The Business School 101 for Physical Therapy series is designed for outpatient therapy business owners and leaders. Over the next several weeks, we will explore concepts and strategies within business operations, marketing, finance, customer knowledge, and more. Of course, it is not meant to replace a traditional MBA, but we hope it will provide helpful insights, tips, or refreshers for growth-minded business novices and veterans alike.
There are hundreds of metrics you can use to gauge the performance of your practice. From employee production to customer satisfaction, profitability and more – there’s really no limit to the ways in which you can generate a metric which quantifies your performance.
And herein lies the problem.
Generally speaking, metrics are an important tool used to understand your business, and to make decisions about its future. However, without some constraints as to their use, two things will happen.
1) They will overwhelm you. Imagine trying to stay focused on 100 metrics, all of equal importance and all at the same time. Maybe you’ve been in this situation before. Beads of sweat start to form just thinking about it. How can you possibly maintain clear, calm focus when attempting to move dozens of dials all at the same time? The simple answer is you can’t.
2) Paralysis by analysis. When you can’t maintain focus, you can’t make decisions, let alone good ones. By trying to focus on everything, you end up not focusing on anything. Paralysis by analysis, as I’ve heard it aptly coined, applies here.
So, while on the one hand we have the brilliance of nearly infinite metric selection at our fingertips, this very facet in managing a business can also lead to our downfall. In order to be effective as a manager or owner, we need to focus on what is truly important, and those to whom we delegate decision-making authority must follow our lead.
To do this, start with five or fewer key performance indicators (KPIs) which you know to be critical to your success. Once these are well under control, you are free to add more, but we need to first remove the noise before we can get started.
A KPI is a metric critical to the success of your business. They are not the same for every business – even in like-professions such as physical therapy.
As an example, we all know that patient visits are a critical driver of revenue, and as such this is a common area of focus with regard to KPIs. But the measure of visits alone may not be as useful as measuring the drivers of visits (what leads to them happening in the first place). This is where KPI focus can vary dramatically from practice to practice.
Here are a few tips which will help you determine your five optimal key metrics.
Tip 1: Start at 10,000 feet, then work your way down to 10
At the highest level, ask yourself what one to two metrics are required for your success. This might be something related to revenue or profitability – accurate, but way too general for a useful KPI.
Then ask yourself, “What is the driver of this metric?” Repeat the process several times until you narrow to a useful and manageable metric that can be used as a KPI in your business.
Example: At the 10,000-foot level, my practice needs to have strong revenues. So I ask myself, “What are the drivers of my revenues? Answer: patient visits. Next I ask, “What are the drivers of patient visits?” Answer: Evals. Next, “What are the drivers of evals?” Answer: marketing contact with referral sources. Boom. I know I can measure my marketing contacts and frequency of contact. That’s a good KPI.
You can repeat this process as many times as necessary. Stop when you’ve come to a good KPI for your practice.
Tip 2: Prioritize the Now or Later
Narrow it down to metrics appropriate for the stage of your business by asking yourself if your KPIs should be focused on the near term (i.e., survival), or longer term (growth and sustainability). Usually, a mix of the two is appropriate. However, there’s little use in focusing on long term growth KPIs if the business is at risk of failure over the near term.
It’s important to note that you won’t always be locked into a certain KPI. One deemed important now may not be something you need or want to focus on down the road. KPIs can and should shift and change over time.
Tip 3: Ask “Do I have the data?”
It may seem obvious, but it’s worth stating that the ability to calculate a metric is a prerequisite to using it as a KPI. This can come into play with metrics which require data not made easily available through standard EMR and financial systems. An example might be customer and employee satisfaction data.
If you don’t have the data, you’ve got two options: (1) find a way to get it, or (2) focus on a different KPI. You may need to invest in a new tool (a survey tool in the aforementioned example) to gather data for an important KPI.
KPIs are critical to the success of your physical therapy practice, but don’t let them overwhelm you. Follow these tips to determine your practice’s KPIs. When you do, you can begin to strategize around how you will improve them and ultimately, your business.
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