How Profitable is a Veterinary Clinic? Break-even & Profits
If you are planning to open a veterinary clinic, you need to understand how you can turn your revenues into profits. In other words, you must know how much revenue you must generate to reach break-even and make profits as part of your business plan.
Statista reports that the US veterinary services market will reach approximately $54.9 billion by 2024. Another Statista research of 2018 found that US households spend approximately $253 per year for vet services on a dog and $98 per year for vet services on a cat.
What does that tell you in terms of the profits you can make if you own a veterinary clinic? You’ll have to consider all the costs and your break-even point. Let’s now look in more details how much profits you can generate with a veterinary clinic on average in the US. Let’s dive in!
What is the average turnover for a veterinary clinic?
According to Business Valuation Resources, veterinary clinics have an average revenue of anywhere between $300,000 to $600,000. The wide range is explained by geographic variations, work rates, species treated, and various other factors.
As for the take-home salary of veterinarians in the US, Salary.com reports that vets in the US have an average annual take-home salary of $102,334. However, the average vary significantly by state, anywhere between $80,372 and $129,852.
Veterinary Clinic Financial Model
Download an expert-built 5-year Excel financial model for your business plan
Veterinary Clinic Financial Model
Download an expert-built 5-year Excel financial model for your business plan
How does a vet clinic make money?
Veterinary clinics provide different procedures and services, which vary based on the type of species they treat, their specialisations and other factors. Live Oak Bank conducted a research in 2014 on 700 US vet clinics and found out they had the following revenue mix:
| Service | Revenue split |
|---|---|
| In house pharmacy | 10-20% |
| Vaccinations | 5-10% |
| Lab services | 10-20% |
| Dentistry services | 0-5% |
| Preventative care services | 10-15% |
| Examinations | 15-25% |
| Surgical | 10-20% |
| Total | 100% |
What is the average profit margin for veterinary clinics?
Today’s Veterinary Business estimates that the average profit margin for a vet clinic is:
- 10% to 15% for small animal hospitals
- 15% to 25% for emergency and specialty practices
In addition, DVM360 states that profit margins are considered:
- Superior above 18%
- Excellent: 16% to 18%
- Good: 13% to 15%
- Fair: 8% to 12%
- Poor: below 8%
How much does it cost to run a veterinary clinic?
There are some recurring expenses of running a veterinary clinic and they are:
- Salary: You need to pay your staff and yourself
- Rent: You need to pay rent for the commercial space that you are using for your clinic
- Marketing: You must spend money on marketing and advertising your clinic
- Insurance: You must purchase business insurance, workers’ compensation insurance, etc.
- Bookkeeping: You may hire an accountant, or you may use an accounting software
- Miscellaneous: There will other expenses like utility bills, office supplies, janitorial services, food, etc.
In general, it costs anywhere between $28,000 and $44,000 to run a small veterinary clinic with two vets.
We’re including below the revenue to profits breakdown chart of a small vet clinic over a year (average profit margin of 14%).
Veterinary Clinic Financial Model
Download an expert-built 5-year Excel financial model for your business plan
Veterinary Clinic Financial Model
Download an expert-built 5-year Excel financial model for your business plan
How to forecast profits for a veterinary clinic?
In order to calculate profits for a veterinary clinic, you must first forecast revenues and expenses.
Profits = Revenue – Expenses
Forecasting veterinary clinic revenue
Revenue can easily be obtained by multiplying the number of procedures by the average procedure price.
Revenue = Procedures x Procedure price
For example, if you receive 200 customers (200 pets) in a month paying on average $250 per procedure, monthly revenue is $50,000.
Forecasting veterinary clinic expenses
There are 2 types of expenses for a veterinary clinic:
- Variable expenses: these are the COGS as explained earlier. They grow in line with your revenue: if your turnover increases by 10%, variable expenses grow by 10% as well
- Fixed expenses: mostly salaries, rental costs and all the other costs listed above
Calculating veterinary clinic profits
When we refer to profits, we usually refer to EBITDA (Earnings before interests, taxes, depreciation and amortization) as it represents the core profitability of the business, excluding things such as debt interests, non cash expenses and other non-core expenses.
In order to get to EBITDA, we use the following formula:
EBITDA = Revenue – COGS – Operating Expenses
To make it clearer, we’ve included below the profit-and-loss of a veterinary clinic (from our financial model template for veterinary clinics).
Whilst gross margin (after variable costs) is very high (~85%), EBITDA margin can go up to 20-25% depending on the clinic, and net profit margin up to 15-20%.
What is the break-even point for a veterinary clinic?
Break-even is the point at which total costs and total revenue are equal. In other words, the breakeven point is the amount of revenue you must generate to turn a profit.
Because you must at least cover all fixed costs (that aren’t a function of revenue) to turn a profit, the break-even point is at least superior to the sum of your fixed costs.
Yet, you also need to spend a certain amount for every $1 of sales to pay for the variable costs. As we just saw, veterinary clinics have very high gross margins (85%). That’s because almost all expenses for a veterinary clinic are fixed costs (mostly salaries and rent).
The break-even point can easily be obtained by using the following formula:
Break-even point = Fixed costs / Gross margin
Using the same example earlier, let’s assume a veterinary clinic has the following cost structure:
| Operating cost | Variable vs. fixed | Amount (per month) |
|---|---|---|
| COGS (lab fees, medical supplies) | Variable cost | $4,000 |
| Salaries* | Fixed cost | $25,000 |
| Rent | Fixed cost | $6,000 |
| Marketing | Fixed cost | $3,000 |
| Other | Fixed cost | $2,000 |
| Total | $40,000 |
The break-even point would then be:
Break-even point = Fixed costs / Gross margin %
= $36,000 / 85% = $42,000
In other words, you need to make at least $42,000 in sales to turn a profit.
How to increase profits for a veterinary clinic?
You can increase the profits for your veterinary clinic using the following strategies:
- Merchandising: Sell products from manufacturers and brands against a commission
- Healthcare membership plans: Introduce healthcare membership plans for clients who have budgetary constraints
- Payment plans: For high-cost procedures, consider introducing payment plans to ease the financial burden
- Social media platforms: Use social media platforms to educate pet parents through videos, articles, etc. You can monetize certain content such as YouTube videos
- Affiliate program: Start an online affiliate site to generate additional revenue
- Referral program: Ask existing clients to refer new clients against incentives like coupons, flat price cuts, freebies, etc.
- Use SaaS platforms: These platforms make invoicing, billing, etc., easy and thus, help to save time that you can use to attend to more patients
Veterinary Clinic Financial Model
Download an expert-built 5-year Excel financial model for your business plan
Veterinary Clinic Financial Model
Download an expert-built 5-year Excel financial model for your business plan
