How do you decide whether you should buy that shiny new piece of veterinary equipment? A thoughtful analysis is necessary to ensure you don’t make a purchase you later regret. Along with the price of the equipment, you must consider time and wages for staff training, additional staff requirements, necessary consumable supplies, space in your facility, equipment maintenance, software upgrades, and interest costs if you plan to finance the purchase. Nonfinancial factors to consider include the types of cases that will benefit from the new technology, how you will educate clients and market your new service, whether all your doctors will feel comfortable using the new equipment, and how you will share it if multiple doctors wish to use it.
How to Conduct a Breakeven Analysis for Veterinary Equipment Purchases
An educated decision is based on whether a purchase is logical for the practice, good for the greater equine community, good for the patients the practice serves, and fiscally responsible. To make a good decision, you need to conduct a simplified breakeven analysis.
Determine Fixed Costs
First, determine your fixed costs. The fixed cost of a piece of equipment will not change based on the number of procedures you perform, but the more procedures you perform using that piece of equipment, the more the fixed cost per procedure declines. Therefore, the goal is to have enough volume to lower the average fixed cost to an affordable number.
Determine Variable Costs
Second, determine the variable costs. Variable costs typically remain the same per procedure, but the total fluctuates in direct proportion to changes in volume. An example of a variable cost is a disposable supply used in a procedure, such as an extracorporeal shock wave probe that must be replaced after delivering a certain number of shocks. A digital radiology unit typically requires a technician to hold the imaging plate for each image capture, so the variable cost would be the technician’s cost per minute times the average number of minutes per image. The more procedures you perform, the more variable costs you will incur. You can calculate the total cost per procedure by adding the fixed cost per procedure to the variable cost. As the number of procedures goes up, the total cost of a procedure will go down.
Forecast Expected Number of Uses
It’s obviously important to have an accurate forecast of the equipment’s expected number of uses. The volume often varies with the seasonality of most equine veterinary practices. Because the number of times you will use the equipment is critical for the financial solvency of the purchase, it is important to be conservative with your estimates.
The price you charge the client per use minus the variable expense per use when divided into the total fixed cost will give you the breakeven point of how many uses are required in the loan amortization period. You can also calculate your monthly breakeven point: The price per use minus the variable expense per use divided into the fixed cost per month. If you divide the total number of uses you calculated as necessary to pay off the total fixed expense by the average number of procedures you expect to perform each month, you can determine the number of months it will take to break even on the equipment purchase.
Final Thoughts
By doing these calculations, you might be surprised by how few uses you need to meet the financial obligations of purchasing the equipment, and how quickly you can pay off the loan.
Related Reading
- The Business of Practice: Creating a Personal and Practice Budget
- How To Turn Your Veterinary Equipment Into a Revenue Stream
- The 100 Penny Exercise: Understanding Practice Expenses
Stay in the know! Sign up for EquiManagement’s FREE weekly newsletters to get the latest equine research, disease alerts, and vet practice updates delivered straight to your inbox.
