The Pitfalls of Using Industry Benchmarks

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Every partner hospital is different, and so are we!
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We speak with many practice owners, all of whom have unique professional goals.  While our initial conversations are primarily focused on understanding the practice and the issues that matter most to the owner, or owners, inevitably, the conversation turns to financial statements.

These discussions concentrate on revenue and profitability, yet quickly shift to our thoughts on the practice’s key performance indicators (KPIs) of profitability compared with other hospitals we have partnered with, or industry averages. Practice owners seek our professional opinion on the hospital’s:

  • Monthly revenue and same-store growth
  • Average revenue per invoice
  • Cost of goods sold as a percentage of revenue
  • Non-DVM labor as a percentage of revenue

Often, these questions are the result of a practice owner having hired a consultant who uses these metrics to assess the hospital’s overall performance.  The veterinary industry is overwhelmed with these statistics from the likes of the American Veterinary Medical Association (AVMA) and the American Animal Hospital Association (AAHA), to name a few.

VPP’s point of view is that these metrics are not relevant to most practices. The published industry KPIs are based on hospitals in a wide range of geographies of various sizes that are managed in vastly different ways. What does this mean?  Consider these examples:

  • We have partner practices in South Carolina, and cost of goods sold in that area can reach 30% or more given the prevalence of parasites such as fleas and ticks. Meanwhile, partnerships in urban areas have cost of goods sold for less than 20% because invoices are skewed more to services rather than products, which drives higher margins. Also, do you sell large quantities of food?  Do you perform more in-house labs or do you send diagnostics to a reference lab?  All of these components factor into what your cost of goods sold should be, and we take the time to fully understand that before determining an appropriate cost of goods for your practice.
  • We have partner practices in urban, suburban and rural areas. We also have hospitals with standard hours, 24/7 coverage and even one with an ER. To apply a standard industry-wide non-DVM labor as a percentage of revenue to our hospitals would not be relevant.  We take the time to understand the hospital’s optimal staffing needs in order to assess what an appropriate level of non-DVM labor should be.

So what does this all mean?  We urge you to be cautious when benchmarking your practice against industry KPIs.  Your cost of goods sold might be higher than the industry average, but maybe your clinic sells a lot of food.  Your non-DVM labor might be lower, but maybe you are short staffed.  We take the time to fully comprehend your hospital and work with you to determine how best to operate your clinic, given its demographics, size and complexity.

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