Welcome to the sixth and final instalment of this series on practice management. During this series, we have looked at ways you can improve team performance, create lasting competitive advantage, increase patient loyalty and make your marketing and communications more effective.
Some of the ideas discussed will see results quite quickly, whereas others are longer term strategies designed to make lasting and solid improvements to the practice. Either way, you will need some way of knowing how your performance has changed, both relative to the past and, more importantly, with how you want to perform in the future.
Understanding these numbers and what they tell you is an essential part of successfully managing your practice. There are many ways of measuring practice performance; in this article, we are going to consider financial performance and key performance indicators (KPIs). Measuring patient feedback was discussed in the article on patient loyalty, a copy of which can be found in Optician 28.06.24.
If you are sceptical or nervous about measuring practice performance, you may enjoy the section later, where we discuss the potential pitfalls of measuring the wrong things. For now let us look at some of the measurements practices are using today to help grow their businesses.
Financial measurement
For any business owner, optical practices included, knowing your financial metrics is key to ensuring profitability, operational efficiency and knowing that you have a viable business. I would encourage any practice owner or manager to make sure that they can read and understand what their management and annual accounts are telling them about their business health.
A few key measurements to consider are:
Revenue and revenue per patient – Total revenue divided by number of patients seen
This simple over-arching measurement of turnover is important but should be coupled with revenue per patient. Using this measurement means you can test and measure different activities to increase sales and know whether your activity is having a positive impact. Without this measurement, it will be impossible to know whether a change in revenue has been caused by an increase in sales per patient or an increase in patients seen.
Gross profit margin % – (Revenue minus cost of goods sold) divided by revenue
Gross profit margin helps you understand how efficiently your practice is generating profit from sales, before deducting your overhead costs. Using this number also helps you understand your break-even point. Working on marginally increasing your gross margin over time can make a significant difference to the profitability of your practice.
One word of caution – cost of goods sold is not the same as cost of goods purchased. It is crucial that you do not assume these are the same thing, as they may differ wildly from month to month across the year.
Net profit margin (normalised)
This metric reflects your overall profitability after all expenses are considered. The word ‘normalised’ appears in brackets because if you own your practice but also work in it, and if you do not take your personal drawings through overheads, an adjustment needs to be made to avoid over-reporting the true profitability.
All these financial indicators should be compared with the plan. In my view, too much time is spent comparing performance with the previous year. While this may be interesting, it is more important to compare the results with your budget or plan. If you do not have a budget or plan, perhaps it is time to address why not.
There are many other financial ratios, which are beyond the scope of this article. Practice owners should familiarise themselves with good financial understanding and ensure they have up to date management accounts from which to make decisions. In my experience, too many practice owners wait until their accountant provides them with their financial information, which is often 12-18 months out of date by the time it arrives.
Key Performance Indicators
As with financial indicators, there are many KPIs that can be used in practice. It is important to select the few that will help you to deliver on your plan. Here are some common ones used in practice.
Recall rate
Recalling patients is the lifeblood of many practices and a decline in the recall rate may indicate that patients are leaving more quickly than might be normal. The actual rate will depend on how transient your population is and the age demographic. So before making any assumptions about this number, you need to know what is ‘normal’. Once this is known, it can be used to help measure any change in recall activity.
New patient growth
Obviously, you need a continuous flow of new patients to replace those who leave your practice. With a wide range of options regarding how to market your practice to attract new patients, it is important to measure not only how many new patients you are generating, but also why they have come to you. By doing this you can target your resources where they will be most effective and hopefully reduce wasting money on ineffective marketing initiatives.
Conversion rate (use with caution)
Possibly one of the more controversial indicators is what is commonly termed conversion rate. For me, this comes with a huge health warning simply because there is no single measurement that conclusively tells you what rate is good or bad.
If you are going to use conversion rate, my wholehearted advice is to look into the pitfalls and the misinformation that can be accrued if the rationale is not tightly buttoned down. A simple example of when this can go wrong is when a practice
compares the conversion rates of two optometrists working in the same practice. In my experience, in a multi-practitioner practice, two optometrists will rarely see the same types of patients.
The best (or rather, worst) example I have seen is where a second optometrist was employed by a practice. The practice team tended to book the patients they were familiar with or the ones they knew were going to purchase high-value spectacles with the incumbent optometrist, booking the newbie with those less likely to purchase.
Clearly, the conversion rate gave a totally different notion as to the performance of the new optometrist when measured crudely. The new optometrist, after being spoken to several times in her first month about the poor conversion rate, decided to jump before she was pushed, handed her notice in and left. While this might be an extreme example of what could go wrong, it does serve to demonstrate the importance of thinking through the implications of what measurements you are using.
Patient complaints and concerns
As far as metrics go, this is one number you will want to keep as low as possible but one that also must not be avoided by deciding not to measure it. Unhappy patients tend to tell their friends, colleagues and family about their terrible experience, hurting your reputation and damaging your image. What makes this measurement more meaningful is when you include concerns into the equation. I recall being told that for every complaint made, 19 other people had the same concern, but decided not to bother complaining. You may have to seek out and encourage patients to air any concerns they have as these are not necessarily volunteered.
Can metrics and KPIs make things worse?
The straight answer to this question is yes. In the wrong hands, poor use of metrics can cause conflict, drive the wrong behaviour, confuse the team and create unhealthy conflict. Clearly, there is no point in measuring metrics in your practice if you are just going to make things worse.
With so much data available these days, from modern tills to practice management systems, part of the challenge is understanding what financial and performance management indicators are important. This will be different for different practices as it will depend on what you are trying to achieve.
Top six tips on how not to use KPIs:
- Failing to link KPIs to your strategy - Your business is unique, with unique aims and goals, and hence your set of KPIs needs to be unique to you.
- Using what everyone else uses - Just because it is right for someone else (and how do you know it is?), does not mean it is right for you.
- Not including staff in the selection of the right KPIs - The team will be required to deliver against the KPIs you decide on, so why would you not seek their input as to what they feel will be effective?
- Measure everything (just because you can) - Just because your system can provide data overload, does not mean that you have to overload your team. Select a few KPIs that will work for you.
- Continue measuring the same thing without reviewing what is working - Practices will often feel that once they start measuring something, they cannot stop. Times change and businesses change. Make sure you regularly review what KPIs you are using and change them if necessary.
- Not digging for insights - Having spotted a change, the worst thing you can do is not dig deeper to understand how and why the change has happened and to use that to improve performance.
Summary
Although the thought of metrics and KPIs can often be stressful to healthcare professionals, they do offer significant insights into the practice. By discussing the goals and objectives of the practice and agreeing with staff on what and how to measure performance, metrics can help improve both financial and clinical performance.
In today’s world, with sophisticated management tools and systems at our disposal, we have every measurement at our fingertips. Choose wisely which ones you need, clearly communicate why they matter to your practice and take the team along with you on the journey of improving those metrics and, as a result, build a more successful practice.
For a copy of his Business Health Check questionnaire, email david@davidsamuelcoaching.com or visit davidsamuelcoaching.com.
- David Samuel is a former independent practice owner, dispensing and contact lens optician, who also has a marketing degree and an MBA. He now runs his own business and mental fitness practice, helping practice owners and their teams to be the best they can be.
