The numbers aren’t adding up any more - why you are running most self-employed clinicians at a loss

Average Daily Yield – which means the total gross productivity of each fee-earner in your business – how much they generate in sales revenue every day.

ADY can be made up of:

·      The actual or nominal value of UDAs/UOAs;

·      The actual or nominal value of plan patient fees;

·      The actual invoiced value of Fee Per Item treatment delivered/sold on the day.

For the last 25+ years, I’ve demonstrated to my clients that, if an associate was being paid 50% after lab, and if their Operating Cost Per Surgery Per Day (OCPSPD) was at the UK benchmark of £450, then there was an MVP – Minimum Viable Production per day to simply achieve break-even from the associate’s production.

That productivity was around £800 per day – can I remind you that’s to break-even – only above that do you, the Owner, start to make any profit.

Over 20 years of analysing practice accounts, I developed the 80/15/5 rule:

·      80% of associates were generating £800 per day or less – meaning break-even or a loss;

·      15% of associates were generating £800 - £1,000 per day – meaning a small profit;

·      5% of associates were generating £1,000 plus a day – meaning a decent to healthy profit.

Hence associates often ducking for cover when they saw me arrive on the premises – although I have always held the Owners responsible for not keeping count accurately and not collaborating with their associates to improve productivity (and, ultimately, everybody’s take home).

A side note – yes, we have to recalculate accurately for differing associate percentages, OCPSPD and production – in order to gain a precise analysis for each client – this post lives in a world of commonly observed generalities.

How would you feel if I told you that the new MVP for the second half of 2024 is £1500 per day – almost double from two years ago – and that few, if any, associates are hitting those numbers?

Over the last 2 years I have watched as:

·      OCPSPD has climbed as the economy and inflation have heated up, as staff wages have risen, overheads have increased;

·      In the last few months, the labs and suppliers that influence our variable costs have started to pass their increased costs on to you – their customer;

·      Clinical labour shortages have pushed associate earnings expectations upwards;

·      Many Owners have avoided the updated analysis of which fee-earners are profitable, preferring their heads in the sand.

The challenge is that the 80/15/5 rule on production hasn’t changed, even if prices at the practice have increased. Associates develop a cadence of production which magically eases during the busy months, accelerates during the quieter or holiday months and miraculously generates a similar pay cheque every month.

So, the bottom line is as follows:

·      Benchmark OCPSPD has risen in two years from £450 to £650 per day;

·      Material costs have risen from a benchmark of 5% of sales (mixed practice) to 7% of sales in the same period;

·      Lab costs are rising although it’s too early for me to start quoting benchmarks;

·      Prices haven’t gone up as much as they need to in the private sector (God help the NHS provider);

·      Associate remuneration is creeping up;

·      Associate productivity remains the same.

Can you see the problem?

I’m still getting calls from worried Owners and Financial Managers, who are seeing cash flow and profitability diminishing.

It’s a serious problem, it needs analysis and action.

You need to be sitting down with your accountant, business coach, internal financial manager and carefully conducting the analysis that I mentioned in my “Financial Crisis” FMC webinar series earlier this year.

I was worried in Q1 of 2024 – I’m even more worried now – but I also know that the problem is solvable.

Step 1 – recognise that you have a problem.

Step 2 – decide to do something about it.

Step 3 – get help.