Author Topic: Industry Average Profit Margin / Labor %  (Read 4091 times)

rmk123

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Industry Average Profit Margin / Labor %
« on: November 24, 2013, 06:34:54 PM »
What is the average gross profit margin for the industry to benchmark against - physician billing, midwest? 25 - 30%?


What is the average labor % vs. total expense to benchmark against? Realize this answer depends on a lot of factors!!!

RichardP

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Re: Industry Average Profit Margin / Labor %
« Reply #1 on: November 29, 2013, 12:39:01 AM »
... Realize this answer depends on a lot of factors!!!

Correct.  Would you care to state a few factors you are interested in?  That way, any responses can be more specific.

rmk123

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Re: Industry Average Profit Margin / Labor %
« Reply #2 on: December 06, 2013, 07:48:48 AM »
Physician billing as stated below with each client team covering full revenue cycle actions from eligibility through account resolution with patients. Some of the clients are more labor intense because of their specialty and others are less so. Primary specialties are family medicine and peds.

RichardP

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Re: Industry Average Profit Margin / Labor %
« Reply #3 on: December 06, 2013, 03:43:39 PM »
Ah - you want profit benchmarks and labor cost benchmarks for billing companies.  I'm not aware of anyone that collects those statistics.  You might contact the billing departments for university medical centers in the midwest to see if they will share those statistics.

I've seen published comments that one person should be able to handle two doctors.  That squares with our experience, give or take a busy period or slack period.  We have temporary people that we call in for those busy times outside of the norm.

I've seen billing fees range between 5 - 8% of all monies collected - which again squares with our experience.  If you are careful to control your expenses, there is a living to be made somewhere in that range.

rmk123

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Re: Industry Average Profit Margin / Labor %
« Reply #4 on: December 09, 2013, 07:56:17 AM »
Thanks for your suggestion on contacting University Medical Centers.


Yes, those are the only stats I've seen to date as well!

tallmanusa

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Re: Industry Average Profit Margin / Labor %
« Reply #5 on: December 09, 2013, 07:52:07 PM »
I have done some research.

Labor costs 
50% (If you are doing the work yourself, it includes paying yourself a salary for what it would cost anyone to do the job, includes benefits).
Marketing
10 to 30%, depends upon how aggressively you wish to promote your business.
Miscellaneous
10  to 15% includes rent if any.

Bottom line, you should net 15 to 20%.

We have about 25 clients, but we don't make any money, because there are up front costs. So if you are acquiring clients at a rapid pace, profits may be elusive.

I hope that helps.
« Last Edit: December 09, 2013, 08:03:20 PM by tallmanusa »

PMRNC

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Re: Industry Average Profit Margin / Labor %
« Reply #6 on: December 10, 2013, 07:28:19 PM »
Quote
What is the average gross profit margin for the industry to benchmark against - physician billing, midwest? 25 - 30%?


What is the average labor % vs. total expense to benchmark against? Realize this answer depends on a lot of factors
!!!

As you have read, this is really not something you are going to get as a general "model".

I have only 6 clients and make a DECENT profit all by myself. My key is low overhead and keeping small enough to maintain personal service. That's it. nice and simple for me.   If I hired or if I took on more, I'd lose money. EACH one is going to give you different answers.
Linda Walker
Practice Managers Resource & Networking Community
One Stop Resources, Education and Networking for Medical Billers
www.billerswebsite.com

tallmanusa

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Re: Industry Average Profit Margin / Labor %
« Reply #7 on: December 11, 2013, 11:49:44 PM »
The labor costs should not be more than 50%, whether you have one client or 1000 clients. Labor costs are scalable and should be. We have a cap on our labor costs. That is business basics.

Also the profit margin should be around 20% regardless of the number of clients.

I started just like everyone else here, with an idea and a small amount of capital and no clients. From the get go I wanted to build a company with talented people; people who are smarter and more knowledgeable than I am. The Company is a combination of such talent, not necessarily mine.
Now we are acquiring average of one new client daily, and we have four specialty websites. Sometimes next year we hope to break one million in revenue on an annualized basis. I want to make sure that we remain profitable at 20%.

Operating profit is not all; an organization that earns that much revenue has a market value of several millions. If you are the owner and the sole operator of a business, you have very little market value. If you want to create market value that someone will pay for your business, you have to able to show that your business can make money without you.

I think everyone regardless of the size of their business, should consider creating a value for their business; someday all of us would consider retiring and our businesses are our main assets.
« Last Edit: December 12, 2013, 12:04:29 AM by tallmanusa »

PMRNC

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Re: Industry Average Profit Margin / Labor %
« Reply #8 on: December 12, 2013, 08:38:50 AM »
Quote
If you are the owner and the sole operator of a business, you have very little market value. If you want to create market value that someone will pay for your business, you have to able to show that your business can make money without you.

I think everyone regardless of the size of their business, should consider creating a value for their business; someday all of us would consider retiring and our businesses are our main assets.

I'm not necessarily saying you are wrong, but there are some of us with smaller goals. My goal from day one was NEVER to get as busy that I needed to 1) hire someone and 2) cease personal communication with every client  Once I hit my limit that was good enough to earn a decent profit and I do think the business does indeed have market value, however that isn't really a thought. I think it really depends on your goals and what your motives are when starting any business. This may sound crazy to some but I didn't get into my own business to get rich or build it to any sort of empire because then I wouldn't be able to keep doing what I do. I have a cousin that graduated college very early and went on to start a small computer business, he loved working on computers, well he grew the business to a huge capacity and just 4 years later he had 4 shops in 2 states, he was miserable, sold the other shops and started over from his own garage. He missed doing what he loved to do, because everyone else was doing it for him.   
Linda Walker
Practice Managers Resource & Networking Community
One Stop Resources, Education and Networking for Medical Billers
www.billerswebsite.com

rmk123

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Re: Industry Average Profit Margin / Labor %
« Reply #9 on: December 12, 2013, 07:12:33 PM »
Thanks for additional contributions to this post.