Manage The Numbers or Your Medical Aesthetics Practice Will Manage You.

Knowing the key indicators will lead to a more profitable medical aesthetics practice

While owning and operating a medical aesthetics practice sounds exciting, especially when you consider the impact aesthetics can have on people’s lives, it is for all intents and purposes a business. Therefore, it must be treated as such if a practice owner hopes to withstand the test of time.

The table stakes for owning any business are the ability to deliver services and products that people demand and to do so at a level in which they demand them. Anyone who has been remotely close to the medical aesthetics industry knows that aesthetic services are in demand. The industry is growing by leaps and bounds. First time clients are gracing practice doors worldwide each day, making the noninvasive and invasive medical aesthetics industry two of the hottest investment opportunities available.

One issue with medical based practices is the ability of the practice owner, many times a physician, to manage the business at the level necessary to achieve profitability so it can continue to meet the needs of its clients. This is true for any business. However, this is especially true for a practice in a booming industry where competition is popping up everywhere and sometimes next door.

Hobby Versus Business

All successful entrepreneurs understand that any business that does not turn the expected profitability is not a business, it is a hobby. No entrepreneur that I know, and most practice owners are entrepreneurs, got into a business to break even or lose money. The motivation to open a practice may have been to help others and make a difference in the lives of those they serve but a secondary motive was most likely to earn a living and raise the standard of living for those they employ.

Managing the business includes several things, such as accountability to operational systems, development of the organization’s culture, exceptional human resource management, etc. Many single unit practice owners tend to do those reasonably well. Managing numbers is where they tend to experience difficulty. It is not surprising to talk to a practice owner and learn that they do not understand their practice’s financial statements. Specifically, the profit and loss statement. This is also the place where most surprises lie and if not recognized early enough can be where most practices get themselves into deep trouble.

Knowing The Numbers

Understanding the numbers is a critical component for successfully growing a practice. Every practice owner must understand a few key metrics. Those metrics can help them to operate more efficiently and achieve desired results. It is important to understand that the number do not simply tell a story of bad financial management. The right numbers can also uncover areas for leadership and management development. All practices managers should have target metrics they strive to achieve each day. Likewise, every employee should know their individual numbers, as they are a contributing factor to the larger practice metric.

Below are some numbers (aka Key Performance Indicators or KPIs) that all medical aesthetics practice owners and managers need to know and manage tightly if they hope to withstand the growth trajectory the medical aesthetics industry (noninvasive and invasive) will endure over the next 5 - 10 years.

1. Net Profit – This is the profitability of the practice after all the bills have been paid. A healthy noninvasive aesthetics practice should be able to realize net profit equal to 20% of the total revenue. For an invasive aesthetics practice, net profit can push upwards of 70% due to the fewer number of personnel needed to operate the practice and the higher per ticket services offered.

2. Labor – This is the cost associated with those the practice employs. A noninvasive medical esthetics practice should shoot for 26% or less in total. This number should come down as revenue rises and the practice matures. Every percentage change in labor can have a significant impact to the bottom line.

3. Cost of Goods Sold (COGS) – This is the cost associated with the inventory carried to deliver services and offer products. This number should be no more than 32% of the total revenue for a noninvasive aesthetics practice. Like labor, every percentage change can have a significant impact to the bottom line.

4. Marketing – Marketing is the cost associated with marketing and advertising the practice. This includes social media marketing, search engine marketing, traditional marketing, local events and partnerships, sponsorships, etc. This number should not exceed 7% of the total revenue for a noninvasive aesthetics practice. Like labor, this number should reduce slightly as revenue increases. Marketing can be impacted by the law of diminishing return. There is a point where more marketing is not going to give you the same level of return. Therefore, throwing more money at marketing may not be wise. This is not to say that marketing is not valuable. It most certainly is. Reduce the spend too much and you’ll see very quickly just how valuable it is.

5. Rent and Utilities – Rent is the cost of leasing and operating the space. This number should not exceed 8% of the total revenue for a noninvasive aesthetics practice. This is a fixed number and will reduce as revenue increases. By using 8% of projected revenue you’ll be able to determine what you can afford.

6. General Supplies – General supplies is the cost associated with the supplies needed to run the practice. This number should not exceed 3% of the total revenue.

7. Insurance – Insurance is the cost associated with insuring the practice (professional, general, cyber, employer practices, etc.). This number should not exceed 4% of the total revenue for a noninvasive aesthetics practice. This number will fluctuate slightly from year to year as the practice grows and claims are or are not made over time.

While the numbers above are guidelines, they are necessary to better understand where problems may lie. A higher COGS could indicate product shrinkage. As such, that requires an investigation to better understanding the cause. A high labor percent could indicate poor schedule management. High marketing spend could indicate ineffective marketing practices or poor lead management. Rent is fixed, so it will change downward as the practice grows.

Finally, the best practice is to know the numbers as they roll in. Managing by a monthly financial statement is like managing a cold after you’ve already caught one. It is a lagging indicator of previous behavior. To be an effective and successful entrepreneur you want to look at leading indicators and manage behavior in real time. Leading numbers are the ones you can attack immediately and are instrumental in making quick changes, which could be the difference between success and failure at the end of the month.

Randy Stepp is a principal with Renaissance Leadership Group, a full-service business development company focused on the medical aesthetics industry.

Visit Renaissance Leadership Group at www.renaissanceleadershipgroup.com to learn more.