"If you think about it, benchmarks are just a way to make you feel bad about your own practice." – Dr. Gary Gerber
I heard that quote from Dr. Gerber in a lecture several years ago and it just stuck with me. Most practice owners know they ought to be tracking their numbers, but struggle with what to do with them. Let’s consider what benchmarks are and how to best use them in evaluating and improving your practice.
"So, you’re saying my cost of goods should be 30%?"
Let’s start with what a benchmark isn’t: a benchmark isn’t a target your practice HAS to hit. Benchmarks are data points aggregated from a larger population of practices. It’s what a "typical" practice looks like.
The first thing benchmarks do is to give you a reference point for how your practice is doing. If you differ from the norm, ask "why?" Your practice might just be different. For example, I had a practice owner call me, worried that his revenue per exam was too low. But half his patient base was on Medicaid! His practice wasn’t underperforming; it was different.
You might be overperforming. But be careful about this. Sometimes we see practices with a net income percent above 40%. Great, right? But it does beg the question: is the practice owner investing anything back into the practice? In some cases, owners are better off spending more on staff or adding space or equipment to grow the business. 30% of $1,000,000 is more than 40% of $500,000, after all.
You could be underperforming. In this case, a benchmark gives you a goal to set with your staff, along with motivation: can’t we at least meet the average? Tap into their professional pride.
Finally, you might just have an average practice. And that’s…fine. Now strive to be better.
Are we getting better?
I once worked for a company which never really shared its results with its employees. (For a lot of reasons, one of which was concern over sharing the owners’ income – something most practice owners feel). But day-to-day, all we did was our repetitive tasks, not having any picture of how we impacted the business.
When the owners did share some numbers with us, our level of engagement and connectedness skyrocketed. And it wasn’t even in hard numbers: just knowing whether revenues and profits were up or down makes a difference.
Benchmarks are a great way to increase focus in your practice and staff engagement. A handful of meaningful numbers gives your staff a clear idea of how the practice is doing, areas it needs to improve, and the opportunity to celebrate success.
There are a lot of things you could track, but I recommend you track at least these three:
Collected Gross Revenue
Number of Exams
Revenue Per Exam
Patients and revenues are the lifeblood of your practice. If your revenues are growing consistently, chances are good that your profits are also growing. If your staff get squeamish from talking about money, tell them something like this: "Revenues are just a number that tell us how many patients we cared for (number or exams) and how much care we gave each patient (revenue per exam)".
"I feel like I need more staff..."
Finally, benchmarks can inform major decisions to either confirm or dissuade owners from a potential course of action. Many owners feel like they are stuck with only their intuition about when to add staff, move to a bigger space or bring on a new OD.
Having benchmarks is a huge help. Let’s take your non-OD staff headcount as an example. If you’re thinking about adding a team member, here’s how several benchmarks can help the decision:
Revenue per non-OD staff. Most practices will generate between $125,000 and $175,000 per non-OD staff. Said another way, most practices will need one staff member for every $125,000 to $175,000 in revenue. If your revenue per non-OD staff is at $200,000 or more, chances are good that you’ll need more staff to grow.
Average Pay per non-OD Staff. Labor costs will vary based on where you live and work. Divide your non-OD staff payroll by your headcount to calculate your average pay. If it’s below $30,000, you can probably afford to carry extra staff (or pay above-market rates for better candidates). If it’s above $38,000 you may need to make due with less due to high labor costs.
Cost of Goods. In most practices, cost of goods and non-OD staff tend to take between 45% and 50% of revenues. Why does this matter? Because in medically oriented practices, for instance, with lower cost of goods (20%-22% of revenues), owners should feel free to budget for more staff.
Office size. Finally, consider the size of your office. If you only have 800 or 1,000 square feet, how many staff can you even fit in that space, and still have room for patients?
Similar combinations of benchmarks can be applied to moving to a new space, or adding equipment, or hiring a new OD. When it comes to big or expensive decisions, benchmarks can help owners make better choices.
Who should you believe, benchmarks, or your own eyes?
Benchmarks can clarify your practice’s performance, focus your employees’ efforts, and simplify your decision making. But don’t let the numbers blind you to your own intuitions. If the benchmarks say you’re understaffed but you feel your staff is underworked, there’s probably no need to rush off and add $30,000 to the payroll.
Delighting your patients is the single best thing you can do for your practice. As you focus on excelling at clinical care and customer service, use industry benchmarks to guide you to faster and greater success.
Nathan Hayes is the Practice Finance Consultant for IDOC. He is a 10-year veteran of the eyecare industry, working at HMI Buying Group and Red Tray, Prima Eye Group from its inception and now IDOC. In his current role, Nathan helps OD practice owners manage their overhead, grow practice revenues and profits, and maximize their personal income, free time, and professional satisfaction. For questions or comments about this article, please contact firstname.lastname@example.org.