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In most cases, a much better method is to compare
ratios. A ratio compares numbers based on per-unit or
percentage figures. Within fairly broad limits, such
ratios are comparable practice-to-practice.
As an example, how much revenue is generated per OD?
To calculate this statistic, take the total practice
revenue and divide it by the full-time-equivalent
number of ODs in the practice (based on the standard
work week of 40 hours of patient-available time).
Suppose the practice has one full-time OD and a
part-time OD who works 16 hours per-week. The practice
has 1.4 full-time-equivalent ODs. If the practice
generated $40,000 in revenue, the monthly revenue per
OD was $28,571. For an estimate of the yearly ratio,
multiply by 12 to yield annualized revenue-per-OD of
$342,857. At the end of a full year?s data collection,
the practice will have the figures to generate a true
annual ratio.
Return for a moment to the estimated ratio of $342,857
per OD. Is that good or not-so- good? Comparisons to
other practices could tell. Several optometric trade
magazines publish this kind of information in
annualized terms. Practitioners can also make use of
Practistats, a free service provided through this
author?s consulting Web site. (Go to www.gwwbc.com and
click on the Practistats button.) The practitioner can
quickly see whether the practice is better or worse
than average.
Other ratios that a practitioner can easily calculate
and use for comparisons are:
- Percentage change in revenue compared to last month
and same month last year
- Percentage change in number of visits compared to
last month and same month last year
- New patient visits as a percentage of total patient
visits
- Revenue per patient visit
- Revenue paid directly by patients as a percentage of
total revenue
- Revenue-per-staff
- Staff-per-OD
- Inventory Turnover - annualized number of frames
sold divided by frame inventory (see Figure 3, which
uses the same data as in Figures 1 and 2, and an
assumed inventory of 350 owned frames).
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All of this data collection, charting, and analysis
may seem daunting. To be sure, the first couple of
months may require two or three hours for the
collection and charting phase. And those hours may
seem futile, since there will be no history yet to use
for the comparisons even within practice. But for the
practitioner who perseveres, the time required will
decrease, and genuinely useful information will emerge
within four months.
That is when the real thinking starts. Analysis of the
data will raise many questions and suggest many areas
for possible improvement. The practitioner then must
design plans for change and must put those plans into
effect.
Consider, for example, staff wages as a percentage of
revenue. For many reasons, this particular indicator
may deviate from the average. Glancing at the
statistics quickly, the practitioners might assume -
perhaps erroneously - that a high ratio means that
that practice has too many staff employees. In fact,
the practitioner may be paying too much overtime,
indicating that the practice is actually
under-staffed. Increasing the number of employees and
paying ?straight? time might reduce labor costs and
result in a more efficient operating situation.
Another reason may be that the practice has a very
experienced and well-paid staff?and they are worth it!
New patient visits as a percentage of total patient
visits can be another tricky ratio to assess. Having
a new patient ratio that is high might indicate great
marketing; but it could also indicate that too few of
your existing patients are returning.
Practitioners may contemplate changes in practice if
they find themselves below average. But why not strive
to be better than average? Inventory turnover is a
great example. The average tends to be in the
neighborhood of 3.0 (in the example, it is 2.8 for
2002). But for a best-practice case, it should be
around 3.5 to 4.0.
Last Words
Every practice is better than average in some areas,
and not as good as the average in other areas. By
knowing which areas are better or worse in their
practices, practitioners can use history to change the
future and improve the long-term health of the
practice.
Every practitioner should hand-write the following
onto a clean sheet of paper.
Treat the business of your practice like a patient:
Gather the right information, diagnose what it?s
telling you, formulate a plan for improvement, and
implement that plan.
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