If you feel like your practice can achieve so much more than it is or if you are just simply tired of growing slowly, your practice metrics can be the key to unlocking your practice’s potential.
To really get a handle of your practice’s finances and performance, you should track several metrics. In this blog, we’ll cover the metrics that matter most for your practice.
Knowing what your sales are and tracking it via daily/weekly/monthly/quarterly/yearly depending on your type of practice is extremely important. Managing your future projections based on previous periods and current trends, allows you to plan ahead help you reach your goals.
Understanding your cash position is crucial, but knowing what is coming in the next week, 4 weeks, or even months in the future, can sometimes be the difference of staying in practice or not. Seeing practices bounce checks and run out of money is the worst thing ever, and that’s what most people think about when looking at cash flow.
Now that the most obvious is out of the way, let’s dive deeper into other less obvious metrics…
Monthly Recurring Revenue
Depending on the type of practice you have will determine how you look at this metric. Knowing what percentage of your revenue is recurring and how much revenue repeats month over month is very important to growing the value of your practice. Being able to predict your sales will help you with your cash flow management and many other factors. Some of the most appealing practices to purchase right now are those that have a high percentage of Monthly Recurring Revenue as it shows major stability with cash. These practices may also find lending is easier to obtain. Depending on what the practice owner’s goals are and what type of practice it is will determine how important this metric is.
Profitability cannot be overlooked as a metric for the practice. Knowing your gross profit (subtracting the costs related to making and selling said product/service) and the net profit of your practice (how much money is leftover after all expenses are accounted for) is vital to the future of your practice. Knowing how much the practice is profiting or losing should always be a concern
Customer Lifetime Value
Once you know how much profit each product will produce and how often a customer purchases that item or service then you are able to predict the lifetime value of a customer. This is key when looking at different ways to attract profitable and scalable practices to your company. You may be able to offer a large loss leader to entice a customer to your practice and then make it up over the lifetime cycle of the relationship with that customer.
This metric is vitally important to a fast-growing practice. Understanding how much money you will need in order to attract a new customer will allow you to scale your practice. For example, if you know that each customer costs $50 to attain and that customer has a lifetime value of $1,000 in profit to you, then you can invest excess cash in marketing to attain those extra clients. This also provides predictability in the cash inflow that you can generate.
The metrics you track matter. Dig deeper, ask questions, and get an understanding of your metrics, so you can plan for the future with intentionality!