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Key Performance Indicators: What You Don’t Know Can Hurt

Determine what needs to be measured, understand your strategy, then use that data to take relevant action.

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You may have heard the saying “You can’t modify what you don’t measure,” but that’s not an accurate statement. The fact is you can modify all you want as often as you want, but without good data behind these changes it is similar to driving a car with a blindfold on—you have absolutely no idea if you are headed in the right direction! More often than not, the result of this haphazard business approach can lead to less than optimal decision making.

The good news is that most people are aware that driving blind is not an option and make it a priority to monitor and measure key performance indicators (KPIs). Too often, though, a lack of training and guidance in the area of KPIs can lead to errors in judgment that are as significant as those made when not measuring data at all.

The purpose of KPIs is to reduce the complex nature of performance to a small number of valuable indicators in order to recognize trends and make appropriate business decisions. In reality, though, the term is often overused to describe any form of measurement data and performance metrics, regardless of their actual value.
 
A lack of analytical analysis to determine the relevance and value of a KPI can potentially lead to two problematic outcomes. The first is that you end up measuring the wrong data and thus end up making decisions that take you in the wrong direction. The second is that you measure too much data, which can lead to excessive confusion, leave you without a clear road map and result in the inability to take any action at all.

Applying KPIs

So what is the manager of a veterinary practice to do? Learn to determine exactly what needs to be measured with regard to any initiative or undertaking, and then, with a full understanding of your strategy, use that data to take relevant action. It doesn’t matter whether the initiative is to attract new clients or increase your active client base—the same rules apply.

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If the choice of metrics is correct, and the data is headed in the “wrong” direction, it’s a sure bet the time is right to reassess, strategize and make changes. If the numbers are headed in the right direction but perhaps not as rapidly or dramatically as desired, it might mean just tweaking a few things to improve what you are already doing. Of course, in the ideal scenario, the strategy employed is working superbly and it’s a matter of continuing on the same course until the data indicates otherwise.

In short, key performance indicators must answer important questions:

  • What must one know to determine a future course of action?
  • What insights will provide the most relevant information for improved decision making and performance?

To demonstrate this concept, consider any strategic initiative undertaken to reverse the decline in a practice’s active client base—something with which many practices are currently struggling. While most practices have no trouble determining a reduction in client visits, as a KPI the difference between what was and what is on its own provides little guidance when implementing strategies to reverse this trend.

The questions that need answering are:

  • What is the rate of client turnover in the practice?
  • Is the decline steady or fluctuating?
  • Are you experiencing decreased turnover as a result of implemented improvement strategies?

Measuring the practice’s client turnover rate (CTR) will provide this information.

To calculate the CTR, determine the active client base at a specific point in time. Define what an active client is, but regardless of whether the parameters are 12, 18 or 24 months, the key is to remain consistent.

The second determination is how often to measure a trend. Again, it is critical to be consistent in the time period used to calculate your metrics. CTR is an important KPI and should be measured no fewer than four times a year to provide relevant data for decision making and strategy and, in some cases, to implement damage control.

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Adding it Up

Once active clients and the time period are defined, the client turnover rate is calculated using the following equation:

  • CTR = lost customers over period (t) ÷ active clients at the end of the period (t)
  • If you had 10,000 clients to start with and 9,200 clients three months later, the equation would be 800÷ 9,200 =
    8.6 percent.
  • If, three months later, you had 8,900 active clients, the CTR will have decreased to
    3.4 percent (300 ÷ 8,900)

What makes this data more valuable than merely knowing that veterinary practices are continuing to lose clients? If charted, this data would clearly show that the CTR trend decreased during that three-month period by 5.2 percent, which is actually quite an achievement. In other words, the trend line indicates that things are moving in the right direction. Of course, from there the hard work begins as one takes this data and analyzes it by digging deeper and asking critical questions:

  • What was done differently in the last three months that could have positively affected this trend, and how can we do more of that?
  • Are outside factors affecting this trend? If so, will they continue and can they be positively influenced?
  • What else can ensure that this trend continues in the right direction and eventually crosses the line into positive growth?

Client retention rate is only one of many critical KPIs that veterinary practices often overlook.

Whether it is in the area of marketing, human resources, inventory or patient care, the key is to learn how to ask the right questions and then determine what measurements will provide the answers to those questions.

Managing a practice with the most relevant KPIs under your belt will lead to better decision making, fewer losses (whether of clients, patients, staff or dollars) and more timely improvements. 

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Jessica Goodman Lee is a certified veterinary practice manager and has been a member of the Brakke Consulting team since January 2011. Before that she spent 13 years as hospital administrator for several large veterinary practices in Minnesota, North Carolina and Texas.

<HOME> 5/29/2012 9:54 AM

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