How do you figure out if your hearing healthcare business is doing well? Start by putting the right mix of Key Performance Indicators (KPIs) on your business dashboard to drive your practice into the future.
There are five “must have” KPIs that independent practice owners need to include on their dashboards, according to audiologist Dan Quall, who tackled this topic in a recent webinar sponsored by CareCredit. Quall, who is director of health services at Fuel Medical Group, owned private hearing care practices for 18 years and draws on his experience to share insights on business performance indicators. He pointed out that the 5 most important KPIs – or data points – are focused on total expenses. By tracking them, you’ll be able to see your practice’s performance at a glance.
“I think audiology has a very, very bright future,” said Quall, who has been in the hearing healthcare field for 36 years. Quall recommends tracking this handful of KPIs to keep a practice on track and to take advantage of “exciting opportunities in the very near future.”
The 5 KPIs that are “must haves” in your information toolkit:
- Cost of product
- Marketing expenses
- Ancillary costs (labor, overhead, equipment)
- Gross margin
- Revenue per clinical hour
Cost of product. This is also referred to as “acquisition cost,” and is the average cost of goods. In other words, this is how much you pay on average for the product, and it is a main component of total expenses. There are a number of ways to lower overall costs, according to Quall, and a way to do this is to looking at your service models and what you pay for your products.
Marketing expenses. There is tremendous opportunity in the hearing healthcare industry—especially as aging Baby Boomers come through the market with their increasing need for hearing care. (Industry reports show the hearing market is expected to reach an estimated value of USD 6,913.7 million by 2020.) Quall says the private practice owners should not focus so much on the products you offer, but on ways to sell hearing aids that keep pace with what’s happening in the marketplace. For example, there are new technologies and new ways for consumers to obtain hearing products. Plus, there are innovative ways to market them to the consumer. “We really have to look at ways to create higher levels of efficiency,” said Quall. “I think we have to – as an industry, as a profession – disassociate ourselves from the product.” He advises taking a hard look at your product costs and marketing expenses.
How can private practice owners rein in services and resources that drive costs to be more competitive in the market?
Ancillary costs (labor, overhead, equipment). This is the cost of the audiologist, staff (such as receptionist, janitorial service provider), as well as equipment, and more. “What is causing the field of audiology to remain stagnant?” asks Quall. “I think it’s really about efficiencies. And experience. We have to figure out ways to rope costs in. Use ancillary help.”
Gross margin and revenue per clinical hour. Practice owners need to look at how they provide services as the hearing care industry moves forward.
Here is the scenario of an audiology practice outlined by Quall:
$500,000 Median gross revenue
– $175,000 Cost of goods (average)
= $325,000 What the practice got paid (gross margin)
Gross margin = $325,000 (Ask: How many clinical hours are in this amount?)
$ 162.50/hr. What the practice generates per hour
$1,500 Net from sale of $2,200 product
$ 300 / hr. If provider spends 5 hours with customer on service contract
According to Quall, this is not really efficient, and the hearing practice of the future needs to create greater efficiencies to keep up performance. As we move forward, practice owners must consider the audiologist as the most expensive provider in the practice. It is important to break down the amount the audiologist is paid to perform services like cleaning and checking hearing aids.
When figuring out gross margin, look at your cost of goods. “What matters is how much gross margin you have after the purchase of hearing aids,” says Quall. This is the total revenue with the cost of goods subtracted, then divided by the total sales – shown as a percentage. There used to be a straight line of distribution: “M” (manufacturer) > “P” (provider) > C (consumer).
Today, this has changed. The Internet has allowed the consumer to see what’s going on in the manufacturing world, including pricing. Recent research from CareCredit on patient-consumer behavior reveals that when considering their options for hearing care, patients devote nearly as much effort to researching cost or finances as they do to researching their treatment options. It is best to assume that people have checked prices before they visit your office, and already know the hearing product—and the price—they desire.
“At the end of the day, do I really care if someone walks into the office with a hearing aid…and I got to fit it and got to make my gross margin?” asks Quall. “And, do I really make my gross margin?” Quall adds that businesses who are buying from manufacturers and selling to consumers really need to closely examine their gross margin KPI.
Trends, Challenges & Opportunities in the Hearing Healthcare Marketplace
Large manufacturer-owned outlets or Big Box stores are getting bigger as the industry grows. As a result, the independent practice owner is selling a smaller percentage of the hearing aid market. Managed care is also growing. How can small practice owners improve their performance and maximize opportunities in a challenging, competitive market?
“I think the experience we provide day in and day out in the private practice setting is really what is going to drive and grow the business and the entire profession as we move forward,” says Quall. He argues that if we take a look at the different models that are working, we will see that there is a need for us to find solutions in a climate of competition with lower costs and big-brand retailers. Private practice owners need to look at new opportunities for marketing their services as well.
Consider affinity marketing as one solution. This is a partnership between a practice and another organization that attracts customers who share common interests (an “affinity group”) and can bring more customers to the partner – an approach that is growing 15% to 20% annually. Even third-party patient financing companies, such as CareCredit, can be “affinity group” partners that help market a practice to a broader audience, bringing in more patient leads.
Think about multiple solutions to improving business performance:
- We have to get better at how we market.
- What Costco has is a brand people trust. How can you build your brand?
- Where else can we garner trust? Consider partnerships with doctors, healthcare plans, third-party financing companies like CareCredit, and other organizations.
The five KPIs outlined here for independent private practices are shifting as the hearing healthcare industry undergoes changes. This is a positive sign – as long as we work to create higher levels of efficiency to keep our practices robust for a brighter future.
Image credits: CareCredit; Hearing Review; Dan Quall; © Jimmy Lopes | Dreamstime.com