Average invoice value – a popular KPI that may be losing its relevance
For as long as we can remember, veterinary businesses have used average invoice value to measure their business performance. It’s a simple KPI that is calculated by dividing your total sales by the number of invoices over a period. This gives a result showing on average what a customer pays when they go to the front desk to settle an invoice.
Historically this has been a great indicator of whether a practice is pricing high enough, if enough services are promoted and if there is an issue with missed billing – all 3 of the situations above affect average invoice value.
However in more recent times, whilst it may still be fairly accurate internally for comparing various staff members within the SAME practice, it can get very confusing if you compare your average invoice value to that of other practices. This is because it can be extremely biased by billing habits and different practice management systems.
One of the reasons it has lost its accuracy is something we call ‘invoice splitting’. This is a scenario where a procedure that would normally be priced up on one invoice is instead split across multiple invoices. This is often driven by practice policies for example a practice may opt to raise a new invoice for a hospitalised patient for each day it is in hospital – there is really nothing wrong with this and you would just have to accept some loss in accuracy.
However more recently we have started to notice some software driven splitting of invoices that will potentially have an enormous impact on your average invoice value. One such example is where a pet owner pays on a credit card and instead of the credit card surcharge going on the same invoice as the rest of the services, an entirely new invoice is created for a tiny value of just a few cents. In this case, every single invoice paid by credit card will effectively have its value halved, the result being a possible artificial drop in average invoice value of as much as 50%, rendering this KPI virtually useless.
If this is the case, there is some consolation in that we have never fully relied on this KPI because of invoice splitting problems. We instead have also used annual client spend to measure exactly the same things within a practice – so all is not lost. If you suddenly become concerned and notice your average invoice value dropping dramatically, APL clients are welcome to contact us to check if it is really a problem with the business or just ‘invoice splitting’.