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Veterinary Market Review: Trends & Key Insights

May 30, 2024

Veterinary Services Group

Veterinary hospitals are navigating a challenging landscape marked by economic pressures and shifting market dynamics. Due to slowing wage growth, job eliminations, and rising interest rates, many consumers have limited disposable income to spend on veterinary services. Meanwhile, hospitals continue to operate at or near capacity but face challenges when it comes to recruitment and retention.

In partnership with VSG DATALINK, KSM’s veterinary consulting team analyzed financial data from over 500 practices to identify the latest industry trends and key insights. Here is an overview of data from the last quarter of 2023 along with actionable recommendations for hospitals to consider.

Revenue and Invoice Growth

In the fourth quarter of 2023, global revenue growth for veterinary hospitals was 8.4%, which was a slight increase from the prior quarter. Invoice counts also increased by 3.6% in the fourth quarter. This growth exceeded the two-year global average of 2.5% and was just below the top hospitals’ two-year average of 3.8%.

Vet Tip of the Month - May - Revenue Growth Chart

These figures indicate a healthy demand for veterinary services, but the slower growth in invoice counts suggests potential client pushback on rising prices. Tracking patient declines can also help determine if pricing might be a driving factor. Consumer prices increased 3.8% in Q4, according to the U.S. Bureau of Labor Statistics. When reviewing pricing adjustments, be sure to consider inflation and balance pricing strategies with client acceptance.

Costs and Operational Efficiencies

Normalized labor and benefits costs rose to 49.5% of revenue in Q4, the highest in years. Veterinary hospitals have been able to operate at or near capacity, but with rising costs, improving efficiency is critical.

Utilizing tools such as artificial intelligence scribes, online scheduling platforms, and secure third-party storage for pet owner credit card information can help streamline operations and reduce labor burdens. Hospitals should create a labor budget, communicate it to managers, and review the actual labor costs versus the budget weekly to manage expenses proactively.

Though direct costs in Q4 remained relatively consistent, hospitals should still review margins by category to ensure markup multiples are optimized and appropriate for their respective markets. Internal controls should also be reviewed to assure proper mark-up multiples are being applied and all products are invoiced.

Recruitment and Retention

Hospitals continue to be challenged with the recruitment and retention of veterinarians and support staff. Offering competitive incentives like profit sharing, equity appreciation, retention bonuses, and student loan assistance programs can attract talent. However, mentorship is the most sought-after benefit by associate veterinarians and new graduates. Establish a robust mentoring plan and highlight it in job ads to help attract and retain top talent.

Hospital Value

Financial health remains a cornerstone of veterinary hospital sustainability. Despite recent revenue growth, earnings before interest, taxes, depreciation, and amortization (EBITDA) declined to 10% – the lowest in years – which is concerning when compared to the 6.4% average invoice amount for the quarter.

Hospitals should establish clear, long-term goals for the next one, three, and five years and should work toward them to increase the hospital’s overall value. Key to this is going back to the basics of practice management, focusing on customer satisfaction, efficiencies, and staff wellbeing.

Mergers & Acquisitions

The corporate consolidation frenzy experienced over the last few years appears to have slowed down, and purchase prices on average have been reduced significantly: 5-8x multiples for two-doctor hospitals and 8-10x multiples for hospitals with more than four doctors. If you’re considering a sale, it is important to review the terms, options, and financing of any sale agreement in totality.

Key Takeaways

It is important not to overreact or underreact to one single quarter, but there are important takeaways to consider:

  1. Focus on key metrics like revenue growth, labor costs, and client compliance.
  2. Find new ways to drive efficiencies at your hospital, especially when it comes to more effectively managing labor.
  3. Consider starting and promoting a mentorship program as part of recruitment efforts.

If you want help benchmarking your hospital’s financial performance and coming up with customized, actionable strategies to improve it, contact our veterinary consulting team.

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