Cost reduction and cost containment tactics are common to many chiropractic practices. And, when tied to the budget, they are a must. Although there is some confusion about the first two terms, and “cost management” is another matter entirely.
Cost management is not cost reduction
Cost reduction and cost containment do not incorporate a strategy. Think of cost management as part of a long-term strategy and cost reduction as a short-term tactical approach.
In general, cost cutting occurs because costs seem higher than budget, so you need to cut costs. Cost containment generally means that you don’t want costs to exceed budget, so you have to find ways to keep them under budget.
Cost containment may be part of cost management, but cost management involves a longer-term strategic approach, not a short-term tactical approach to cost control.
As a fundamental concept, strategic cost management means making the most of your resources as part of an overall strategy.
When developing a cost management strategy, it’s helpful to start by thinking about how you can get the most value from the resources you use to achieve your goals.
For example, if delivering an exceptional patient experience at each and every visit is important, don’t start with the idea that this means higher costs. Start with the idea that an exceptional experience matters and ask yourself how best to spend your resources to achieve your desired outcome, which will likely mean that spending more resources early in the patient experience will save money in the long run…and PVA improved.
Strategic cost management sounds like a great concept, but implementing it is not as difficult as you might think. Essentially, it’s about thinking about the long-term impact inherent in the cost of the practice and making it more manageable where possible.
You may already employ various tactics, however when taken together they can represent a true strategic approach. Examples of techniques that could make up a cost management strategy could include:
*Buy in bulk – Warehouse clubs like BJ’s, SAM’S Club and Costco give you the opportunity to shop for key supplies: pens, paper, printer cartridges, cleaning supplies and even toilet paper – buy in bulk for better prices than most office supply stores.
It means supplies last longer, your office supply budget is easier to maintain, and when it comes to tax write-offs, having a single receipt makes bookkeeping really simple.
You can also ask your suppliers for discounts if you buy in bulk or agree to longer terms of service than you currently have. Also, if you’re someone who attends a lot of conferences and trade shows, prepare a shopping list before the next one you attend; on-site discounts are almost always available.
* Use your providers – Asking for discounts for bulk or quantity purchases is just one way you can help yourself with suppliers. Remember, they often have the same cash flow problems as you, so they may be willing to offer discounts for early or cash payments. You could offer a monthly guarantee order in exchange for a better price.
* Go cooperative when you can – Join volume buying groups. They exist to buy everything from the common supplies you may need to equipment, electricity and gas. Trade groups in your industry and local chambers of commerce often offer access to these groups, not to mention their own discounts.
* Buy your services every year – Whether it’s insurance, a phone, a merchant account, an Internet provider, or any other type of service, shopping around can always help you better manage those costs.
*Buy it with barter. You can trade chiropractic care with other providers for products or services, for example.
* Renegotiate your rent – If you’re ready to move, renew a lease, or just think you can do better, open up a dialogue with your landlord. If a short-term lease is nearing expiration, ask the landlord to redo the long-term lease at a lower rental rate. Yes, they will. And you can with equipment leases, too. See if your bank will give you a better lease rate and pay the current landlord, for example.
Keep in mind that many costs are not measured by any accounting system. The cost of patient care is due to poor service or quality, for example. When it impacts the patient experience and charges for it decline, further cost reduction will not improve your bottom line.
This is a real cost that should be part of cost management, but no accounting system explicitly measures it.
Another example is the opportunity cost of people’s time. When assigning projects and tasks, it is worth considering what will be given up if an employee completes the task or project. For example, I knew a chiropractor who asked his team at the last minute to provide him with a performance report. The clerk had to give up patient care to fill out the forms the chiropractor wanted.
Replacing your answering service with an answering machine may save money, but how will it affect the experience of a patient who calls your office after hours?
You may be able to downsize the team. to reduce overhead, but what stretches to the limit or causes burnout in the rest of the staff?
When you’re thinking about cost management, remember that it’s as much about the value of the time you’re spending as it is about direct costs and expenses.
Spend so much time trying to reduce your overhead to attract new patients, and you may find that it’s easier to increase your NPP (new patient production) than it is to cut your overhead to the bare minimum.
And remember, it is virtually impossible to reduce yourself to greatness!