Scott Hackworth is senior project director for Industry Insights Inc., based in Columbus, Ohio. He oversaw AOPA’s 2007 Operating Performance and Compensation Report, a comprehensive financial profile of the O&P industry.

1. What makes an O&P business financially successful?
The [elements] that we are most concerned [with] are what we call overall key performance measures. [Those include] how much profit they’re generating from the sales (profit margin); asset turnover, which is an asset productivity measure; how heavily leveraged they are, which is how much debt they’re carrying in relation to their assets or equity positions, how much profit in relation to their equity, which we call return net worth; and their sales growth. We also look at employee productivity—sales per employee. 

We find that those who perform best in those areas are the profit leaders. [AOPA] members can learn a lot about their [own] companies by seeing how they perform in relation to the average.

By doing that, they can examine their own strengths, their own weaknesses, and find some areas that they might want to improve. Maybe they’re under-leveraged, maybe they’re not using enough people’s money to generate profit.

2. What were some of the surprises from the last time the study was done?
One of the telling things we found was that the more profitable companies relied on bonuses and commissions for a larger percentage of the overall compensation [for their employees]. 

A conclusion you could draw would be that by having an incentive structure, it led to more productivity. We don’t necessarily know what those bonuses or those commissions were linked to, but we do know that a larger percentage of their total compensation came from that.

The other thing that stuck out was receivables. We found that there was a large correlation between how long it’s taking people to collect on their receivables, and their profitability.

3. Does city size affect profitability?
Facilities that are in the larger cities outperform those from the smaller cities or rural areas. There’s not a large difference between the major metropolitan [area] and the moderate-sized city, but when we look at those two types versus the small city or rural area, you can see that there is quite a bit of difference in performance. 

I would say that a correlation exists; the reason for that, I don’t know. We figured that the larger cities would have more [population] volume, they’d be able to draw more business [since] they would draw from a larger supply than the small city. [But small cities or rural areas] had shown a larger growth in sales, typically [during 2003, as reported in the 2004 OPC report].

4.  What expenses affect profitability the most?
Your direct expenses are definitely a main piece [of it]—what you pay your practitioners in relation to sales. So you have your practitioner labor, your technician labor, and that’s what the biggest [cost] is, because your production materials overall are pretty much a fixed expense. 

You don’t have much play [in material costs] as far as negotiating. But what you pay your people in relation to sales—now that you can affect a little bit. The most profitable companies had a higher gross profit, and it largely came through savings on the production labor.

5. How should companies set salaries and benefits?
The salary figures that we have in [the report] are overall guidelines. They shouldn’t mean [you tell your staff], “You know, in seven years an ABC-certified orthotist makes $63,897 on average, so we’re going to pay you $63,897.” Salaries should fall somewhere between the minimum and the maximum that we provide.
So I’d rather have companies use [the report] as a guideline than as a bible.