KPIs, if you're not making your own, you are missing something.

Understanding and utilizing your KPIs is crucial in the evaluation process. They are not just numbers, but powerful tools that can guide your decisions and actions.??

Working for an organization with 114 dental offices, I was confronted with the formidable task of evaluating a diverse range of performances. Some offices were thriving, while others were struggling.? With such a large number of entities to review, it was a daunting task to pinpoint the factors driving performance or under-performance.??? Gross margin, EBITDA, and Net Income are all useful indicators, but they don't provide a clear picture of the performance drivers.??

Some offices had a single dentist and hygienist, while others had multiple dentists and hygienists. Some were in rural areas, others in metropolitan areas. Comparisons were difficult, so I took the initiative to develop my own simple KPIs. Since labor costs were about 50% of the total cost, I focused on the main drivers of labor costs: the dentist and hygienist. By analyzing both overachievers and underachievers, I was able to develop standard benchmarks.?

Accountants may recall the old “Times Interest Earned” ratio. I developed a similar ratio: Times Salary Earned. I was able to take the revenue directly tied to individual doctors’ monthly revenue production and divide it by their compensation. If the ratio was two or higher, the doctor was doing well. For hygienists, I did the same: Revenue (including product sales) divided by their compensation. If the ratio was 1.5 or better, they were also doing well.? ?

But this didn’t tell the whole story. Sometimes, doctors and hygienists produced very well, but the office still underachieved. This was because the office was understaffed; it had unused operatories and needed more doctors or hygienists. Or the rent was too high to support a dentist's office. Thus, the third ratio was the Occupancy Expense percentage of Revenue. If total occupancy costs (Rent, utilities, maintenance, etc.) were more than 12% of revenue, there was a staffing or rent expense problem.?

By creating my KPIs, I was able to quickly and easily scan through 114 different offices, identify the ones that needed greater attention, and determine the most probable cause. In management meetings, we could discuss actionable items more directly, save time, and make changes quickly.

When working with management and operations, don’t stop at the traditional measures. Create your own measures. They may not be perfect, but they’ll be more focused than the one-size-fits-all metrics in the textbooks.?#KPI, #BusinessOwner, #PrivateEquity, #VentureCapital