Practice managers and owners are counted on by patients and employees alike to make sound business decisions based on facts. However, they often make these decisions without sufficient information. Judgments on product mix, margins, and marketing, which can all have a profound effect on a practice's success, are often made without reliable data to rely on or a good frame of reference. As a result, managers and owners may make business decisions that are arbitrary rather than strategic and put the future of their practice at risk.
Although many hearing care professionals use evidence-based practice to guide their clinical decisions, there is a lack of reliable information from reputable sources that they can use to make prudent decisions about the operation of their practice. In addition, most practice owners and managers have no formal business training. While this need not lead to poor practice performance, it does contribute to a more arbitrary decision-making process by business owners without a business degree.1
The purpose of this article is to review key findings from a survey benchmarking common business practices in independent hearing healthcare practices in the United States, and to discuss how owners and managers can leverage that information in making decisions. Regardless of your position in your organization, if you are called upon to make business decisions, this article is designed to give you reliable data and a perspective that will help you make those decisions strategically.
Unitron commissioned a comprehensive study of independent owners and managers of hearing healthcare professionals around the U.S. The purpose was to learn more about the business and marketing practices of the typical hearing aid dispensing practice. Additionally, Unitron is drawing on these data to provide insights and opportunities to hearing professionals for their short-term and long-term planning.
A 37-question telephone survey was administered last November and December to a random sample of 300 hearing aid dispensing practices throughout the country. Those chosen for the survey were the persons in their practice most familiar with its operations and marketing practices. Of the respondents, 51% were audiologists, 39% hearing instrument specialists, and 10% owners/managers without formal industry training. Private practitioners comprised 89% of the group, with the other 11% coming from ENT offices and other medical institutions. Most (64%) respondents were not in an industry buying group.
The large sample size yielded a representative sample of the industry as a whole. Results have a margin of error of +/−5.55% at a 95% confidence level. The survey instructed respondents to answer “off the top of your head,” and they were not allowed to call back after they had found an answer. All respondents were compensated for their time with a small gift certificate.
A primary purpose of this research study was to establish a profile of dispensing practices in the U.S. in order to gain insights into business longevity, practice size, and characteristics of administrative and professional staff. The profile of American hearing aid dispensing practices can be summarized as follows:
* Ninety-five percent are full-time businesses.
* They have been in operation for an average (median) of more than 15 years.
* They employ a mean of 1.7 full-time professional staff and 1.1 administrative staff.
* They use a variety of compensation models, including 50% salary only and 39% salary plus commission.
* Practice owners remunerate themselves by salary (67%) salary/commission (23%), or commission only (10%).
* They have a patient base of 500 to 1000.
* They fit 60% of their hearing aids on repeat patients.
In addition to establishing a general profile of dispensing practices, this research examined critical business variables in three areas: patient engagement, product distribution and revenue, and marketing behavior.
The study asked how many people visited a practice in a typical week and examined the workflow resulting from this traffic. Figure 1 indicates that the average practice sees more than 20 new patients a week, and has a slightly lower number of visits per week for initial hearing aid fittings, hearing aid follow-up appointments, and other diagnostic evaluations, respectively.
Appointments for consultations and for initial hearing aid fittings each averaged approximately 55 minutes in length. Hearing aid follow-up appointments took 37 minutes per visit and other diagnostic evaluations 12 minutes per visit. The research indicates that the typical practice spends about 40% of its week on new patient consultations.
The rate of new patients who were considered to be candidates for hearing aids but who did not purchase a device from that office was addressed. As seen in Figure 2, 70% of the 300 respondents reported that from 0% to 20% of the hearing aid candidates who came to their office chose not to purchase hearing aids on the day of their initial evaluation.
The survey asked respondents about product volume, types of products purchased, wholesale and retail pricing, and returns for credits.
The survey identified how many hearing aids the average practice dispenses per month and what owners/managers consider to be a break-even point. The average practice dispenses 11 to 20 units per month (mean = 17) and considers the break-even point (the number sufficient to cover the business's monthly fixed and variable costs) to be a mean of 9.5 units.
Product mix was also evaluated with reference to specific price points. Respondents reported that the largest share (49%) of the products they dispensed over the past year were mid-level, followed by premium (39%), and entry-level (16%).
