The Most Critical Measures for a Successful Private Practice
In our experience, one of the most common aspects that private practice owners struggle with is switching from their clinical, altruistic side of the personality, to putting on the business hat. It’s no surprise, considering you’ve just spent 8+ hours helping clients get through their physical and/or emotional troubles. And especially for psychologists, it takes a lot of effort and practice to snap out of the deep emotional discussions they shared with clients to start thinking about their finances.
But in reality, private practices are a business. And no matter how much you wish you could just forget about the business side, your practice needs to be a profitable and financially viable business in order for you to continue providing the service to your clients. And just like any business, your practice needs your attention in order to be successful.
There are many important metrics you need to track to ensure viability and growth, but not every private practice owner can become a business guru overnight. Keeping this in mind, below are 7 key measures for your private practice that are easily measurable.
#1. Appointment Volume
One of the key measures for your private practice that most directly translates to revenue, although not fully, is the number of client appointments. Keeping track of this is fairly easy especially if you use an online practice management software like coreplus. And it is the simplest way to quickly capture the progress of your business.
Keep a report of your total weekly and monthly appointment volume that you can put against revenue. Most likely, they will have a positive correlation. That is, the higher the number of appointments, the higher the revenue. This makes it easier to quickly pick out red flags or odd trends when there is a weaker correlation.
#2. New/Existing Client Percentage
Another key measure for your private practice that is easy to extract is the percentage of your current caseload that belongs to new clients in a given time frame. For example, of the 20 clients with open cases this week, how many are new clients?
This is important to measure for the following reasons:
- It helps you understand your trend. Perhaps 15% of your clients are new clients in any given time frame. An understanding of this makes it easy for you to do quick calculations or forecasts on the spot using an average figure.
- While all practices are different, there is an “unhealthy” percentage for your practice that you should aim to avoid. Generally, bringing on new clients costs you more time and money than servicing existing clients. An analysis of the new client percentage against profit can help you find out what the ideal ratio of new vs existing clients is for your practice.
#3. Client Attendance Rates
Unfortunately, not all of your booked appointments are fulfilled. In any given week, there will be clients who cancel or reschedule last minute or simply don’t show up. It’s important to measure the percentage of appointments that are attended in a specific time frame like a week or month.
The most important reason is that attendance rates translate to revenue. A psychologist who had 20 appointments in a week, of which 80% were attended and paid, will have earned 80% of the expected revenue.
So, what can you do with this information?
You can keep track of your attendance rates to take action if they become unreasonable. A low attendance rate can shine light onto certain aspects of your practice that could be improved. And while you can expect low attendance during certain times of the year, consistently low attendance rates generally mean you could make some changes.
An average attendance rate is also important when making revenue forecasts. Instead of just using the number of booked appointments as a key variable in forecasting revenue, you can (and should) factor in your average attendance rate to create a more accurate picture of your practice.
#4. Client Retention
In a private practice sense, retention refers to your ability to retain clients. Of course, this is more relevant to health professionals like psychologists and physiotherapists, whose client care generally follows a multiple-session model.
In this sense, client retention rates are like an average lifetime of a client with you. And logically, the longer the client lifetime (i.e., higher retention), the more revenue you gain per client. High retention rates generally correspond with high attendance rates, and lower amount of marketing funds for new clients.
However, retention is influenced by many factors such as first-time rapport, the client’s financial situation, and the style or model that you use. This is why discussions about retention are sometimes met with ethical debates by healthcare professionals.
So, what can you do with this information?
While there is a longer discussion to have about retention in private practice, it is still one of the most important key measures for any private practice. Knowing your average retention rate helps you to plan your business accordingly. For example, you could consider not putting in as much advertising funding into short-term care models compared to long-term models.
Additionally, significantly low retention rates also encourage you to reevaluate your clinical style. If most of your clients only attend one or two sessions, that generally means there is room for improvement.
