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John Gay, DVM PhD DACVPM AAHP FDIU VCS
VM 577P Herd Production Medicine
Professional Service Fee Exercise
Static out-of-date page for placeholding
Current version - pdf
Purpose: The purposes of this exercise are for you to:
If unclear about any of the following, ask me. Please discuss this with your peers for their ideas and your mentors for their input!
Task: Build a spreadsheet, Excel, Google Docs, OpenOffice or other, for estimating future professional fees and for doing "what if's."
Questions to consider: Are enough herds likely consuming the type of services you want to provide within range of where you want to live to support a family? What if you served more herds? Fewer but larger herds? More specialized services (e.g.doing ET) for more select herds (e.g. registered seedstock producers)? Increased the proportion of billable time? Charged more? Worked more hours in herd work? Less hours, shifting to more small animal work? How much do you need to charge for individual animal procedures to cover your time as well as other fixed and variable expenses?
Professional Fees Spreadsheet (old version below - Revised and updated Version is now this pdf)
I) Estimate the Demographics of Your Future Clients 5 years Post-graduation:
- Identify the region in which you want to practice (e.g., Southeastern Montana)
- Define your primary practice type and time or species allocation (e.g. commercial beef cow-calf, registered beef, feedlot, commercial dairy, registered dairy, 75% small animal & 25% backyard livestock, 1/3 equine & 1/3 cow-calf & 1/3 small animal). Hint: Getting your spreadsheet working with just one species first is easiest; then make it as complex as you need.
- Define your approximate practice radius and the counties this covers (e.g., 100 mi radius, Powder River County) or the clientele strata (e.g., >1,000 cow dairies, herds doing ET) on which you wish to focus.
- Put this description into your spreadsheet as a text block. Note that the larger your radius or the farther apart your clients, the more of your time that will be "windshield time" for which you don't get paid much if at all (e.g., call charge, mileage, airfare)
- Putting the community into Google Maps (e.g., Cutbank, MT) gives an aerial perspective of the area, scale at the bottom left).
- Determine the herd demographics for that type of client in the area or the strata you selected (e.g. estimate number of herds within practice area counties and distribution of herd sizes). Do that by that by:
- Go to Census of Agriculture, select the appropriate census year (2007), select Full 2007 Census Report, the "All Counties by State by Table" and click on your state. Table 1 shows overall summary data. For herd size information, select the pdf for Table 11 "Cattle and Calves-inventory & sales."
- Be careful of the definition of "cow"; cows "that have calved" classified as either "beef" or "milk cows" likely gives the better definition of the actual livestock enterprise size. The first set of inventory figures is for all cattle by herd size category for both 2002 and 2007. You likely want one of the next two groups under "Cows and heifers that have calved", "Beef Cows" or "Dairy Cows. Results for 2007 have the total state in the left column with the counties alphabetically in the rest of the columns. In each of these, under "2007 farms by inventory" the first row is the number of herds in that herd size category and the next row is the total number of animals in this herd size category.
- For non-agricultural species, you will have to make estimates. For example, the USDA enumerates horses and ponies on premises that are expected to produce $1,000 of agricultural product per year but the likely doesn't include typical suburban backyard horses. For small animals, an old but rough rule of thumb is that 1/2 half of the families own small animals and 1/2 of these are seen by veterinarians. Sharing any good references and rules of thumb that you run across is appreciated; they exist but I haven't looked.
- Copy the relevant section(s) of Table 11 from the relevant counties paste as a block into your spreadsheet.
- You can do this by hand but by doing two "cut and pastes", one offset by a row, with careful deleting you can get both the number of herds and the total number of calved cows in the same row so you can add counties together and so on. Your table should begin to look something like the state table under "Herd Size Demographics" in Introduction to the Beef Cattle Industry and the Veterinarian's Role - putting "herd size" into the FireFox Find function (under "Edit" tab or Ctrl+F) hits it.
- Estimate the proportion of the area herds in each size category that will be your clients, both occasionally and routinely and enter these proportions into your table.
- For guidance in estimating the proportion of the herds in the different size categories that will consume your services, see:
- For Beef cow-calf, see page number 49 of NAHMS Beef '97 Part II: Reference of 1997 Beef Cow-Calf Health and Health Management Practices (Table of Contents on pdf page 7) on the NAHMS Beef Cow-Calf Studies webpage.
- For Dairy cattle, see page numbers 23 and 24 of NAHMS Dairy Dairy '96 Part I: Reference of 1996 Dairy Management Practices (TOC on pdf pages 3 and 4) on the NAHMS Dairy Studies webpage.
