees and low-profit fees.

These fees can be calculated using the cost of labor as the variable.

• For basic fees, the formula is cost of labor divided by the desired labor-cost percent (usually 20 percent), so divide the labor cost by 0.20.
• For low-profit fees, it's cost of labor divided by 0.30.

So with the cost of labor at $10 the fees would be:

Basic fee $10/0.20 = $50

Low-profit $10/0.30 = $33.33

High-profit $10/0.10 = $100

Equipment costs

An adequate investment in equipment is one that generates its own weight in new services within five years.

Specifically, a $20,000 investment in technology equipment would, at the least, generate $20,000 in new revenues.

A new anesthesia-monitoring device costing $5,000 could generate $5 per anesthesia patient.

With 1,000 patients per year at $5 each, that is $5,000 — a good situation.

Production pay

In recent surveys we have found that 100 percent production-pay veterinarians usually will work an extra hour every day to drive up their production.

But they will not spend that hour learning a new skill.

This challenges the 70:30 model, because new skills are needed to turn the 70:30 practice into the 30:70 practice.

Success hint

Offer compensation packages that encourage teamwork, and the development of inpatient skills will thrive.

Steps to turn over the upside-down practice

• Assess the 70:30 vs. 30:70 ratio.
• Leave outpatient fees alone for three years.
• Set up a three-year plan to get inpatient fees adjusted.
• Set up a three-year plan to expand inpatient services.
• Eliminate unneeded services and overhead.
• Consider "realistic" equipment costs and income before purchase.
• Plan for and hire additional support staff for the expanded inpatient services.
• Identify 10 low-profit services and upgrade them to basic fees.
• Identify 10 services that could be high-profit and every three months for the next 30 months upgrade at least one service.
• Consider compensation packages that encourage development of new skills.
• Track the numbers to monitor as described in this column in January.
• Review the "quicksand fees" we described in February and their potential harm.
• Set up the business plan and determine your fees. Or, decide the type of practice, then do the calculations to charge appropriately.
• Get ready for happier days as practice becomes more emotionally rewarding, the staff is content and the cash crunch forgotten.

(For past columns, log on to http://dvmnews.com/.)

Dr. Riegger, dipl. ABVP, is the chief medical officer at Northwest Animal Clinic Hospital and Specialty Practice. Contact him by telephone or fax (505) 898-0407, Riegger@aol.com
or http://www.northwestanimalclinic.com/. Find him on AVMA's NOAH as the practice management moderator. Order his books "Management for Results" and "More Management for Results" by calling (505) 898-1491.