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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Static out-of-date page for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:
- Estimate the professional fee, total and per hour, that
you need to achieve your desired family income
- Become familiar with on-line resources for
determining herd demographics and
economics in locations you are considering
- Consider the
feasibility of this fee structure for your future clientele
- Consider your value to
future employers
- Consider your future living
expenses in locations your are
considering
- Improve your spreadsheet
skills (using spreadsheets to
analyze herd data and to display
results is an important herd
production medicine skill)
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?
Make this spreadsheet as simple or as complex as you like; the most
important thing is not to fool yourself with the conclusions from it
You may work in groups of students with similar species interests but everyone
should complete their own final
version
If you need a quick Excel tutorial, a
Google search using the
key words "excel tutorial" yields a bunch (800,000+ hits),
one of which should be to your liking. Examples of two quick basic tutorials for Excel
2010 are
pdf1 and
pdf2.
To save your time, I've listed on-line versions of most of the
information you need to build your spreadsheet and various guides. Use these as guides only and verify
with your own data and calculations
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" clients
Approximately 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
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..
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
- 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.
-
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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