The rules which experience suggests are better than those which theorists elaborate in their libraries. — Richard Slater Storrs
Most industries rely on analysts to look at data and create theories about how to succeed. Our veterinary industry is no
different. But experience has taught me that these eight "best practices" are no more than widely accepted myths:
Don't bank on it: There are dozens of ironclad practice management rules — some of which aren't so ironclad.
Myth 1: Cutting the employee/veterinarian ratio saves money.
The standard 3.5-to-1 ratio is a mythical rule, as is the theory that cutting the ratio improves profits. In reality, you
can employ eight employees per veterinarian — maybe 12?— and produce even better results.
Cutting support staff labor to less than 15 percent of gross expenses works only in some situations, like the no-value/low-value
(no-lo) practices. Practices receive $1.2 million a year in services per veterinarian when the employee-to-veterinarian ratio
is 12-to-1, and this is a realistic goal.
Fewer support staff guarantees that the veterinarian spends part of the day as a "technician." Veterinarians working as technicians
earn only as much as technicians.
Myth 2: Expense analysis reigns supreme.
We're told that expense analysis is the key component to understanding our practices, but income is more important. Track
your sources of revenue: What's driving the income? Which services can be expanded? How can you expand them?
Spend some time on income analysis and you'll wind up providing better service and watching revenue climb.
Myth 3: Goods are the only variable expense.
Generic accounting templates record variable expenses as the cost of goods alone. But considering the correlation between
support staff and the production of income, our variable expenses must include the cost of labor as well. Understanding this
issue is important, because we use the measure of variable expenses to set fees and make capitalization decisions.
We can set fees by dividing variable expenses by the percentage budgeted for the expenses. For example, $3.50 of actual variable
expenses divided by a 35 percent budget number gives a fee of $10. (In this example, 35 percent accounts for the variable
cost of goods and support labor.)
We can also use variable expenses to calculate the break-even point (BEP) for any new expense. For a piece of equipment that
costs $10,000, using the same 35 percent variable expenses budget, the BEP calculation would be $10,000 ÷ (1–0.35) = $15,385.
This means you would need to generate $15,385 in revenue to "break even" on the cost of the equipment. Amortizing that BEP
over a year changes the "cost" of the equipment from $833 per month to $1,282 per month — quite a difference!
Myth 4: In-house labs are essential.
In-house chemistry systems are all the rage and are wonderful for emergency clinics. In typical practice, though, an over-reliance
on in-house labs causes the diagnostic ratio to fall.
The diagnostic ratio compares the income generated from laboratory, radiology, ultrasound and endoscopy to gross veterinary
revenue. The typical small animal practice should seek a diagnostic ratio of 5-to-1.
In-house labs cannot support all diagnoses, and a key driver of additional revenue for most practices is testing from outside
Balance in-house to outside lab incomes by a ratio of 6-to-4.