Gross Profit Margin
Gross profit margin is a measure of the percentage of dollars remaining after cost of goods (COGs) are accounted for (of top-line revenue). Simply put, it is the inverse of your COGs margin. If COGs are 25%, then your gross profit margin is 75%. You want to drive your COGs margin down which is the same as driving your gross profit margin up.
The
Benchmark
80% Gross Profit Margin (20% COGs)
As more revenue is generated in the practice, it’s expected that costs of good will increase in dollars. This is why looking at this as a percentage of top-line revenue is the most effective way to measure COGs.
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How To Affect It
- As more revenue is generated in the practice, it’s expected that costs of good will increase in dollars. This is why looking at this as a percentage of top-line revenue is the most effective way to measure COGs.
- Ensure no missed charges are occurring and make sure you are effectively pricing your products and services.
- Adjust revenue mix by performing higher revenue generating services.
- Periodically count key inventory to ensure there is no loss of profit.
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Defining Your Growth Rate Goals
Revenue is one of the most commonly referenced metrics and is the go-to to understanding if the business is growing or not and how efficient it is running. It’s a good metric to start with because it gives a great high-level view of how the practice is performing. The challenge with revenue is understanding what is an “acceptable” revenue growth rate—5%, 10%, or 20%? These could all be correct, depending on your practice, but we recommend that benchmarking 5% growth (even for the most mature practices) is the bare minimum.
The
Benchmark
Calculated Growth
Practices that are smaller in revenue size will want to be shooting for higher growth rates than a larger practice. As the practice grows, expectations for growth from a percentage perspective should be reduced. For example, if your practice is generating less than $1.5 million in yearly revenue, you should be shooting for at least 10% year-over-year growth. A practice doing $5 million or more in revenue will have a much harder time hitting 10% growth as this represents such large dollar figures, so a more applicable benchmark for a larger practice is 5%.
You’ll need to consider your market when it comes to benchmarking as well. A rapidly growing market could easily mean you should be doubling the aforementioned benchmarks.
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How To Affect It
- Maximize the effectiveness of client flow to maximize the number of transactions (reference “Transactions” overview to see specifics). This can come through marketing efforts to new clients with an optimized website at the root; top of mind awareness to existing clients through educational outreach and your reminder platform; as well as cultivating any lost clients in the practice.
- Maximize the effectiveness of compliance to recommendations and maintain fees in order to drive average transaction charge (ATC) increases. The core of increasing ATC comes down to properly marked up services and products, in combination with proper communication from Doctors and staff to adhere to recommendations being made to clients.