Profitability is greatly impacted by two major expense categories, Labor and Cost of Professional Services (COPS, comprised of inventory, lab expenses, radiology, and other related services). Together, these categories represent approximately 60% or more of revenue in most practices. We've discussed the "40/20 Rule" previously, which is “To optimize profitability, a veterinary practice should strive to keep its Labor and COPS at less than 40% and 20% of revenue, respectively. This is the 40/20 rule.”
To implement the 40/20 rule, set goals for both labor and inventory expenses at the level you determine is right for your practice. Then, examine last week's revenues, and set this week's benchmarks for labor at 40% (or the percentage you determine is right for you) of last week's revenue, and for COPS at 20% (or the percentage you determine is right for you) and empower your staffing director and inventory manager to keep your costs within the limits of your goals. This method will help your team to accomplish great progress in improving your profitability.
Implement the 40/20 rule to improve profitability!
