Understanding Advanced KPIs
For those brave enough, let’s dive into some advanced KPI calculations. These formulas are the result of lessons learned from working with top achievers in the field, and can have a big impact when understood in your own practice! Not everyone is willing to measure at this level of detail; but I have noticed that practice owners who achieve big goals, know their numbers.
Without further ado, here are some advanced KPIs–they’re not for the faint of heart.
Average Length of Treatment
Is the average length of treatment a financial KPI? Technically, no. But we’ll need this number in order to calculate the next 2 KPIs, so bear with me.
The average length of treatment can vary from practice to practice, so we use this number to figure out what’s normal in your practice/niche/education level. You’ll have to run reports from your EHR or manually, but what we are trying to get here is an average number of sessions a new client will attend.
If you have a group practice, this is likely different at each level of experience. For example, provisionally licensed or newly licensed clinicians usually have a much lower average length of treatment than experienced clinicians. You have to learn somewhere! With this information you can set an appropriate pay level.
Average Lifetime Value of New Client
Do you see where we’re going with this one?
Average length of treatment x average rate = average lifetime income for a new client.
When you’re talking to a potential new client, keep this number in mind. This won’t be a perfect calculation, but it is a great starting place. With this information, every time you take on a new client you can have a general sense for how much money you will bring in. No more guessing games!
Without direction, planning for the future of your practice can feel like Russian Roulette. Once you know how much income a new client will ultimately bring, you can start to make concrete goals for your practice.
The next KPI involves how much money you spend each month trying to reel in those clients!
Average Cost of Acquisition
Do you run a private pay practice? This one is especially for you! First, calculate your monthly marketing cost. Include things that are truly marketing – things like your Psychology Today membership, FB ads, newspaper ads, fruit baskets, etc. Don’t forget to include your time! Along with any admin time that is dedicated to marketing.
What is that number?
Divide it by the number of NEW clients you saw this month. And that’s your cost of acquisition!
Formula: Monthly marketing cost / New clients seen that month = Cost of acquisition
It’s not a perfectly scientific number because it’s difficult to correlate a new client to the exact moment they decided to call you. Sometimes there are several touch points before a client is ready to reach out. That’s OK! What we’re trying to achieve here is a baseline for your practice so you can measure changes. By tracking on a monthly basis, you can quickly see how changes in advertising expenditure affects your bottom line.
For example, if you double your FB ads in March, it might not correlate to double the new intakes in March. But it might mean you see an increased number of intakes in late March and early April. By tracking this we can see what marketing methods are successful and which ones aren’t. This information can become a huge money saver!
Does your advertising cost per session stay the same? If yes, continue to increase your advertising. Does your advertising cost per session skyrocket? Perhaps the advertising method or message is not working and needs to be re-evaluated.
Keep in mind–
If your practice mostly takes insurance and your advertising and marketing spending is negligible, it might not make sense to measure this. But if you are a private pay practice or trying to transition to private pay, I highly suggest measuring this so you can track your efforts.
How often are you getting clients on board, and what does it take?
Whether you’re handling all the calls and emails yourself or you’re thinking about hiring a virtual assistant or admin, I highly recommend tracking this. There is tons of critical information here. Once again this number isn’t exactly going to be an exact science since there are many reasons why an inquiry might not convert into a client.
Track the number of inquiries received and how many of those convert to a scheduled appointment. If you have group appointments and individual appointments you can track to that level as well. It’s also a great idea to keep track of all FAQs - you’ll see why in a minute.
If you’re tracking the most asked questions you’ll be able to see trends in the objections you hear. Are prospects solely interested in finding out if you take their insurance or not? Are they looking for specific hours that you may not have available? Is it taking you too long to respond to messages and the prospect has moved on? It can be painful to track this–and discover your weaknesses–but you’ll likely find some issues in your practice. And then you can get to work on finding solutions!
What’s “normal” is going to depend on many factors such as insurance, rate, niche, and location, so there isn’t an exact target number for this one. With this baseline for your conversion rate, you can compare it to an admin or virtual assistant once they are helping answer calls. How does their conversion rate compare to yours? You’ll also have a list of objections readily available so you can work on a script for your admin.
You can start to see how this information can come in handy!
Labor Utilization Rate
What is labor utilization?
Here’s the formula: Billable hours / Total hours worked = Labor Utilization Rate
This calculation helps you ensure that employees are spending the majority of their time doing work that matches their education and pay scale. In many practices, clinicians can wear more than one hat. Maybe they’re blogging for you, working on marketing, attending events, etc. The clinician is usually paid an hourly rate for those hours. When you’re reviewing the P&L it can be difficult to identify scope creep.
Is the clinician slowly reducing their client hours and ramping up marketing? It can get really expensive if you’re not keeping an eye on it!
On average* you will need 4-5 administrative hours for every 20 clinical hours worked–so the average Labor Utilization rate is around 80%. If you fall significantly below that, your profit is likely starting to slide. If there aren’t enough revenue generating hours to support the administrative hours, things can go downhill quickly!
*Averages are just averages–if a different number works for your practice, that’s great!
Space Utilization Rate
I often come across therapists who think they need more space before they can hire. Sometimes that’s true–but often it’s not! Most of the time, they haven’t really looked at the numbers... and their space is mostly sitting empty.
Actual Clinical hours/Available hours
Available hours = # rooms x # available appointment slots x # days open
This ratio is really useful if you’re considering a larger space for the clinicians working for you. Before making the commitment, take a look at how much of your space you’re truly using!
Let’s say you have available slots from 8am-9pm and offer 50 min sessions. That’s 13 appointments per room per day. There are 7 days in the week. So that’s 91 appointment slots per room! Maybe you’re closed on Sunday, so a more realistic number might be 78.
Look at how many of those slots are actually full. While daytime hours are harder to fill sometimes, those slots shouldn’t be empty all the time. If you’re seeing 25 clients/week that means the space is empty 53 hours/week or 67% of the time! Crazy, right?
In this case, you don’t have a space problem–you have a scheduling problem. Take a good hard look at the schedule and see what changes you might be able to make. What’s a “good” ratio? Your space should be occupied 60%+ (or more!) before you look for more space.
It’s a great idea to do this exercise before you hire as well. It gives you a good idea of the schedule you want to fill. Do you have wide open Saturdays? Do you need someone who can work early mornings? It’s great to have an idea of what your time needs are when you’re interviewing.
If cash is tight and you’re not ready to hire, consider how you might be able to consolidate the schedule to sublet an office 1-2 days or evenings per week. There are counselors transitioning into private practice who would love to have access to your space without the commitment of their own lease.
You have made it through some advanced KPIs!
Take the time to run some of these numbers and I guarantee your practice will profit. I’ve seen it over and over again. I’d love to hear which ones you implement in your practice and how it goes! For more support visit GreenOak Accounting or schedule a consultation with me here.
This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit https://www.greenoakaccounting.com/our-specialized-services-for-therap