The High Margin Practice

Everyone reading this should understand the concept of a high margin practice. What does this mean? It means that you are charging significantly more than what a particular product cost you. What does this result in? MORE PROFIT.

I consistently hear from various nurse practitioners that are focused on very low margin services such as primary care, preventative care, and just consulting. While this can generate money, it will not generate nearly enough to help you become financially independent. You need to focus on high margin services and products! You can either provide a high margin service or sell a high margin product. Generally speaking, you will need to combine both for the best return on your money. Let us review both types of practices.

Service focused practice:

A service focused practice is one where you are just selling your time. You are not selling a product. Most medical practices are service type practices. Very few products are sold from the actual practice. Examples of service based practices would be primary care, urgent care, mental health, medical cannabis evaluations, and general “health advice” type practices. They usually have a decent margin to them, but not as high as compared to a practice that sells products as well.

Let’s say you are running an STD telemedicine practice. You charge $80 for the consultation. Great, you just made $80 for 15 minutes of work! But how much did you REALLY make? Once you subtract marketing costs, EMR costs, etc., then the number actually decreases. For example, you see 20 patients a month at $80 each, you just made $1,600! Great! Not bad for 5 hours of work.

How much money did it cost you to obtain that patient though? Scheduling 20 patients a month with a telemedicine practice is going to cost you marketing dollars. I would estimate it would cost you at least $500 in social media ads to obtain 20 patients.  Therefore, each patient cost you $500 divided by 20 patients = $25. So, the acquisition cost for each patient is $25. Subtract that acquisition cost from the $80 you are charging and in reality, you are making $55 per patient. But wait! Now you also need to subtract the operational costs such as the EMR, phone line, etc… For simplicity purposes, lets round this to $120 a month. Now you need to also subtract $6 from the $55 to account for that. So, when it is all said and done, you just made $49 per patient for a total of $980 for the month. That comes out to almost $200 an hour. More than you will make at any type of employed job! Still not bad!

Another example of a service based practice with lower margins would be basic primary care. You see the patient, prescribe them a medication, and they leave. This is the bulk of primary care. Sure, you can give injections and medications out of your practice, but this is not going to be for the majority of your patients. You are selling your time. The problem with primary care (this is not a blanket statement, I know people that do well in primary care) is that the expenses are high, which makes the margins lower, especially when you accept insurance. You need to subtract ALL the costs of operating an insurance accepting practice such as payroll, medical billing, an expensive EMR required by insurance, marketing, etc… With primary care, you are lucky to walk away with around 30-40% of revenue as a profit. Therefore, a standard established level 3 visit that reimburses you $120 for 15 minutes of work in reality only pays you around $36-$48 after you subtract all the expenses associated with the practice. These are not very good margins. You need VOLUME to offset it.

Let us compare the two examples above. The telemedicine STD clinic has NO employees, no building, no medical billers, or no expensive EMR. It is a single individual operated practice with low overhead and is generally easy to operate. On the other hand, the primary care practice has multiple expenses and is more burdensome to operate. The STD clinic generates about $49 in profit per patient while the primary care practice generates $36-$48. Which one would you choose?

Service focused practices have decent margins. If you can start a service focused practice with low expenses, then the margins improve exponentially. Be aware of that.

Product focused practice:

A product focused practice is one where you sell your time in addition to a product. These products are generally medications and supplements. Many niche cash practices are product focused. Examples of product focused practices would be men’s health, hormone replacement therapy, IV-infusion, weight loss, regenerative medicine, and other “wellness” type practices that sell products out of their office in the form of medications, injections, and certain procedures.

Let’s say you are running a men’s health practice. You don’t charge for visits but instead just charge a monthly “concierge” fee like my practices do. This fee is $200 a month and includes the testosterone replacement therapy, erectile dysfunction medications, B12 injections, the lab work and the follow up visits. You have 20 patients in your practice resulting in $4,000 a month in revenue. How much are these medications costing you total? I would estimate $30 a month. What about the lab work that is done every 3-6 months? Approximately $40 each time. Therefore, if you add these expenses up, you are looking at approximately $40 total monthly. You are making $160 a month off each patient each month. Not bad!

