Professional services
Medical Practice Profit Calculator
Works practice profit, where provider compensation decides what the figure means.
Result
Gross profit is what is left after the cost of doing the job. Overhead comes out of that: the building, the office wages, the vans, insurance, software and advertising. A healthy gross margin still loses money if overhead is larger.
Get a Free Business AuditHow the calculation works
Revenue less direct costs less overhead gives profit and margin. The convention question is central in a practice: owner-physicians produce the revenue clinically and also own the business, so a profit figure that does not pay them a market rate for the clinical work reports their labour as profit. Separate the two and the result tells you whether the business earns anything beyond the medicine.
What moves the number
- Whether provider compensation sits above or below the line.
- Payer mix, which sets revenue per visit.
- Net collection, which determines what revenue is real.
- Visit volume against a largely fixed cost base.
Where this one goes wrong
Use collected revenue rather than charges, because charges bear almost no relationship to receipts once contractual adjustments are taken. A profit figure built on charges is meaningless. Beyond that, measure profitability by service line and by payer where the practice can, since the averages conceal lines and contracts that lose money, and a practice cannot renegotiate or reconsider what it has never measured.
Before you quote
- Use collected revenue, never charges.
- State where provider compensation sits.
- Measure by service line and payer where possible.
Questions
About this calculator
Should physician compensation come out before profit?
For the figure to mean anything, yes, at a market rate for the clinical work. Otherwise the practice reports the physicians' labour as profit, and the number cannot tell you whether the business earns anything beyond the medicine itself.
Can profit be calculated from charges?
No. Charges bear almost no relationship to receipts once contractual adjustments are applied, since each payer pays its own allowed amount. A profit figure built on charges is meaningless, and the gap is large rather than marginal.
What should be measured below the practice total?
Service line and payer. The averages conceal contracts and services that lose money, and a practice cannot renegotiate or reconsider what it has never measured. The findings are frequently the opposite of what everyone assumed.
The formula
gross profit = revenue - direct costs
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How to use this calculator
- Revenue ($). Enter your own figure; the page starts at $68,000.
- Direct labour ($). Enter your own figure; the page starts at $16,000.
- Supplies and equipment ($). Enter your own figure; the page starts at $11,000.
- Other direct costs ($). Enter your own figure; the page starts at $2,200.
The result updates as you type, so you can try a figure, see what it does to gross profit, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Revenue | $68,000 |
| Direct labour | $16,000 |
| Supplies and equipment | $11,000 |
| Other direct costs | $2,200 |
What comes out
| Result | Value |
|---|---|
| Gross profit main result | $38,800 |
| Gross margin | 57.1% |
| Total direct cost | $29,200 |
| Profit per working day | $1,764 |
That is $38,800 at a 57.1% margin, about $1,764 for every working day. Overhead still has to come out of it.
How sensitive the answer is
Holding everything else steady and changing only revenue, this is what happens to gross profit. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Revenue ($) | Gross profit |
|---|---|
| $34,000 | $4,800 |
| $51,000 | $21,800 |
| $68,000 example above | $38,800 |
| $102,000 | $72,800 |
| $136,000 | $106,800 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Revenue ($)
- A money amount, starting at $68,000.
- Direct labour ($)
- A money amount, starting at $16,000.
- Supplies and equipment ($)
- A money amount, starting at $11,000.
- Other direct costs ($)
- A money amount, starting at $2,200.
What the results tell you
| Result | What it is |
|---|---|
| Gross profit | The headline result. A money figure. |
| Gross margin | A percentage. |
| Total direct cost | A money figure. |
| Profit per working day | A money figure. |
Estimating is the easy part
The jobs you never hear about cost more than the ones you mis-measure. BDEVY builds the marketing, systems and automation that bring them in.