#5. Average Session Rates
Say a psychologist charges $200 per session but also offers bulk billing. It’s obvious to see that their revenue depends on the ratio of full-fee and bulk billing clients. While keeping track of this ratio is also important, the average session rates in a given time period makes it easier to monitor this in a much simpler way.
Average session rates make it simpler to calculate revenue, fee changes and appointment trends. And it’s one of the important key measures to consider when planning for your business, as it’s an easily measurable metric to set as a goal.
The impact average session rates have on your revenue is tremendous. Working the same 20 billable hours in a week, an average session rate of $200 equals total weekly revenue of $4,000. An average session rate of $100, on the other hand, equals $2,000.
This means that a percentage increase in average session rates is a measurable and simple goal to aim for. You can achieve this with gradual changes to certain aspects of your private practice such as a lower ratio of bulk billed appointments or a higher session fee.
#6. Utilisation Rate (of Total Working Hours)
Utilisation rate refers to the percentage of billable hours out of total working hours in a specific period. For example, if you have 20 billable, client-facing hours in a week, and 20 hours of admin, follow-up reports and other business-related activities, you have a utilisation rate of 50%.
This is a key metric to measure for a successful private practice as it shows how your time is being used and how it relates to revenue. Ideally, you would want a higher utilisation rate, meaning higher number of money-making hours out of total working hours. However, it’s not always possible or even ethical to achieve this in the allied health industries.
So, what can you do with this information?
The number one way you can use your utilisation rate is to distribute your working hours and type of appointments more effectively. For example, if you move around your schedule slightly, you could reasonably see a higher number of after-hour appointments at a higher fee. This way, even at the same 50% utilisation rate, your revenue could be higher.
Additionally, knowing your utilisation rate can help you use your space more effectively. In the example above, you would not need to be in your room for around 50% of your working hours if your admin or business-related activities can be done elsewhere. This means there is now a free space that can be utilised to see clients or be billable in another way. Using this information, you could hire another practitioner or even rent out the room for those hours to maximise revenue.
#7. Contractor Pay
The last critical and easy metric to monitor in a private practice is how much you’re paying the contractors. In most multi-practitioner private practices, practitioners are hired as contractors and paid a flat fee or a percentage for each session.
Contractor pay is the most important variable (unfixed) expense you need to monitor, because for many private practices there is that “sweet spot” at which you start making a profit. Until that point, having contractors is a costly sacrifice to have a busier and bigger practice before they start to see a financial benefit.
This is one of the critical reasons why your financial forecasts have to be as conservative and accurate as possible, taking into account your average session rates, client attendance rates and retention. Running the numbers against different scenarios (or variables) will give you drastically different suggestions of how much you should and could afford to pay your contractors.
It is a difficult balance paying your contractors what they deserve and also running a profitable practice. But closely monitoring your finances can make it possible when gradually adding one contractor at a time at an ideal pay.
The key measures for a successful private practice are not all that different to any other business. It’s about keeping a record of the numbers that can give you an easy overview of your business trends and knowing how to use those numbers to make important business decisions.
There are a couple of things to keep in mind. First, set up your practice in a way that enables an easy access to these metrics. You can easily do this by using an online practice management software, accounting software or even Excel.
Next, you need to keep yourself accountable and make a habit of reviewing these numbers. All the information in the world doesn’t mean anything if you don’t look at them regularly.
This is where most of our clients have struggled. It’s not easy to keep yourself on track without a rigid yet flexible operational structure. For advice about how you can transform your private practice into a successful business, the right metrics to monitor and how to use them, reach out to the K&W consultantsfor a free first consultation.
Private Practice Coaching & Consulting
Unsure if your private practice is on the right track? Wondering if your plans for the future of your practice are feasible? The Practice Lab business coaches and consultants guide practice owners with quality and tailored advice to support sustainable growth. Reach out to us to talk about your business needs!Coaching & Consulting