If you were only seeing 20 patients a month, you would not need an employee. This could be done out of a VERY small office, including utilities, at $500 a month. We also need to account for marketing, which would be another $500 a month. Now we will need to add an additional $50 expense to the $160 to cover for the rest of the expenses. When it is all said and done, you are making $110 a month from each patient. The best part? You are spending less than a hour with each one every 3-6 months. A very nice partially passive income source!

Another example of a product type practice would be an IV-infusion clinic. You are providing a service and selling them a product, the IV itself. You will be charging each patient, on average, $150 per infusion. The infusion from start to finish takes about an hour. You have 20 patients a month resulting in $3,000 a month in revenue. How much do the IV supplies, fluids, and vitamins cost you? About $10 per infusion. Now the profit drops to $140 per patent. Additional expenses would be rent, utilities, and payroll for an RN or LPN to run the fluids. Again, if you wanted to do this yourself as a very part-time side hustle, you could do the IVs yourself! Let us run both numbers though.

Rent and utilities shouldn’t be more than $800 a month. You do not need a large area for a very part-time IV-infusion clinic. If you ran the IVs yourself, you would be looking at an additional cost of $40 per patient to account for the rest of the expenses. Therefore, the grand total profit from each patient would be $100. If you hired an RN or LPN to do the fluids, I would estimate that they would only be there for 6 hours for 20 patients. You pay this individual $30 an hour which would result in an additional $180 in expenses. Now we would need to subtract an additional $9 from the profits. This would ultimately result in $91 in profit per patient. Your grand total in profit for the month having 20 patients would be approximately $2,000 if you were doing the IVs yourself or $1,820 if you hired someone out to do them for you. Not bad for 6-10 hours of work.

Now that I have compared both a service focused practice to a product focused practice, I hope you can see the difference in profits. If you average 20 patients a month (which is NOTHING by the way), the product focused practice is SIGNIFICANTLY more profitable than a service based one, by approximately 100%, while working the same number of hours or even LESS.

This is what I mean when I say you should develop a HIGH MARGIN practice. People derive more value out of a tangible product vs. just a visit where you prescribed them some antibiotics or hypertensive medications. This is human nature and you cannot change it. Therefore, as a profit focused nurse practitioner entrepreneur, you should deliver to people what they want.  

You create a high margin practice by simply upselling products within your practice. Yes, you are providing a service through the medical visit where you do a detailed history and physical, review labwork, and go over different treatment modalities with the patient. That is part of advanced practice, but you should also increase your bottom line by selling products within your practice. How do you do this?

  1. Injections and infusions. People will pay $20 for a B12 shot. Do you realize how much one B12 shot costs you as a practice owner? Like 15 cents!
  2. Medications. Do not just write a prescription for a hormone or particular medication so they can fill it at a pharmacy. You do not make money this way. You need to make deals with pharmacies, so the medications are shipped to the patient, they bill your office, and you bill the patient.
  3. Labs. Do not send a patient blindly to a lab in your city. Make deals with laboratories where they bill your office and you can charge the patient whatever you want.
  4. Procedures. Certain procedures like Botox, trigger point injections, joint injections, etc. are a product/service mixture offered in your practice. You should be charging top dollar for these.

One issue you need to be aware of though is that some states do not allow you to charge the patient for medications from a pharmacy or lab. Yea… such a free and capitalistic country we live in, right? Anyways, you can get around this by including those products within your “global fee.” This global fee is essentially a monthly charge that includes the service AND the product. This is completely legal and almost every cash based practice in the country does this.

I hope you get the point now. When you are brainstorming about what type of cash only niche side practice you should open, consider the margins. Offering only services will result in mediocre returns unless you are charging very high amounts for your time. You can do this if you are providing a very focused niche service, like functional medicine, medical cannabis evaluations, or opioid addiction treatment. For the majority of us though, focusing on a practice that also sells products within it, will result in STELLAR returns. It is my recommendation that you provide a valuable service but also sell high margin products. This will increase your bottom line.

You should be focused on your bottom line with a business… Why take on the risk and hassle of owning your own medical practice if it does not pay you significantly? That is just bad business.

For these reasons, focus on creating a HIGH MARGIN practice, and you will inch closer to financial independence!

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