Can You Manage Veterinary Practice Staff Expenses?

Employees working in a supply room

Staffing costs are one of the most significant expenses in a veterinary practice, and controlling these costs remains one of the most challenging issues for most practice managers and owners. Even in actively managed practices, it still can be a struggle to get staffing to an optimum and replicable level.

As we look into managing veterinary practice staff expenses, it is crucial to remember that the work will generally expand to fit the time available in most businesses. This inherent foundation creates the perception that there is always plenty of work to fill everyone’s day, even when a practice’s underlying issue is overstaffing.

To objectively assess your staffing expense – or at least as objectively as possible –, it is important to rely on the more subjective measures. Doing so can help you avoid managing by feeling and focusing on objective data to assess whether staffing changes are needed.
The following are several reference points that we feel are key to evaluating your staffing expenses.

Support Staff Costs as % of Revenue

Support staff includes all of the non-veterinary staff, including management and custodial. The total support staff expense in a financially healthy animal hospital (including benefit costs) is typically kept below 23-25% of revenues. This tends to break into 16-19% of income for the wages and 5-8% for the benefits. The benefit costs include all costs associated with health, dental, worker’s compensation, and other insurances, the retirement benefits, the owner’s portion of employment taxes, the continuing education, and any paid vacation, holiday, and personal days.

Management Costs as % of Revenue

The non-owner management often includes hospital administrators, practice managers, and inventory managers. Depending on the practice size, this may be one person, or it could be multiple people. Regardless, as a general rule, the expense for the wages not including benefits should not exceed 2-3% of revenues. To properly assess this, it may be necessary to include a portion of the wages for those staff members who fill dual roles, such as technicians who also are responsible for inventory management or office managers who also work in reception.

Staff per Veterinarian

While less subjective than reviewing the actual expense, comparing your staff hours per veterinarian hour to the industry benchmark can be a meaningful reference. Per AAHA’s “Financial & Productivity Pulsepoints,” the average full-time equivalent (FTE) staff per FTE veterinarian is around 4.0. To calculate yours, divide the total staff hours by the number of doctor hours for the same period.

It is important to note that this is a reference point only. There are limits on how applicable this reference is to individual practices. Whether it is appropriate or not can be influenced by variations in hospital fees, average transaction costs, the types of services provided, and the levels of revenues generated by non-veterinary staff. Therefore, it is sometimes helpful to also measure and track how much revenue the practice generates per hour of operation against the number of staff that it needs to support.

The above provide different tools to assess your staffing expense. If they indicate that you have an opportunity to improve, then you can take the time to dig deeper. If you need to dig deeper, or you want to prevent your staff costs from getting out of control, here are several common pitfalls to avoid:

Not Adjusting the Hours to the Current Demand

For many general practices, the spring and summer months are much busier than fall and winter. During the busy months, practice owners will often find themselves increasing staff hours or hiring additional staff members to meet the demand. This is good. However, when the schedule lightens, many owners and managers are hesitant to reduce the staffing hours when the rush is over.

This higher level of staffing creeps in and gradually becomes the “new normal,” which goes unnoticed. As workload decreases, the staff will find “make-work” projects such as cleaning and organizing workspaces. While good to do when needed, this work does little to generate income to meet payroll needs. Associates and staff adapt their work pace to meet the lesser demand. The make-work grows to fill the time, but the revenues in the slower months level off. Thus the practice staffing increases as a percent of revenue.

The problem gets worse when the cycle continues and the next busy season approaches. As the patient load increases, the employees who have adjusted to the new normal are now feeling the stress of a busier schedule, which results in the “we need more help” distress signal to the manager/owner.

This is a cycle that can sneak into any practice – but it is not sustainable. It is better to continually adjust your staff scheduling based on current demand, not on keeping everyone on the schedule.

Giving Raises According to Time Served

Owners and managers should avoid paying raises that are solely related to the passing of time. Instead, there are many factors that should be considered before increasing staff wages. Consider the value the employee has created respective to their position – are they meeting the position’s expectations? Have they met the goals from their prior performance review? Do they want to take on more responsibility?

Management also needs to consider the practice’s ability to raise fees to meet the higher employment costs. While fee increases and raises can be linked so that the employees understand that there is a connection between them, the timing of employee raises is often dictated by history and policy. Planning for the raises and associated increase in staffing costs is best addressed as part of the annual budgeting and fee setting process. Set a schedule for both.

It is also essential to recognize the increases in the employee’s benefits package as a part of their wages. These often result in a raise even though the employee’s hourly wage did not change. An employee should be presented annually with their entire compensation package to appreciate all that they receive from working for the practice. It’s easy for employees to forget that their take-home pay is just part of the compensation they’re receiving.

Failure to Adjust Wages Downwards

When offering an employee a higher wage to take on an additional role or responsibilities, ensure that the expectations are clearly defined concerning the increase. It is not uncommon for an employer to raise an employee’s wage when adding medical or management responsibilities to discover that the employee fails to grow into the responsibility or does not have the leadership skills needed. It may also be that the team composition changes so that the role is no longer warranted. It can be challenging to return the wages to the prior level.

When a practice owner is unsure if the employee will be successful in the new role, it might be better to offer a change in wages on a provisional basis or possibly pay the increase as a stipend that more directly relates to the added responsibilities.

Setting Schedules According to Employee Needs

A practice should schedule its employees based on the clients’ demands. We continue to see many practices with large numbers of staff hours incurred outside of the regular appointment and surgery hours. Early morning hours spent preparing for the day before client arrival seem very popular with employees. Unfortunately, there is no revenue generated during these hours to justify significant numbers of staff hours incurred.
It can be beneficial to accommodate valued employees where possible and to try to meet personal schedule limitations. However, the needs of the practice must take priority. It’s necessary to ensure that adjusting schedules isn’t at a cost to the client or patient service or to the practice’s financial health.

Many practices benefit by having staggering and rotating schedules between staff members to allow each employee some flexibility in meeting personal demands with the majority of staff scheduled during peak client and appointment times.

Simmons Helps You Figure it Out

Many practices have a general awareness of these issues, but they do not schedule the time to assess this large expense category. It is a common reason that many practices are not financially healthy. It is just too easy to run on auto-pilot and let the staffing “just happen” instead of actively managing it.

Take a look at your numbers. If they are not where they should be, perhaps it is time to really set aside the time and assess how you are using your team. When it comes time to have your practice appraised, you want to be confident that you have properly managed your biggest investment in your practice. Reach out to the team at Simmons Veterinary Practice Sales and Appraisals today to learn more.


David McCormick, MS, CVA and Sherry Everhart, RVT are veterinary practice appraisers, brokers and practice management consultants at Simmons Mid-Atlantic. They can be reached at 888.881.7084.