Being a business owner involves continually asking yourself, “How can I improve my veterinary practice? What is a good profit margin? What is my veterinary practice worth?” A successful veterinary practice must maintain effective and predictable financial management and planning, constantly set new business goals, achieve those goals, and then focus on new goals. But, how can you know whether your veterinary business is actually reaching those targets? Key performance indicators (KPIs) are an important tool that can help you measure progress toward achieving strategic plans, and to track your growth.
First, you must decide which goals will be your focus. As you evaluate your veterinary practice, think about what you are trying to achieve, or your pain points. Perhaps you want to increase sales, improve staff retention, boost efficiency, or maximize your veterinary practice valuation to prepare for a sale. Whatever your goals, you will need to measure and track KPIs, and to choose the right benchmarks and metrics that will help you monitor your success.
Avoid “eye candy”
If you evaluate only KPIs that measure your historical performance, your practice may seem to be thriving. However, if you want to achieve predictable and controlled business growth, address problems before they develop, and make data-driven decisions; you need to distinguish between leading and lagging KPIs.
- Leading KPIs — Leading indicators are metrics that help predict your future success.
- Let’s say that your goal is increasing appointments — appropriate leading indicators may include the number of new appointments scheduled for an upcoming dental promotion or the percentage of clients who sign up for a wellness plan.
- Leading KPIs “lead” to successfully meeting business benchmarks.
- Leading indicators are dynamic and may be difficult to measure, but they are crucial to building predictability and gaining control over your hospital’s future.
- Lagging KPIs — Lagging indicators are metrics that you can use to measure your progress toward meeting your goals (e.g., profit and revenue per day).
- Lagging indicators measure production and performance.
- Lagging indicators are easy to measure, but impossible to influence because it’s historic data.
A successful veterinary business must include both indicators in their goal-setting strategy to ensure steady future growth.
Revenue-related indicators
Revenue-related indicators provide important information about a veterinary practice’s financial performance. Although money is rarely a veterinarian’s foremost “why,” veterinary revenue is crucial for maintaining a successful business and ensuring team members’ financial well-being and the ability to practice the highest quality medicine. Revenue-related KPI examples include:
| Leading Indicators | Lagging Indicators |
|---|---|
| – Veterinarian-to-support staff ratio – Vacant positions and lost profit – Percentage of clients who sign up for or renew a wellness plan – Number of clients who schedule a follow-up appointment for a dental cleaning or other recommended services – Number of clients who purchase recommended preventive medications – Percentage of no-shows and related lost revenue – Number of new unique clients – Number of active clients – Client conversion rate from checkup reminders – Increase in patient flow during promotions | – Total revenue – Year-over-year growth – Revenue per client – Revenue per day – Revenue per veterinarian – Technician-led revenue streams – Breakdown of revenue by service area (e.g., examinations, surgery, pharmacy) |
Expense-related indicators
A veterinary business requires a vast inventory, along with staff salaries, utilities, marketing, and growth strategy costs, and so many expenses mean that measuring expense-related KPIs to track your spending over time is critical. Veterinary practice expenses and financial ratios can help clarify exactly where your money is going, allow you to identify opportunities for savings, and to maximize your profits. Expense-related KPIs that may be helpful include:
| Leading Indicators | Lagging Indicators |
|---|---|
| – Projected expenses related to hiring, expansion strategies, marketing campaigns, and introducing new services (e.g., to increase dental revenue, you will need to budget for additional equipment, staff training, upgraded dental stations, and promotional campaigns to generate demand) – Marketing campaigns data, including cost per lead, conversion rate, and resulting return on investment – Average inventory – Inventory turnover ratio – Working capital | – Total expenses – Cost of goods sold – Payroll – Rent – Insurance and other business services – Technology and equipment – Marketing |
Service-related indicators
Excellent client service is essential for veterinary business growth, although client satisfaction can be vague and difficult to track. However, many KPIs provide measurable outcomes, including:
| Leading Indicators | Lagging Indicators |
|---|---|
| – Appointment wait times – On-hold time or call-back time for incoming client calls – Number of clients who are educated about recommended services – Number of clients who receive personalized recommendations – Number of clients who accept a recommended treatment plan – Open rate of emails and other metrics related to marketing campaigns | – Client satisfaction – Referrals |
Team member- and culture-related indicators
A practice’s team is the backbone of its success. Happy, fulfilled team members and a healthy practice culture organically lead to a healthy bottom line. Team well-being easily spreads to clients and patients, and translates to multi-level success. Examples of KPIs that can help you measure team well-being and practice culture include:
| Leading Indicators | Lagging Indicators |
|---|---|
| – Number of days per week employees stay late or miss lunch – Frequency of late appointments – Number of on-call days – Number of patients per day – Compensation benchmarks – Individual employees’ professional KPIs and career goals – PTO used – Hours of relief work hired | – Employee satisfaction – Staff turnover – Burnout rate |
Comparing your practice to other practices
Although your practice is individual and unique, knowing how your KPIs stack up to other veterinary practices can be helpful. A number of resources provide benchmarks for comparison to your success:
- Veterinary Industry Tracker — Provided by Vetsource and the AVMA, the Veterinary Industry Tracker monitors several KPIs from thousands of veterinary practices across the country. Indicators tracked include daily and annual (i.e., year-over-year) revenue, visits, parasiticide purchases, and service versus product breakdown.
- Compensation and Benefits — AAHA’s benchmark guide provides detailed demographic breakdowns of average salaries for veterinary team members, benefits information (i.e., PTO, CE allowances, health insurance, and retirement benefits), and industry turnover statistics.
- Economic State of the Profession — This annual AVMA report provides a detailed visual summary of the economic state of the veterinary profession and examines major trends that will enable the veterinary community to be agile, innovative, and ready for the best possible future.
Informal resources such as job boards can also provide valuable information about salaries, benefits, and culture perks that comparable practices offer.
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Involve your team
Setting goals and identifying leading and lagging KPIs should be a veterinary team project, because involving the entire team in financial discussions builds community and improves employee engagement. Also, team members will be excited to contribute to goals they actively helped to plan. Provide regular KPI reports during team meetings, so everyone involved can see progress and understand how their role contributes to practice success. Continuously collect team feedback to discover new growth levers and improvement opportunities that your team will be happy to drive.
Terminology
Learning these basic terms related to setting KPIs will help you better understand your practice’s financial health:
- Balance sheet — A financial statement that details a veterinary business’s assets and liabilities at a specific point in time to provide a snapshot of its financial health
- Cash flow projections — A spreadsheet that breaks down the amount of money expected to come into and flow out of a veterinary business
- COGS — Cost of goods sold/cost of sales (i.e., the cost of a product sold by a veterinary business)
- EBITDA — Earnings before interest, taxes, depreciation, and amortization — an alternate measure of a veterinary business’s profitability to net income
- Income — The actual amount of money a veterinary business earns over a period of time, accounting for deductions such as preference shares and dividends
- Net worth — A veterinary business’s total assets (i.e., what the business owns) minus its total liabilities (i.e., what the business owes)
- Overhead cost — Indirect expenses of running a veterinary business that are not directly linked to products or services provided, such as rent, utilities, and team members’ salaries
- Profit — A veterinary business’s net income after deducting expenses
- Profit margin — The amount by which sales revenue exceeds costs associated with running a veterinary business (i.e., profit), expressed as a percentage of total revenue
- Revenue — The total amount of income generated by the sale of goods and services related to a veterinary practice’s primary operations
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