- For Beef feedlot, see page numbers 36, 37, 51, and 52 of NAHMS Beef - Feedlot Feedlot '99 Part I: Baseline Reference of Feedlot Management Practices (TOC on pdf page 3) on the NAHMS Feedlot Studies webpage.
- Note: More recent surveys have been done for some of these species but the question wasn't asked on subsequent surveys or the results aren't yet available.
- Estimate the proportion in each size category that will be "full service" clientsApproximately 20% of all potential clients, typically more of the larger rather than the small "back-yard" herds, will provide 80% of your income (the Pareto Principle). The number of visits from the NAHMS tables above provide some clues.
Set up the spreadsheet calculations for the number of herds and the average number of cattle in these "full service" herds
Estimate the average travel distance and travel time to make a herd visit.
If you wish, you can apportion your services and time across species and between ambulatory and in-clinic but be sure to account for the different overhead structure below.
II) Estimate Price of Professional Services 5 years Post-graduation:
The following quantities that appear in bold should be easily identifiable in your spreadsheet.
- Desired Family Income: In a block below the above table, put your annual "Desired Family Income" in a cell.
- Desired family income = income required to feed, house, cloth, transport and otherwise spend annually on supporting your family
- For a baseline, see:
- Cost of living index by city - Kiplinger
- Comparison calculator - Bankrate CNN
Calculate the annual gross salary needed to maintain your family after payment of the following costs, some of which are professional expenses required to be a veterinary practitioner and to maintain your professional license:
Use what of the following resources make the most sense to you to develop the degree of detail that is useful to you. Avoid double-counting or overlooking a major expense category. Above all, avoid fooling yourself..
- Approximate approach:
- Federal Tax, Soc Sec, Medicare appx. 0.275 of gross salary = (rate /(1 - rate) * Desired Family Income)
- More accurate approach:
- Family & Personal Professional Expenses:
- Use actual numbers if you have them - online sources and my best guesstimates may be way wide of the mark for you!
- Housing, food, transportation and other necessities. For estimates, see:
- Family medical insurance (2 35-yr old adults, 2 children from $351/mnth ($5,000 individual deductible) to $977/mnth ($1000 individual deductible, 80/60 co-insurance, $20 doctor office visit copay, prescription $25)) AVMA GHLIT
- Long Disability insurance appx. $1,250 / year AVMA GHLIT (these are old rates)
- Retirement - investing 10% of gross salary was recommended, 15% in current economic conditions
- A typical retirement target is for self-generated + pensions + social security = 80% of pre-retirement income
- Another recommendation is to accumulate 20x your desired annual self-generated retirement income in savings by the time you retire
- A rule of thumb is that if you annually spend ~3% of a well-invested, low risk fund, it will remain a constant size in constant dollars
- Professional license fees appx. $200 / year per state
- Professional memberships appx. $1,000 / year (AVMA, AAPB, state VMA's)
- Malpractice insurance appx. $822 / year (AVMA PLIT professional liability - Food Animal $1 / $3 million)
- Continuing education appx. $1,500 / year (registration, travel, lodging)
- Student debt repayment - ? (~1.2 % of total debt per month @ 6.8% interest - Student Loan Calculator)
- Other resources:
- Financial planning for the successful veterinarian (GI Glassman, 2009 CVC Proceedings) - html
Annual Gross Salary == Desired Family Income + Expenses + Taxes
Estimate your annual professional services gross income required to cover overhead expenses (phone, business expenses and taxes, inventory loss, bad debts, equipment replacement, accounting and legal fees) in addition to your annual professional net income.
The Salary Calculator is an on-line tool for making quick comparisons between take-home needs, gross salary and hour wages accounting for filing status, federal tax, and social security tax. Note that it does not include state income tax (as yet).
- = Annual Gross Salary / Net Proportion
Annual Professional Services Gross
- Net Proportion is typically 0.40 to 0.60 for ambulatory practices without clinics
- With clinic overhead (e.g., more equipment, inventory, real estate taxes, heating, electricity, technician, receptionist costs), percent net is typically 1/2 of that for ambulatory practices or 0.20 to 0.25 of gross income.
Calculate Average Daily Billing
- Average Daily Billing = Annual Professional Services Gross / Days worked per year
- 50 weeks of 5 days per week with two weeks vacation = 250 work days / year
- 51 weeks of 6 days per week = 306 work days
- This is the average amount you have to bill daily to obtain your target income.
