Ok, I admit it. I am getting depressed reading about the Veterinary marketplace today I hear “Schools are producing too many veterinarians. People are reducing the amount of dogs they own and cat owners aren’t bringing Tigger into the practice as often. Student debt keeps rising, salaries keep sinking, low-cost spay/neuter clinics, vaccine clinics, 1-800 Petmeds are ruining my business!” I could go on, but you get my point. There is no shortage of negative talk out there.
But, if things are so bad, why does Live Oak Bank’s Veterinary Loan Portfolio continue to be filled with customers who I am proud to be in business with? I still believe in the industry, and continue to see practices grow and thrive. However, I do see clients who are growing faster than normal, and with margins that are stellar. That gave me the idea for this article, to give you the secret strategy that helps these thriving veterinarians overcome all the macro-economic challenges.
Spoiler Alert: Of course, there is no one-size fits all secret or an easy-to-implement strategy of success for the veterinary business, or any other industry. However, I have seen some very cool strategies that have led to practices that are growing 15-20%/year with above average profitability. Interestingly, although these strategies are on the surface very divergent from each other, they share some common characteristics. So, let me quickly give you my common characteristics of successful practices, and then give you some of my favorite specific practice strategies that seem to resonate with customers.
Positive Attitude. I have never met a scussessful practice owner who views the world with an “I can’t get that done” attitude. They try new stuff, celebrate what works and throw out the attempts that don’t.
Team Oriented. As a credit person, when I walk into a veterinarian’s office and hear the veterinarian/owner praise the skills and work ethic of her staff (who all smile broadly at the owner) as we walk through, I don’t even need to look at the numbers to know that this practice is operating at a high level. Good leaders invest in and train their team, and those team members typically respond by pleasing the customer.
Owner embraces the “Business” side of their practice. Veterinarians/owners who work to learn the business side of their practice, e.g. understanding the margin made on various services, how to control inventory, what marketing endeavors bring in clients, etc. are more successful than those owners who have limited interest in the “business side” of their practice, and hand it off like a stinky diaper to one of their employees.
Those are my simple-minded common ground traits every successful practice should have. I know nothing new there. Now for a few of my favorite strategies we have in our portfolio.
The Low-Cost Provider
Travis asked me to go see a clinic with him. I was surprised when I walked into her practice. I had seen the numbers…. 45-50% revenue growth in each the past two years, a 30% Net Operating Income margin. I thought it had to be a high-end clinic, maybe a lot of orthopedic surgeries going on, modern equipment, etc. To my surprise, the office appeared very modest. The practice was in an old converted house with cramped exam rooms and older equipment.
The DVM/owner explained that the practice is positioned in the market as the low-cost provider. Exam fees are $20 under the competition, walk-ins are welcome and appointment times are short: 10-15 minutes. The practice thrives on low-cost spays/neuters done efficiently, vaccines and vomiting pets. Tech appointments at even lower costs are available. Complex issues are referred out to other general practices in the area. There is no website, and marketing has essentially been word of mouth. This owner identified that this niche in the market was under-served, and has remained true mto the mission of serving this segment. The staff is very well trained to handle these types of patients.
Every cost is well accounted for, inventory is basic, no fancy drugs here, customers love walking out of the clinic with a $75 average transaction charge, the owner’s staff wages are 24% of revenue, cost of goods sold is 22% and she does $1 million of revenue as the only veterinarian.
One Plus One Equals Three
A young veterinarian (let’s call him Dr. Jones) was doing $450,000 out of small leasehold with two exam rooms. The community he lives in has a population of 85,000, and ten veterinary practices are within five miles of his clinic. His practice didn’t have the greatest visibility, and his growth was stalled. He worked six days/week and handled the business side of the practice himself. He was very efficient, with a 35% Net Operating Margin. This meant long hours and little vacation. His dream was to build a new building, but his revenue and cash flow just couldn’t support that.
1 mile away, a 60 year old veterinarian (Dr. Smith) had a very similar practice. $450,000 in revenue, 35% NOI margin, long hours and stalled growth. His worry was different. When he was ready to retire, who would want his small leasehold practice in this overly-competitive market? See the solution coming? That’s right, Dr. Jones and Dr. Smith got to know each other over a couple of years and decided to merge their two practices into a single, brand new, beautiful 3,000 sq. ft. facility.
The revenues have grown to $1.2 million and the NOI margin has increased to 41%. They have a full-time practice manager and can even take a day off here and there. When Dr. Smith is ready to retire (which might be delayed now that his life is so much better), Dr. Jones is ready to buy at a formula that was determined at the beginning of the merger. They are able to think more strategically about their business now that they have the time and have recently seen great results by trying a web optimization program.
Paperless and Visual
The final practice: I just love this one, where the main goal is to practice high quality medicine and to educate the customer on what this means. The market is upper income and loves their pets the way I do. Staff training is intense. They need to understand why certain protocols are enforced and the benefits to the patient. They are articulate and take pride in being the knowledgeable. The staff carries i-Pads, all information is entered into the paperless system (missed charges are not a problem) and exams are 30 minutes.
When a diagnosis and treatment plan are presented, it is done visually. X-rays and lab results are shown to the client on the wide-screen monitors in the exam room, and the client acceptance rate of the treatment plan is really high. The practice invests in the latest equipment, but only after being confident that it will not only be beneficial to the patient’s health, but that it can also generate incremental revenue. Dental x-ray and laser surgery are understood and explained to clients who appreciate the medical benefits to their pets, ATC is over $200 and the clients are happy. The owner understood his market and tailored every aspect of his practice to deliver this high standard of care.
To download a copy of this article, click here: The Successful Strategy to Compete in the Marketplace Today