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Real Edge

5 reasons why my Practice is growing, but my income isn’t

There’s a misconception by many Health Practice owners, that all they need is more new patients and things will be great. It’s not that easy. It’s problematic to confuse top line business income, with bottom line net profit or owner income. They are very different. This is evidenced by the large percentage of Health Practice owners who might see their business revenue increase, but the only time their income increases is when they’re doing more clinical hours. 

I’ve outlined what I think are the five things to look for, if your income just isn’t increasing, despite your business growing.  

1. Consult rates are too low

Patients are not paying for your 30min or 60min of time. They’re paying for your years of education, training and experience. Please keep this in mind when next setting your consultancy fees.    

2. Expenses have crept up without you noticing

One of the biggest reasons why bottom-line profit remains stagnant, despite top-line Practice revenue increasing, is expense creep. At least every 12 months, go through your P&L with a fine tooth comb to look for what you can either remove because you no longer need it, or identify expenses for which you could get a better deal on.

The beauty of this exercise is that 100% of every $ expense you save, goes into your pocket.  The whole lot!

3. Hiring only experienced Practitioners and ignoring graduates

Hiring only experienced Practitioners might seem like the easiest and most effective way to grow your Practice. However, not having a system for recruiting new graduates, will generally have an adverse effect on your businesses bottom line net profit. Experienced Practitioners come not only with a higher price tag, but they also might come with their own baggage. If they don’t fit in with your Practice culture, they can make things difficult, and then leave some time later with some of your Patients.

Having a good system for recruiting graduates will have a positive effect on your bottom-line net profit, even when you take into account training and mentoring costs.

4. Re-booking rates are too low. Patients are leaking out of your Practice. 

When you consider the cost of advertising and marketing to get a new patient, the first booking is by far the least profitable.  Conversely, repeat bookings and repeat patients are the most profitable for an Allied Health Practice, because you’ve already spent all the money to bring them on as patients.

If your Practitioners are not re-booking patients enough, or your practices net promoter score is relatively low, then you’re missing out on the most profitable income for your business – repeat bookings.  So you might feel as though your top line revenue is increasing, and your Practice is growing.  However your bottom line net profit is not, because your top line business income is made up largely of first time, low-profit patients.

When running a Health Care Practice, there are so many costs and expenses that for whatever reason are not front of mind.  You need to cover:

  • Practitioner expenses (approx.. 40%)
  • Business running costs (approx.. 20%)
  • Rent (approx.7%)
  • Support salaries-admin, etc. (approx. 13%)
  • Net profit approx.. 20%  (10% stays as cash  + 10% to the owner)

5. Using contractor Practitioners, rather than Employees

This might be a little divisive. There are a lot of Practitioners working as contractors in Health Practices, and for very valid reasons.  There’s absolutely nothing wrong with it. However generally speaking, the more contractors you have in your Practice, the more difficult it is to make the numbers work. This is for two reasons:

  • Financially, Health Practices operate best when the Practitioner cost is around 40% of the consult fee. This includes Superannuation, holiday pay, annual leave, and all the extra associated employee costs. When you have contractors in your Practice, you’re normally paying between 50%-60% of the booking income. This cost makes it difficult for Practices to break even, let alone make adequate net profit, which should be between 15%-20%.
  • Contractors will often work elsewhere, which means you don’t have quite the same level of commitment as you do with employees. When they don’t need to come to team events or training sessions, it can be hard to build a committed Team. Plus, it’s always possible that from time to time, they have their regular patients attend their ‘other clinic’.  Unfortunately, it does happen.

If you find yourself scratching your head about why the practice revenue is increasing, whilst your own income is not, take a look at these five points. And when you do decide to take action, its always best to take a one at a time approach. Attacking more than one initiative at a time will dilute your attention; so take a focused approach, and ensure your success. 

Real Edge

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