Fortune 500 businesspeople frequently track potential outcomes by monitoring Key Performance Indicators (KPIs) in their companies and the industry as a whole. Aesthetic doctors need to follow their lead to survive and thrive in today's changing medical climate.
Currently a lot of decisions, some significant, are made by aesthetic practices without observing the right, or really any, KPIs through the same lens as a business executive.
Corporate execs tend to seek a high degree of granularity about where their business is coming from—which offerings have the highest contribution margins, and which business lines or services should potentially cease—largely because they have to report to a board, senior leadership, and investors. By contrast, many aesthetic physicians continue to offer full menus of services just to keep up with the Joneses (or the Kardashians, as the case may be), without trying to fully understand their drivers of profitability.
KPI 101
Contribution margin reflects the selling price (bundled total price) minus the variable cost per unit. (Variable costs fluctuate depending on a company's production volume; they rise as production increases and fall as production decreases.) As aesthetic providers, our most valuable commodity or “unit” for sale is time. It is essential to understand contribution margin per unit time to make smart decisions on purchasing equipment (say, a laser or new shiny energy-delivery box), hiring physician extenders, or modifying your menu of services. In general, procedures with lower contribution margins will require more units (read: hours of your and/or your staff's time) to be sold before you break even.
No practice is structured such that a single procedure/activity is responsible for all the fixed costs, but if you make substantially more per hour of your time doing one kind of procedure than another, it may be time to consider removing certain items from your menu of services. This is assuming your volume of work will overcome fixed costs quickly.
Narrowing Your Lens
Too many plastic surgeons and dermatologists believe they must offer a complete battery of injectables, an armada of laser devices, new and improved liposuction technology (if I'm not doing SmartLipo, am I doing dumb lipo?), and you name it, just to stay competitive. In truth, you likely spend significant dollars and hours trying to procure cases for these procedures to pay off fixed costs while neglecting other procedures that provide a higher contribution margin per time.
Risk plays a role here, too. You may find that a procedure or service could maximize your contribution margin but threatens to put your patients and you at risk for more complications. It may be a matter of a steep learning curve that increases the risks incurred during the ramp-up period, or perhaps something inherent about the procedure.
Take the Brazilian butt lift, for example. The media has helped boost this procedure's popularity, and many aesthetic doctors may consider it a significant money maker without fully considering the potential risk of complications (fat embolism, dilutional anemia, lidocaine toxicity), particularly when they take a “go big or go home” approach. The kind of maneuvers that maximize contribution margin for this procedure may not always support the patient's best interest. From a business standpoint, the trade-off of doing procedures that can have a lower contribution margin but allow you to sleep well at night may be worth it.
This is a continuous process. It's imperative to monitor which lines of business are distractions and which maximize contribution margins and create lasting value. The most successful business strategists quickly learn what their core offering and competency is and define their product or services as clearly as possible. It's known as super-specialization, and may represent the best strategy to differentiate your practice in a crowded market.
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