The survey asked several questions about pricing, and Table 1 summarizes the response. The data show a very large range in both wholesale and retail prices. Practices tend to buy devices across all wholesale price points, with a slightly higher rate of purchases between $601 and $1000. Similarly, practices charge an extremely wide range of retail prices. The results indicate that the most common retail price charged is in the range of $1501 to $2000 per unit.
The study established a profile of industry revenue statistics along with several key financial performance measures, including net profit and cost of goods. With respect to gross revenue over the previous year, the average practice indicated a median annual total sales level of $250,000 to $400,000 (mean of $392,333) and a net profit of $50,001 to $100,000 (mean of $94,416). This represents an average net profit of approximately 24% of gross revenue per practice (see Figure 3). Not surprisingly, 77% of revenue comes from hearing aid sales, followed by 12% from diagnostics/testing, 7% from battery/related accessories sales, and 7% from other products and services.
An important consideration for any practice is how revenue is allocated for monthly expenses. For dispensing practices the cost of goods is a considerable expense. According to this survey, 46% of the revenue generated in the typical practice is used to pay for hearing aids and 20% goes toward employee compensation and benefits. Finally, an average of 15% of revenue goes to fixed office expenses (rent, utilities, etc.) and 10% is allocated for marketing and advertising.
The survey examined to what extent practice owners and managers track specific financial indicators, such as average selling price, bilateral fitting rate, returns for credit, and cost of goods sold. The results indicated that practices are fairly well engaged with their respective businesses, with the vast majority tracking their financial and operating performance. Seven in 10 practices report tracking three or more key financial indicators on a monthly basis. The indicators that garner the most attention from owners and managers are shown in Figure 4.
The survey also evaluated marketing behaviors. It found that the vast majority of practices do some form of regular marketing or advertising. Figure 5 shows the marketing mediums that respondents use most frequently, led by Yellow Pages(88%), physician referral/networking (77%), and newspaper advertising (68%).
More important, perhaps, than marketing methods is marketing effectiveness. Figure 6 shows how many of the new patients the surveyed practices attract are drawn by specific marketing tactics. Heading the list is referral from existing patients, followed very closely by physician referrals.
The purpose of this survey was to profile a typical U.S. hearing aid dispensing practice and gather information on its business and marketing behaviors. Armed with this information, owners and managers can make better decisions on how to run their own practices. The survey yielded many significant findings worthy of discussion.
Respondents reported spending just under an hour on average on hearing aid consultations (56 minutes) and initial hearing aid fittings (55 minutes). On the surface, this seems like a reasonable amount of personal contact with patients. For example, Kochkin suggested that patient satisfaction is maximized when the professional spends 2 to 3 hours interacting directly with the patient over the course of pre-fitting, fitting, and follow-up.2
However, note that these time allotments are means. The survey found that a substantial number of practitioners spend much less than the mean time interacting with patients. These data suggest that many practices need to spend more time with patients during the consultation and initial fitting. This conclusion is consistent with another recent industry study that suggested overall patient satisfaction and loyalty increase when patients are thoroughly evaluated with cutting-edge tests and given detailed explanations of their results.3
Practitioners who spend less than an hour on these appointments need to consider the downside to failing to build strong relationships with their patients. Spending too little time with patients may lower a practice's conversion rates, which is the percentage of true candidates for amplification who purchase hearing aids.
According to this survey, the typical practice sees more than 200 patients a month; 42% of the appointments are hearing aid consultations. This represents 92 patients (and 184 ears) as potential fitting opportunities. Considering a U.S. bilateral fit rate of approximately 80%, these 92 patients represent 166 potential units for the typical practice. And yet, the survey found that practices actually sell a mean of only 17 units per month.
Respondents were asked their conversion rate and, as shown in Figure 2, it appears that 70% of those who replied reported a conversion rate between 80% and 100%. However, this response is inconsistent with other survey findings, including that practices sell a mean of 17 hearing aids a month. Clearly, there is a disconnect between the reported conversion rate and the actual conversion rate.
There are several possible reasons for this discrepancy. Some respondents may not want to admit their actual conversion rate. Another possible reason for the disparity may be how a consultation is defined. In some offices, a person who simply inquires about hearing aids might be considered a consult even if the person is not a true hearing aid candidate.
