Practice Building 101: Plan for Practice Profitability

Plan for Practice Profitability

By Mark Moore

Is your practice generating the profits you want and growing in the direction you want it to go? If not, it is pointless to jump in and try to “fix things” until you know what is holding you back.

Even if your practice has a method for bringing in loads of profitable new patients, if it does not have efficient systems, effective patient retention, patient referrals and revenue maximization strategies, the benefit will be very short-lived.

First, get a baseline diagnosis of your practice. There are several factors to consider. You need to identify and evaluate the key performance indicators (KPI) of your practice. Simply put, your practice has certain goals that it needs to achieve, and you need to be able both to identify the quantifiable attributes of those goals and to measure them. It becomes a matter of using experience to figure out which indicators are crucial to your success, and then using those indicators as the primary benchmarking tools to regularly measure your progress.

For example, these six KPIs will reveal a high-level snapshot of your practice:

  • Number of hearing aids sold per month;
  • Average sale price per hearing aid sold;
  • Binaural rate percentage (average trend 1.83 percent);
  • Close rate percentage (average trend 50 percent);
  • Return rate percentage (average trend 10 percent);
  • Number of new evaluations per month.

Second, evaluate and understand your practice’s cash-flow forecast. Cash is the oxygen of your business, and cash flow is critical for business health. If cash is not available when it is needed, your business might be unable to operate or be forced to close its doors, even if profits are being made. A cash flow forecast should be used as a planning tool, helping you estimate when cash will be needed. For instance:

  • In short-term planning, to see where more cash is needed for a month. For example, if several large annual bills part are due and the cash in the bank is likely to be low, you need to be able to make arrangements;
  • In long-term planning, to find out your business’ cash flow needs over the period of a year or longer. This can be especially effective when you are trying to expand your business.

Third, evaluate and understand your practice’s breakeven point. This is where profit starts. Every business needs to know how many sales have to be made before all the expenses are covered and actual profits begin. However, understand that your business could well be turning over a great deal of money but running at a loss. The breakeven point is the relationship between fixed costs, variable costs and returns.

Let’s equate your practice to a water glass. The volume of the glass, or its size, represents all the monthly costs involved with running your practice. The water or liquid that is poured into the glass represents all of the gross revenue brought in during the month. The very top or rim of the glass represents the breakeven point. When the water (gross revenue) exceeds the glass volume (costs) and water starts to spill over the top, your practice becomes profitable for that month.

However, there is a hole at the bottom of the glass, representing returns and dissatisfied patients. The size of this hole depends upon your KPI return rate percentage. More returns that month means a bigger hole and more gross revenue must be achieved to reach that point where profits start.

The larger the glass the more revenue it takes to achieve the breakeven point. It is always wise to make your “glass” as small as possible, keeping overhead expenses low and controlling costs where possible.

In both our lives and businesses we have to make countless decisions every day to move to profitability and move our goals forward. This is especially true in today’s economic environment, where we are faced with making some very tough choices that can be stressful, strain our resources and even put our reputations on the line.

Achieving a breakeven today does not return losses that occurred in the past or build up a reserve for future losses. When it comes to increasing practice profitability there is no such thing as a “silver bullet.”  Multiple factors including the way your practice is positioned in its marketplace to the systems in place for maintaining patient satisfaction must work together with good business practices to fuel profitable growth.

Mark Moore is the Co- Founder and Chairman of InnerScope Advertising Agency Inc. and has been finding innovative audiological solutions for the hearing industry for more than 30 years.

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