Summary: Labor is one of the largest expenses for most veterinary hospitals, but payroll alone doesn’t tell the full story. This article explains how to evaluate veterinary labor costs in the context of revenue, productivity, staffing, and patient demand to better understand financial performance, improve profitability, and support informed operational decisions.

Labor is typically one of a veterinary practice’s most significant expenses, but looking at payroll dollars alone can be misleading. Veterinary labor costs should be evaluated in the context of revenue, productivity, patient demand, and staffing needs. The bottom line is numbers mean more with context – the same lens applied to revenue and cost of goods sold in this Know Your Numbers series.

Evaluate Veterinary Labor Costs Beyond Payroll

A useful starting point is to evaluate total labor cost as a percentage of revenue. Depending on how your practice tracks expenses, labor may include doctor compensation, support staff wages, payroll taxes, and employee benefits.

Suppose annual labor costs increase from $1.2 million to $1.3 million. That increase may raise concerns. But if revenue grows from $4 million to $4.5 million and productivity increases, the additional labor may be supporting profitable growth.

Even flat labor costs can signal a problem when revenue declines. If labor remains at $1.2 million while revenue declines from $4 million to $3.6 million, the hospital’s labor cost as a percentage of revenue rises from 30% to 33%. Payroll did not increase, but the trend still warrants attention.

Identify What’s Driving Changes in Veterinary Labor Costs

Your hospital’s labor cost percentage and its components should be monitored over time rather than reacting to a single month’s metrics. A rising percentage could reflect declining revenue, inefficient scheduling, excessive overtime, or staffing that no longer matches patient demand, but it could also point to changes in doctor production or underutilization of technicians and support staff. Evaluating DVM and non-DVM labor separately, along with the productivity of each group, can also help you understand what is driving change in labor costs and performance.

A lower labor cost as a percentage of revenue is not automatically good news, either. Understaffing can limit appointment capacity, contribute to burnout, and prevent doctors from focusing on work that requires their expertise.

Use Veterinary Labor Metrics To Improve Practice Performance

Labor trends tell a fuller story when compared with doctor production, appointment volume, hours worked, overtime, and staffing by shift. Efficiency metrics, such as support staff minutes per invoice and invoices per DVM, provide additional context. But less quantifiable questions also matter, like whether schedules align with patient demand and responsibilities are appropriately distributed across the team. Together, these factors provide a clearer picture of the staffing levels needed to support productivity, patient care, and profitability.

Financial statements will not always provide the answer, but they can show you where to start looking.

This is the third article in our Know Your Numbers series, highlighting the financial metrics that matter most for veterinary hospital owners. Not sure what your numbers are telling you? KSM’s veterinary consulting team can help you interpret your data and develop strategies for long-term profitability.

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