Perhaps a better explanation, however, is related to tracking of key business metrics. As shown in Figure 4, only about 50% of respondents said they track their conversion/close rate. Therefore, it is not surprising to find a large difference between the reported and actual conversion rate. Regardless of the underlying cause for this gap, improving the conversion rate appears to be a potential source of significant growth for many practices, as well over half of all potential sales opportunities were not converted to actual sales following the consultation appointment.
Survey respondents reported that most of the hearing aids they dispense are of mid-level or business class technology and sell at a median retail price of between $1501 and $2000. They were purchased from the manufacturer at wholesale prices ranging from, on average, between $601 and $1000 per unit. Based on the wide range of pricing at both wholesale and retail levels, it appears that practice owners and managers employ varied pricing strategies and that there are wide disparities in price mark-ups.
In view of this disparity in pricing at the retail level, the majority of practice owners and managers would be wise to devise a consistent retail pricing strategy. One benefit is that it allows the owner to project revenues accurately over a specific time period and thus be able to have enough cash available to pay expenses or reinvest into the practice.
One important component of effective retail pricing is to determine the price point at which revenues are optimized. Amlani found that demand is inelastic for hearing aids priced up to $2500 per unit and becomes elastic for prices of $3000 and higher.4 These findings suggest that practice managers can price mid-level products at a retail price point of about $2500 per device without decreasing demand.
The other critical pricing variable is wholesale cost. According to this survey, the average cost of hearing aids took up 46% of total revenue in the typical practice. Considering that 77% of total practice revenue is generated from hearing aid sales, it appears that practices have a huge opportunity to improve their margins by negotiating more favorable wholesale pricing with suppliers. One way to do this is by reducing their number of vendors to two or three. Partnering with two or three manufacturers is likely to enable dispensers to lower their overall cost of goods and generate more net profit, while still offering patients a wide choice of technology.
Staff skills are crucial
In view of these findings, practice managers and owners need to focus on honing the consultative skills of their professional staff. Providing employees with more tools to develop better selling skills should contribute to higher average selling prices and make the office more productive. According to one published report, practitioners' lack of passion, of belief in the product, and of enthusiasm in prescribing hearing aids is the leading reason that patients fail to get the help they need or go to a different provider.5
Mind your metrics
Another key insight taken from this study is the profound impact marketing and financial planning have on a practice. The findings indicate that the more involved the owner or manager is in monitoring operational metrics regularly, the higher the practice's revenue and profit. Businesses that monitor progress more extensively indicated more revenue growth than practices that review only a few or no operational metrics on a frequent basis.
Table 2 shows the relationship between a practice's revenue and its ability to track key financial indicators on a monthly basis. Those that track more generally report greater revenues and profits. In addition, the survey data indicate that practices that monitor financial progress are 19% more likely than those that don't to report growth in their annual revenue over the past 2 years.
Most practice owners and managers understand the importance of measuring key financial indicators. This study shows just how powerful the relationship between success and tracking is in the hearing industry. The fact that 50% of practices generating less than $250,000 in revenue (Table 2) do not track any key financial indicators, while approximately 50% of practices that track more than six indicators have annual revenues of over $400,000 underscores that relationship.
An analysis of this benchmarking survey of 300 practice owners and managers suggests four clear opportunities for collective improvement:
* A significant number of practitioners spend less than an hour on average conducting hearing aid evaluations and fittings, respectively. Survey data suggest that many practitioners have additional time to spend directly interacting with patients. As other studies have indicated, time spent directly interacting with patients correlates with patient satisfaction.
* According to the survey, the conversion rate, or the number of hearing-impaired prospects who actually purchase devices, is less than 50%. Clearly, there is an opportunity to improve practice productivity by enhancing the consultative selling skills of the hearing care professionals.
* The relatively high cost of goods reported here suggests that practice owners and managers should develop more effective pricing strategies that take into consideration consumer demand, price elasticity, and practice revenue goals.
* The relationship between practice success and the ability to track several key financial metrics cannot be denied. Owners and managers have an opportunity to improve practice performance by simply taking the time to methodically measure key variables affecting their performance.
The author would like to acknowledge PMG Intelligence of Waterloo, Ontario, for collecting and analyzing the survey data and Unitron World Headquarters in Kitchener, Ontario for funding this project.
© 2009 Lippincott Williams & Wilkins, Inc.