Production and the Closing Rate

You can really sum up the 'nuts and bolts' of an audiology practice in one word -- production. The term 'production' is well known in the physician's world. It is the bottom line that drives the existence of any audiology practice today. If your clinicians are not 'producing' hearing aid sales and revenues from other services, in particular, hearing aid evaluations (HAEs), your practice is doomed. The hard reality is that 'closing', and the ability to 'close' pays the bills. No sales, no income, no future!

'Selling' is often glossed over, or dismissed altogether, when bundled with clinical aspects of audiology. However, hearing aid sales are the primary financial ingredient of just about every practice. Selling hearing aids as part of the overall practice of audiology is vitally important to the audiologist, the profession and the patient. This retail element, consisting of selling and servicing a tangible product with an appropriate margin, is arguably one of audiology's most valuable assets.

Many audiologists are not comfortable with the idea of 'selling'. Certainly we must always put the patient's needs and interests first. It is our responsibility to provide the patient with the most appropriate hearing instrument based on their type and degree of hearing loss as well as their audiologic, social, rehabilitative and financial needs. Nonetheless, in the final analysis, we do indeed sell a product.

Margin, also known as profit, is the backbone upon which the practice is built. Margin enables the practice to market and advertise, pay employees competitive wages, pay rent, insurance, utilities, taxes and most importantly, margin allows the practice to grow and compete. All expenses accrued in practice must be offset by margin.

HMO saturation, and especially capitation in the primary care market, has eliminated this vital aspect for private practice physicians. Physicians today have to operate businesses where their reimbursements are consistently less than their charges. This is why it is imperative to understand how production and being productive applies to your practice.

The key to understanding production is knowing what to track, how to track it and, in general, being able to evaluate your business's performance at any given point in time.

The 'Closing Rate' is one of the most vital pieces of data any manager can track in private practice and it is the key component in production. Closing Rate (CR) is a term used to evaluate an individual providers' productivity. It is reported as a percentage which reveals how well a provider is closing HAEs (turning them into HA sales). The formula is simple but extremely powerful and insightful when tracked and evaluated appropriately. Closing Rate can be expressed as:

Closing Rate (in %) =

(number of HA sales - number of HA returns)
____________________________________

total number of HAEs

Closing Rate allows the manager to analyze the productivity of any given audiologist. It is an indicator that reveals how well an audiologist is closing his or her presented opportunities. Given the difficulty and expense of getting new hearing aid candidates into your office, the CR helps us understand the history, and probable immediate future, regarding revenues based on a particular clinician, and the opportunities presented.

Example: Suppose Audiology Clinic ABC has an audiologist who is producing $35,800 in gross charges per month. The audiologist, Karen, is a seasoned audiologist with 12 years clinical experience. Karen has 92 patient visits per month, 26 of those being HAE patient visits. Karen sells binaural hearing aids to 13 patients, for a total of 26 hearing aids sold. Her average sale is $1376.00. Karen's closing rate is 50%.

Then, suppose the practice has another audiologist, Kathy, who has recently received her degree and is producing $21,900 in gross charges per month. Kathy sees 68 patients per month and 12 of those are HAEs. Therefore, she sells binaural hearing aids to 9 patients, for a total of 18 units sold. Her average sale is $1216.00. Kathy's closing rate is 75%.

Without a Closing Rate analysis, Karen may appear to be the more productive provider. That is, Karen sells more units per month, and does so at a higher price per unit, than does Kathy. However, keep in mind, Closing Rate has nothing to do with volume. Rather, it is an indicator of productivity efficiency. The astute manager utilizing the Closing Rate would quickly discover that Kathy is the more efficient generator of revenue.

The practice might do well to maximize its return on investment (ROI) by directing more HAE opportunities to Kathy. Additionally, it would be wise to extend further training to Karen in order to improve and sharpen her skills related to CR.

Of course there are other ways to track productivity and efficiency. The above examples are simply a demonstration of how to apply the Closing Rate to a clinical practice situation.
Another useful analysis involves 'Conversion Rate.' Conversion Rate reveals how often a provider converts existing patients (when appropriate, based on clinical decision making and ethical guidelines) into new hearing aid sales.

Existing patients come into the office daily for battery purchases, hearing aid checks, tubing replacements, cleaning, etc. Existing patients provide opportunities for the introduction of new technologies, upgrades, new products, ALD sales and other miscellaneous revenue generating opportunities.

Conversion rate (in percentage) can be expressed as:

(number of HA sales - number of HA returns)
_____________________________________________

(total number of non-HAE patient appointments)

('non-HAE' means office visits which were not originally intended as HAE appointments)

As a manager, you quickly realize how much each 'contact opportunity' is worth to your practice you can quickly calculate the cost of lost sales and quantify the impact of poorly producing clinician/employees.

Establishing a 'starting point' and goals, with respect to Closing Rates and Conversion Rates, for periodic review and analysis, helps reveal and track key information for new clinician/employees.

First, the starting point and goals can be used to reveal progress, or lack thereof, relating to productivity, efficiency, and overall maturity as the new audiologist addresses the realities of day-to-day patient management. Second, these measures can serve as an indicator of how efficient your 'in-house' orientation/training and supervision program is. Third, establishing the starting point and goal is important for any type of reward/benefit/commission performance program.

Taken together, the two equations, closing rate and conversion rate, reflect productivity and efficiency of any given audiologist/employee.

We would like to urge you to take a real-time 'snap-shot' of how your business is performing with respect to both equations.

For more information on this topic, or related topics, please contact Mike Fisher MBA or Tom Northey MSM at Audiology Economics. Telephone us at 303-761-7600, extension 14.