Financial performance is a key measure of a practice’s success, and its analysis is at the heart of any strategic growth plan. Owners of growth-oriented firms recognize this and understand that a firm’s financial health is necessary to make it viable over the long term. To measure financial performance, growth-oriented practices implement usable, easy-to-measure and understand Key Performance Indicators (KPIs) to ensure they stay on track and meet their business goals. The specific parameters measured should reflect the overall financial goals of the practice and be achievable to implement and maintain. Many best-performing practices monitor five key metrics each month and implement action plans as needed. Learn more about these five KPIs and how to start measuring them, as well as how to develop and adjust action plans accordingly.
COST OF GOODS SOLD (COGS)
Growth-driven practice owners know exactly how much they’re paying for everything in their practice, and they’re always trying to get the best price possible without unnecessary frills. The cost of goods (COG) is what you pay for products and supplies, usually expressed as a percentage of your overall expenses. Take a look at what you pay and what you charge on an annual or semi-annual basis. If prices change or new products come out, adjust your clinic fees accordingly.
HOW TO MEASURE: Measure COGs by running an expense report through your office management system (OMS / EMR) or QuickBooks, or by talking to your accountant. Not all systems have dedicated COG reports, so contact your OMS / EMR customer support if you don’t see what you need. You might need to run multiple reports to get the information.
Note: You can integrate your QuickBooks with some EMR systems to streamline your reporting. Your target COGs should be based on your budget and goals. In a dispensing practice, hearing aids will account for about one-third of general expenses.
Ideas for lowering COGs:
- Join a buying group.
- Buying groups take advantage of group volume to get better prices. Do your research and don’t pay for additional services you won’t use. You may be able to join multiple buying groups depending on your agreement.
- Examine what you pay for bits and supplies.
- Too often clinics continue to do business with suppliers out of habit and not because it is the best value for money. Make sure you get the best price on every product from every supplier.
- Regularly review your purchase history and renegotiate the prices of the products you use the most.
- Request free delivery.
Growth-oriented practices often have above-average revenues per clinic. Gross revenue reflects the total amount generated by a firm during a given period. Income can reveal growth or contraction trends, showing where you may need to adjust to stay on target. For example, at the height of the COVID-19 pandemic, many practices had to shut down or limit their services, resulting in lower revenues. When revenues declined, expenses had to be reduced or eliminated. Once the practices can open up and generate income again, the expenses could increase accordingly.
HOW TO MEASURE: Like COGs, gross income reports can be run through your OMS or your accounting system. Save time by asking your office manager or accountant to send you monthly reports, or mark your calendar so you don’t forget to generate the reports yourself regularly. Organization is an important part of helping you find time to work on your practice.
Ideas to improve gross income:
- Increase your marketing efforts.
- Are there enough new patients finding your practice? Consider new contact with patients.
- Do you bring back existing patients when they’re ready to buy again? Consider a patient loyalty / recall program.
- Offer extended / flexible office hours.
- Expand your ranges of services.
- Add remote / curbside care services.
- Provide industrial hearing services.
- Offer personalized hearing protection.
- Add service packages and offer extended warranties.
- Work with more insurance companies (when profitable).
Growth-oriented practice owners understand that profitability impacts long-term growth. The more profitable your practice, the longer you will stay in business. It will also dramatically increase your practice’s rating if you ever want to sell your practice. While many people focus on gross income, growth-minded people understand the value of profit.
In addition to the overall profitability of the clinic, consider profitability as a function of time spent versus the amount of money generated. Hourly profitability is a great way to easily break down how much you earn per hour. If you have multiple vendors or locations, you’ll want to know this for each.
HOW TO MEASURE: Profitability (net profit margin) is the amount left over after subtracting total expense from total income. Again, a revenue report as well as an expense report is a great place to start measuring your practice’s profit margin. Work with your accountant to set goals based on what the clinic needs to grow (new equipment, staff, upgrades, etc.) and what the owner wants to get out of the practice. A good place to start is to set your goal of at least 20% (read more about Audilonlingy Online, https://bit.ly/3hafpN5).
Ideas to improve profitability:
- Establish a routine to review your clinic’s finances each month.
- Determine your marketing ROI.
- If $ 5,000 for a marketing event is spent, how much is returned?
- Consider re-evaluating your pricing model.
- Are you inadvertently giving your time for free for certain services? If so, can this service be converted into an income generating service?
- Review your insurance combination.
- Insurance payments can positively or negatively affect your profit margin. As fee schedules change, you need to assess your participation in each plan. Third Party Payers (TPAs) can have a huge impact on profits when they become the largest portion of your payments (more in the next section).
Owners of growth-oriented firms know that different types of payers can generate different profit margins. The combination of payers is the total amount of payments from insured patients versus patients who pay in cash. It should be broken down by type of payer (government, commercial / private or TPA). APRs need to be watched very closely as these payers can have a big impact on your income due to their growing popularity and lower repayment rates. TPAs offer hearing aids and services at discounted prices to insurance companies that provide them as a benefit to clients. Because they buy hearing aids wholesale, they can afford to sell them at significantly reduced rates. If you choose to participate in a network, you will be paid by TPA, not the insurance company (or patient).
HOW TO MEASURE: Insurance payments are part of the firm’s accounts receivable. When looking at your accounts receivable, you’ll want to see payments broken down by payer type, frequency, payment term, and repayment rate.
Ideas to improve your payments:
- Keep copies of all insurance contracts and know the payment terms.
- Always file claims on time.
- Use electronic filing whenever possible.
- Know your price list.
- In some cases, you can negotiate your price list when you sign up as a supplier.
- Only participate in profitable contracts.
- Understand when you can bill the patient for any outstanding balance or additional services.
Growth-driven practice owners track productivity to see if they will meet their clinic’s goals. Productivity is the output of services and the volume of products sold (hearing aids). It is important to measure both individual and overall productivity in multi-provider clinics, as individual performance affects the overall goal of the practice.
HOW TO MEASURE: Track multiple productivity metrics to get a realistic measure of performance.
- Number of hearing aids sold
- Average selling price
- Closure rate (number of hearing aids sold / number of opportunities)
- Total revenue by supplier
- Credit rate of return
Note: To learn more about median performance metrics, see Semin hears. November 2016; 37 (4): 301–315 and Audiology practices (https://bit.ly/3wcXolz).
Ideas to improve productivity:
- Implement regular training of staff on products and software. When providers are more comfortable, they do a better job of accommodating patients and have fewer return visits which can be unprofitable.
- Make your staff work hard.
- Update your clinic to use improved technology and efficiency.
- Hold regular office meetings so everyone is focused on the same goals.
Finally, while this is not a KPI for the purposes of this article, do not forget about patient outcomes. Growth-oriented practices know that providing the highest quality patient care is what ultimately keeps patients coming back. Measure patient condition before, during and after the procedure and, based on patient feedback, modify behaviors to improve patient satisfaction.
Becoming a growth-oriented practice owner can be achieved by adopting healthy business habits such as measuring KPIs. Once you’ve implemented these five elements, you can add more to meet additional growth initiatives or further improve performance. The most important thing is to start today in order to achieve your goals for tomorrow.