How Many Customers/Patients Do You Need?

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.

7 thoughts on “How Many Customers/Patients Do You Need?”

  1. It is common for practice to compare “number of patients seen per day”. I will submit that:

    It’s NOT the number of patients that matter, but the RVUs generated per encounter AND the conversion factor associated with that RVU that REALLY is the bottom line.

    I would rather see fewer patients and provide efficient and quality care than to rush through patients.

    1. John, I have to respectfully disagree.

      We’d all like to see fewer patients, but let’s face it… we have to keep the lights on, pay our employees, and buy supplies.

      In a private practice, what generates revenue is treating patients, not the number of RVU’s. In other words, “value units” don’t pay the bills; but patients seen do.

      The fact is that RVU’s and revenue don’t always have a reciprocal relation. Just because a doc has a high RVU count doesn’t necessarily mean he was profitable.

      I’m actually in the middle of writing a post on why I think RVU’s are not a very good way to measure productivity.

      Stay tuned. I’m sure you’ll have something to say.

      Thanks for the comments.

      1. Brandon,

        I agree that treating patients generates revenue. HOW MUCH revenue generated per patient is DEPENDENT on RVUs applied to that visit. The gross revenue generated from that visit is usually some variant of RVU x Conversion Factor.

        So it goes:

        Patient seen –> RVUs generated –> RVU x CF = $$

        RVU is not the best measure of productivity, but wRVU (work RVU) is probably the closest “artificial” measure of productivity currently available.

        RVUs and revenue has a DIRECT relationship, not reciprocal.

        RVU profitable. Profitability is revenue – expenses. Need to have high revenue and low expenses to be maximally profitable.

        Always enjoy reading your posts. Agree with you most of the time.

        1. Most of the time? Well then, we are going to have to do something about that… 🙂 Trying to be funny of course.

          “HOW MUCH revenue generated per patient is DEPENDENT on RVUs applied to that visit.”

          Here is where I disagree…

          RVU’s are not always in correlation with revenue. As you mentioned, it is an “artificial” way of measuring productivity.

          I can give you several examples:

          1) Vaccines – can generate revenue for the practice, but they don’t have RVU’s associated with them. As I’m sure you know vaccine codes are usually associated with wellness visits. Wellness visits generally require a lot more work, but generally don’t have higher RVU’s than ordinary office visits.
          2) Test and screenings – there are a bunch of test and screenings (96110 or 92587, just to name a few) that either have a very low, low RVU code or doesn’t have one at all. Most of these codes can render respectable revenue for a practice while showing meager RVU results.

          I’m going to talk a little more about this topic in a post I’m preparing.

          Thanks for the feedback. I appreciate your comments. They always give me something to think about.

          Brandon

  2. “I’ll be honest; until recently I didn’t know how many our practice needed. We just assumed 30 should be enough.”

    So…what was your magic number?

    Medicine is a service, which makes it very different from simply producing widgets. You have to combine the answer you find above with the answer to the question, “How many patients can you see before it affects the quality of your medicine?” and make sure they are compatible…

    1. …and the answer to the “how many patients can one see before it affects the quality of a doc’s medicine” is the 1,000,000 dollar question and one that every private practice physician struggles with.

      But let’s be honest here… in our current climate, those two numbers are not even close.

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