21. The Financial Calculation Behind Every Smart Growth Decision

If you’re like most physicians, there comes a moment in your practice when patient demand is climbing, your schedule is bursting at the seams, and burnout is starting to creep in. At that point, hiring “just one more person” can feel like the only logical next step.

But here’s the catch: growth doesn’t always translate into profit. And when you make decisions from a place of stress instead of strategy, you can unintentionally pull your clinic further away from financial stability.

That’s why understanding one simple metric can change everything: your contribution margin. (Don’t worry, it’s less scary than it sounds!)

So let’s dig into what it is, how to calculate it, and how it can help you make hiring and growth decisions that actually support your clinic, not strain it.

What Contribution Margin Actually Means

Contribution margin sounds like one of those intimidating accounting terms that belongs in a textbook. But the idea behind it is incredibly simple and genuinely useful when you are deciding whether your clinic is ready to grow.

Before you hire anyone or add a new service, you need to understand whether each visit is actually contributing enough toward covering your clinic’s expenses and contributing to its profit. That is exactly what contribution margin shows you.

And the good news is that you can figure it out with just two numbers. Once you have them, you can use a simple formula to figure out your contribution margin and see how much each patient visit is really doing for your bottom line.

Here’s the formula:

Patient Visit Contribution Margin = Revenue per Visit – Variable Cost per Visit

Now let’s walk through what each part means and how to find your numbers.

Step 1: Find Your Revenue Per Visit

Start by looking at a month of revenue and divide it by the total number of patient visits.

Let’s say your clinic brought in $80,000 last month and you had 400 visits. That gives you:

80,000 divided by 400 = $200 revenue per visit

Of course, not every visit is reimbursed the same. Insurance rates vary. Cash pay structures vary. Longer visits may cost more. Shorter visits may cost less. But for the purpose of getting a preliminary usable estimate until you can get a more accurate one from your accountant, bundling everything together is fine.

Step 2: Identify Your Variable Costs

Next, look at your expenses and figure out which costs change with patient volume. These are your variable costs.

Examples include:

• Medical supplies
  
• Procedure materials
  
• Gowns or laundry costs
  
• Vaccines, labs or anything that increases as patient volume increases
  
• Credit card processing fees
  
• Contractors paid per patient or per procedure
  

If a cost rises when you see more patients, it counts as variable. Everything else is a fixed cost.

In our simple example, let’s say your variable costs for the month total $8,000. Using the same 400 visits:

8,000 divided by 400 = $20 variable cost per visit

Step 3: Calculate Your Contribution Margin

Now apply the formula.

Revenue per visit: $200
Variable cost per visit: $20

Contribution margin is $180 per visit

This tells you that after covering the costs required to deliver that visit, $180 is left to go toward rent, salaries, utilities, software, insurance and, eventually, profit.

Many accountants like to turn this number into a percentage. To do that, divide the contribution margin by the revenue per visit.

180 divided by 200 = 90%

That means 90 percent of each new visit is helping cover fixed costs or move you closer to profit. In healthcare, high contribution margins are common because fixed costs, especially payroll, are usually much larger than the variable costs.

Why This Matters Before You Hire

This is where contribution margin becomes a powerful decision making tool.

Even though hiring someone new does not change the contribution margin itself, it does increase your fixed costs. If you add a provider with a $100,000 salary, that salary becomes another fixed cost that must be covered before you reach profitability.

Using our example, if your contribution margin per visit is $180, you would need:

100,000 divided by 180 = 555 additional patient visits

Those 555 visits represent the point where you break even on that new hire. Only after that would additional visits generate profit for the clinic.

In other words, hiring too early can push your break even point further into the year. That means more months of working hard before your numbers actually move into the positive.

So Should You Hire Now or Wait?

There is no one right answer, but there is a smarter way to make the decision.

Ask yourself:

• Do you have enough demand to cover the additional fixed costs?
• Do your current margins support hiring without increasing financial pressure?
• Are you making this decision from stress or from data?

When you understand your contribution margin, you can clearly see whether your clinic is ready for growth or if it needs a bit more time.

What This Means for Growth Decisions

Contribution margin is one of the simplest yet most powerful financial tools for clinic owners. It shows you the real impact of every visit, every service and every hiring decision.

If you want to grow sustainably and avoid the trap of adding staff without increasing profit, this metric needs to be part of your regular decision making process.

Understanding your numbers allows you to build a clinic that supports both your patients and your future. And that clarity can feel like a breath of fresh air compared to making decisions from a place of overwhelm.

If you want to go a little deeper into this topic, tune into the full episode where I walk through the complete calculation step-by-step and share real examples of how contribution margin impacts your hiring timeline and profitability.

And if you're looking for more structured support as you build or grow your clinic, my new course, the 90 Day Clinic Launch Blueprint, covers this financial metric and much more—including entrepreneurial mindset, marketing strategies, and essential business operations to get your practice up and running in 90 days. Get on the waitlist here!