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VM 577P Herd Production Medicine

Professional Service Fee Exercise

Last Updated 01/10/08

Purpose: The purposes of this exercise are for you to:

  • Estimate the professional fees, total and per hour, that you will likely need for a desired family income
  • Become familiar with some on-line resources for herd demographics and economics
  • Consider the feasibility of these fees for your future clients
  • Consider your value to an employer
  • Learn to use the Excel spreadsheet effectively as being able to use spreadsheets to analyze herd data and display the results is a very important skill for herd production medicine.

        If you are not clear about any of the following, please don't hesitate to ask!

Task: Build an Excel spreadsheets for estimating professional fees that enables you to do ""what if's".  What if I served more or fewer herds? Increased the proportion of my time that is billable?

  • You may work in groups but everyone must complete their own final version.
  • If you need a quick Excel tutorial, a search using the key words "excel tutorial" in Goggle yields a bunch (300,000+ hits), one of which should be to your liking.
  • Note: To save your time and to make this exercise reasonably painless, using Google I've located on-line versions of most of the materials that you will need. (The materials in the section that used to be located here are spread out in the appropriate place below)

    Professional Fees Spreadsheet

    Goal: Create a spreadsheet to calculate the professional fee that you will need to charge to obtain your desired family income and to determine if this fee is feasible from your client's perspective.

    I) Determine the Demographics of Your Future Clients:

  • Identify the region (e.g., Southeastern Montana) and define the primary type of livestock practice in which you want to engage (e.g. commercial beef cow-calf, registered beef, feedlot, commercial dairy, registered dairy) and define your approximate practice radius in miles (e.g., 100 mi radius).

  • Put this description into your spreadsheet as a text block. Note that the larger your radius, 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).
  • Determine the demographics of that type of client in the area you selected (e.g. estimate number of herds within practice area counties, distribution of herd sizes). You can do that by that by doing the following

    Go to Census of Agriculture, select the appropriate census year (2002 - the 2007 census is not complete yet), select the "All Counties by State by Table" and click on your state. Table 1 shows overall summary data, select Table 11 "Cattle and Calves-inventory & sales" for summary data by herd size.

    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 1997 and 2002. You likely want one of the next two groups under "Cows and heifers that have calved", "Beef Cows" or "Dairy Cows. Results for 2002 have the total state in the left column with the counties alphabetically in the rest of the columns. In each of these, under "2002 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.

    Copy the relevant section(s) of Table 11 from the relevant counties 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 some 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

     

  • Estimate the proportion of the area herds in each size category that will be your clients, both occasionally and routinely and enter that in 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 pdf page 7 of NAHMS Beef  '97 Part II: Reference of 1997 Beef Cow-Calf Health and Health Management Practices (pdf page 7)
  • For Dairy cattle, see pdf pages 27 and 28 of NAHMS Dairy  Dairy '96 Part I: Reference of 1996 Dairy Management Practices (pdf pages 27 and 28. Note: similar questions were apparently not asked in NAHMS Dairy 2002)
  • For Beef feedlot, see pdf pages 36 and 37 of NAHMS Beef - Feedlot  Feedlot '99 Part I: Baseline Reference of Feedlot Management Practices (pdf pages 55 and 56)
  • Note: More recent surveys have been done for some of these species but the question wasn't asked on subsequent surveys.
  • 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 number of visits from the NAHMS tables above provide some clues.

     

  • Calculate the number of herds and the average number of cattle in these "full service" herds

  • Estimate the average travel distance and driving time to make a herd visit.

  • II) Estimate Costs of Professional Services:

    The following quantities that appear in bold should be easily identifiable in your spreadsheet.

    In a block below the above table, establish your desired annual Family Income.

    • Calculate the annual gross salary needed to maintain family income after payment of the following costs, some of which are professional expenses required to be a veterinary practitioner and to maintain your professional license:

  • Federal Tax, Soc Sec, Medicare appx. 27.5% of gross salary (rate /(1 - rate) * Family Income)

  • For a better estimate of marginal tax rate, use on-line tools such as the "Marginal Tax Rate Calculator"

  • State income tax - see "State Individual Income Taxes"
  • In the following, use better numbers if you have them - these are my best guesstimates but they could be way wide of the mark! Quotes are available on-line from the AVMA GHLIT

  • Family medical ~$350/mth (2 35-yr old adults, 2 children, $1500 deductible)
  • Retirement 7 to 9% of gross salary recommended
  • Professional license fees appx. $200 / year
  • Professional memberships appx. $750 / year (AVMA, AAPB, state VMA's)
  • Malpractice insurance appx. $1,015 / year (AVMA PLIT $1 / $3 million)
  • Disability insurance appx. $1000 / year
  • Continuing education appx. $1500 / year (registration, travel, lodging)
  • Student debt repayment - ?
     
  • Annual Gross Salary = Family Income + Expenses (taxes, insurance, licenses, . . .)

  • 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.

  • Annual Professional Services Gross = Annual take-home / Net Proportion

  • 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
     
    • Calculate Average Daily Billing

  • Average Daily Billing = Annual Professional Services Gross / Days worked per year

  • 5 days per week with two weeks vacation = 250 work days / year.
  • 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 work, such as in grazing dairy herds or beef cow-calf herds, 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 more impact on professional income than any other factor. Hence, long hours worked.
    • 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
  • Questions for Consideration:

  • What trends do you see in the 1997-2002 Ag Census data that may impact your future practice (particularly for dairy)? 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 are the following:

  • American Livestock Supply

  • PBS Animal Health

  • Valley Vet

  • 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 in an area tend to be accustomed to using a common set of veterinary services (e.g, Bang's vaccination, heifer pregnancy checks, C-sections) for a given type of operation and to paying a certain amount per cow for these. Exceeding this level, either by increasing your prices or by increasing the set of services used by more clients, will likely require considerable marketing on your part. Realize that new services do not have such a pricing history.


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