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.
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
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
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.
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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