In the late ’90’s I was working for an Internet start-up that was going to revolutionize the travel industry (insert sarcasm). I joined the company about 9-months before the Internet bubble exploded. The story of my life.
Before all that went down, I had the opportunity to attend several meetings with different venture capital (VC) firms the company was pitching.
One of the points our CEO highlighted during the VC meetings was that the travel industry was a multi-billion dollar industry in the US. The pitch was that if the Internet startup could capture just one percent of the market share, we’d be rolling to the bank with cash.
Great pitch, but the investors were not buying it.
Investors weren’t interested in “if only we could get…” statements. What they wanted to know was how many customers did we need to start turning a profit.
So they drilled us on our expenses and our profit margins in an effort to determine: 1) how many customers did we need to break even; 2) how many customer we needed to turn a profit; and 3) how many customers we needed to make crazy money.
Then the investor assessed the likelihood of us obtaining the number of required customers instead of trying to determine the likelihood we were going to capture one percent of a multi-billion dollar industry.
This was a valuable lesson for me because it gave me insight as to how professional business people think about business.
The truth is, it doesn’t matter if the market is a gazillion dollar market if you don’t know exactly how many customers, units, products or widgets you need to sell to make money. The fact is one could own 50% of the market and not be profitable.
For a while, I had forgotten the lesson I had learned from the VC’s. For the longest time my focus was just trying to get as many patients in as possible. My objective was to see more patients this month, than last month. Or see more patient this year, than last year.
But this was the wrong approach. Not because more patients is a bad goal to have, but because how I was going about the objective. The patient count didn’t matter unless I knew exactly how many we needed for the practice to make a profit. The truth is, we could have seen 50% more patients this month than last month but that didn’t necessarily mean we were better off.
In retrospect, it seems obvious. Right?
But I would argue that many practices out there don’t have a clear understanding of their financials. I know I could be wrong, but I’d be willing to bet that if asked how many patients do you actually need to turn a profit, most wouldn’t know.
In my experience, people usually say that between 25 and 30 a day is what is required. But how do you know it can’t be just 15 a day? Or maybe, you think it is 3o a day, but you really need 65.
I’ll be honest; until recently I didn’t know how many our practice needed. We just assumed 30 should be enough.
The real value of this exercise isn’t knowing what is your practice’s magic number. The value comes in with the knowledge one gains from performing the exercise. Knowing how many patients is needed in order to make a profit requires one to take a different approach just like the VC’s had required us to do in order to give them a better picture of what would be needed to achieve financial success.