What are the magic numbers for practice viability? - Veterinary Practice
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What are the magic numbers for practice viability?

is prompted into taking a look at
various statistics and other factors
which should be taken into account
when thinking about opening a new

I RECENTLY received an unusual phone call from a client. It certainly made a change from one of the “can’t pay won’t pay” variety we seem to have had a run of recently. It was from a client who is a successful businessman and entrepreneur. He immediately came out and said, “I’ve just bought [xyz zoo], they’ve started building a vets surgery there; would you like to open it as a branch and be our vets?” I scraped myself up off the floor and started talking. So a week later I found myself in a boardroom of a zoo chatting over lunch to a multi-millionaire. Life takes unusual turns sometimes! As it turned out the location was a bit too distant for out-of-hours provision for us, but I had a very interesting morning talking it over with him and the original zoo owner and went through some of the basics of the veterinary industry with them.

Stringent restrictions

The killer aspect of the venture was the on-call. They just couldn’t believe how stringent the restrictions were on it, coming at it from a businessman’s point of view, and from the zoo owner’s point of view he couldn’t understand why anyone would be worried about sole charge on-call. “Yes,” I said. “It has to be a vet,” was one thing I clarified and also that despite some rival practices co-operating in on-call rotas (as we do very successfully) it is unlikely that an established group would help out a rival start-up. In this way the on-call regulations have of course been very useful for maintaining the status quo in the veterinary industry in the UK. It has certainly kept one corporate local to us at bay who couldn’t set up in a superstore for that reason: i.e. they couldn’t recruit a sole charge vet and no one would share the on-call. With the advent of out-of-hours providers in some areas, though, it has freed up the market somewhat and made it a lot easier for small start-ups. I ran through some numbers at the zoo meeting and it started me thinking about what are the magic numbers for veterinary business viability. Probably the best known is “1,000 active clients per FTE vet”. Our management software defines active as “transacted in the last 12 months”. I think that 1,000 is a reasonable estimate; a busy city practice with long opening hours and rapid-fire consults may have a few more. We manage pretty well on about 900 per vet. It is also widely quoted and accepted that a small animal vet needs to turn over about £200,000. Another useful one I heard and seems to work is that each active client on average generates about £250 per anum turnover. As to how that translates into profit is another story.

How many people you need?

So if you were looking at a map of the UK and had the latest census in front of you, the really basic question is: how many people, as a percentage of the overall human population, do you need to support your practice? Now if you have an out-of-hours
provider locally, you only need as many as you want to see yourself and can just support one FTE vet or less. But how many would you need for a new practice to fully support x number of FTE vets? I looked at some statistics for our area. We are quite a good sample population as we are a few towns huddled between the sea and empty farmland and moor, so quite a discrete population with a defined number of vets. That works out as about 65,000 people and eight small animal vets in our area. So about 8,000 people support one FTE vet. We are a fairly rural area and urban, more ethnically mixed areas, may have fewer pets per head of population.

Pet ownership

Other figures of interest are national pet ownership figures. The Pet Food Manufacturers Association quotes, for 2011, 46% of households owning a pet with the following breakdown: Dog 22% Cat 18% Indoor fish 9% Outdoor fish 6% Rabbits 2.7% Indoor birds 2% Guinea pigs 1.5% Hamster 1.4% Domestic fowl 0.6% Horses/ponies 0.2% Tortoises/turtles 0.6% Gerbils 0.1% Snakes 0.4% Lizards 0.6% Rats 0.4% Those figures may be useful for anyone looking at a city and thinking, for example, “Can I open a bird practice here?” And the overall figures show there are about eight million cats and eight million dogs. If you take the population of the UK as 60 million, that would make on average 27% of people owning one cat or dog. Quite a few people own more than one pet so I reckon, using a random fudge factor, we could guess that 20% of the population are probably dog or cat owners. If you multiplied that by your target population, it could also give you an idea of the number of potential clients. Testing that approach on our area gives us 1,600 clients per FTE vet from our population. Not all those are active so we are getting near the industry quoted 1,000 per vet. That’s a lot of fudging but it’s not a bad estimate. We have just opened a new branch and putting those types of figures into our new area it seems to be about right. I have been canvassing round for the magic number of population to FTE vet but I guess most corporates keep their formulae secret, like marmite and coke recipes, and on the forums I haven’t had any luck.

Improvements requested

If anyone reading this can improve on my estimates, then please e-mail me at garethcross@hotmail.com. I would quite like to collect everyone’s take on it, especially from other regions. It also only really applies to rural and semi-rural areas as in a big city the population is effectively infinite, it’s just a question of getting them to come to you rather than opposition. But for anyone eyeing up a map of North Scotland, Northumberland or
Cornwall, for example, it would be a useful figure. Or for anyone eyeing up an under-vetted urban area. You would have to assume your population lived within a maximum half-hour drive. You could then google up the ONS or district council stats for your target area and see if you have enough people. I reckon it’s about 8,000 overall human population per FTE vet to generate about 800-1,000 active clients. Or multiply the population by 20% and then work on about 1,600 clients per vet. Any better ideas out there? At the end of the day, a lot of business decisions are made on instinct, but running some numbers over the
population figures will certainly give you an idea of viability. For the zoo owner, I had to advise him he couldn’t really open a practice with his catchment area other than as a part-time branch of a larger group. We opened our branch surgery largely on gut feeling and the right property coming up. Regular readers will have heard me discuss the retro-spectosccope (a vital bit of practice kit and highly recommended by the VDS, amongst others). If we train the retrospectoscope’s eagle eye on our past
decisions, and with a bit of fudging the numbers as above, it still seems about the right thing to have done.

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