You need to know which services you provide are most profitable. While determining the profit margin on services is more complex than finding it for product lines, the general idea is the same.
Revenue from Service Provided – Cost of Providing Service = Profit Margin
While calculating this, there are a couple of items to keep in mind:
- True Labor Cost: Your cost should include the cost of your employees’ time. Use a time-tracking software to better understand productivity levels and better understand how much time your people are spending on each service you provide. Not all employees are equally productive, even if they are making the same salary.
- True Resource Cost: Beyond your employees, what other resources does it take to for your agency to function? Think about software, office space, insurance, and taxes. If you have to pay it to be able to provide a service, part of that cost should be factored into your service profit margin, though as a fixed cost.
Be sure to factor in which services insurance covers. While this depends on each patient, some services are still more likely to be covered, increasing your probability of being paid.
Once you know which services are most and least profitable, it’s time to determine why. Perhaps everything is functioning perfectly. If this is the case, great! You now know which service has the highest profit margin and can begin to increase that service while decreasing your least profitable one.
However, you also must account for human and technological error. Use this opportunity to see if there are inefficiencies taking place that you can correct, thereby increasing your profit margin on under-performing services.