- Keep in mind that if most of your work is seasonal, such as in grazing dairy or cow-calf herds using conventional services, considerably higher average daily billing is required during the heavy work season to compensate for the slow periods
Calculate Billed Hourly Rate:
- Hourly Rate = Average Daily Billing / (Hours worked per day * proportion of billable hours)
- Due to "windshield" and other nonproductive time, the proportion of billable hours is typically around 0.4 in an ambulatory practice with smaller clients (short on-farm time per call) and is greater with larger clients (more on-farm time per call).
- Consider the effect of long travel times to dispersed herds if you plan on a large practice radius.
- Note that adding one more billable hour per day or one more call per day has a big impact on professional income. Hence, long hours worked but a higher risk of burnout and family disruption.
- For perspective, Dr. M.L. Heinke estimates (Fee Setting: A look at margins, DVM Magazine, 2010) that a veterinarian with a salary of $80,000 working 40 hrs/wk, 50 weeks per year or 2,000 hours per year has to generate $400,000 of services to cover salary, overhead, support staff and profit in a typical small animal practice. If 50% of the time is productive, the veterinarian has to generate $400 per productive hour.
Calculate Annual Professional Service Cost per Cow
Routine Service Annual Gross = Annual Gross Professional Services * Proportion of Gross from "Full Service" Recurrent Clients"
- In a typical rural mixed practice 80% of your large animal income will come from 20% of your clientele, (the Pareto Principle) these being "regular" or routine consumers of your services.
- For dairy, reproductive programs lead to routine services being scheduled on a regular interval, such as every week, every other week or every month.
- Annual Cost per Routine Client = Routine Service Annual Gross / Number of Routine Clients
- Annual Cost per Cow = Route Service Annual Gross / Total cows in routine program
- Optional (but useful) - Incorporate individual animal service fees into annual income, which offsets herd income needed:
- Estimate the numbers of common individual animal procedures that you will perform annually in your practice area
- E.g. uncomplicated calving, prolapse repair, C-section, eye enucleation, claw removal, DA repair, . . .
- Calculate total charges for these that recover professional time, technician time, disposables and overhead
- Incorporate this time and professional service fee into the above estimates.
Questions for Consideration:
- What trends do you see in the 2002-2007Ag Census data that may impact your future practice in your desired location? How do you expect the trends will impact your services?
- Do you find the veterinarian usage data in the NAHMS surveys surprising or not? Do you note any "untapped" opportunities? Why are these untapped?
- Compare your estimates to actual data from practitioners who you know that are practicing the way you intend to practice with the types of clients you intend to have. How does this compare to the hourly rates charged by your competition, both professional and otherwise? What is the current hourly rate in the area you would like to practice in?
- Compare your target value for Annual Cost per Cow to the current values from livestock enterprise budgets. Is your estimate reasonable? How large a percent difference would cause typical clients to switch? What could you do to close a gap that is too large? If the gap is large, recheck your assumptions (e.g., billable hours, days worked) above.
For examples of what typical herds are currently paying, see the expenditures for veterinary services in resources such as Idaho Livestock Enterprise Budgets. Googling "Livestock Enterprise Budgets" will bring up more from other states.
For Idaho, select a year and then click on the type of herd that you expect will best match your clientele. Scroll down until you find the "Operating Costs" section and find "Veterinary Medicine".
- Be careful interpreting these - professional service is often lumped together with procedure fees, drugs, biologics, breeding costs such as frozen semen and so on. What is included in the category is usually described somewhere (under "Background and Assumptions" for Idaho). To estimate what was actually paid for professional services, you will need to "back out" what you expect those other items cost.
- For an estimate of costs of vaccines, wormers, implants, the on-line catalogs of the animal health suppliers are good resources. Examples of such vendors are the following (Allivet, American Livestock Supply Animart, Jeffers Livestock, PBS Animal Health, vetmed direct, Valleyvet)
If necessary, use a target annual cost per cow to re-evaluate number of clients:
- No. Cows Required = Annual Professional Routine Service Gross / Annual Cost per cow
- No. Routine Herds Required = No. Cows Required / Ave. Herd Size
Clients are accustomed to using a set of veterinary services (e.g, Bang's vaccination, heifer pregnancy checks, C-sections) common to their operation type and to paying so much per cow. Exceeding this, either by increasing prices or by increasing the set of services used by more clients, requires your marketing. New services have neither a pricing history or a historical expectation of consumption.
Other approaches or information:
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