Preventive Care Pricing: How to Find the 'Goldilocks Zone'

Pet owner pricing for veterinary diagnostics can be a tricky subject with pet owners. Traditionally, it is calculated by applying a markup to the practice's cost of the test, typically two to three times the cost. When a pet is sick, this may seem like a cost worth spending to pet owners. However, with preventive care testing, the price determined with this method is likely to discourage those same owners from accepting the recommendation. A compliance-driven price strategy considers pet owner price sensitivity, veterinary time cost, and downstream revenue. Using this method, preventive care diagnostics are offered at a lower price than sick pet testing even though the tests used in either case are the same.

So, how do we arrive at a pet owner price that is attractive to clients and provides appropriate veterinary practice profitability? We have to find the Goldilocks Zone — not too high, not too low. Just right.

Strategizing Veterinary Practice Pricing

Pet owner price, profit per test, and client compliance combine to determine total profit for preventive care diagnostics. There is an ideal price point where more pets get the care they need and overall hospital profit is maximized. Let's look at three ways to price preventive care diagnostics, assuming the cost to the practice is the same in each case:

  • Cost-based pricing with a traditional markup. The pet owner cost per test is high, as is the profit per test. Unfortunately, relatively few clients decide to test at this price. Not many pets get care and the total profit is low.
  • Bargain pricing. This takes the opposite approach to cost-based pricing. The pet owner cost is low, almost too good to be true, and as a result, the profit per test is very low. Almost all clients choose to test, but the practice is not generating a desirable amount of profit.
  • Compliance-driven pricing. The pet owner cost and profit per test are modest. Client demand is strong, many pets benefit from testing, and veterinary practice profitability is maximized.

Unfortunately, there is no magic number or percentage that determines where the Goldilocks Zone falls. It will be different for every practice based on its unique features and its specific clientele.

Finding the Goldilocks Zone

A good place to start is by thinking about what the practice currently recommends for all pets annually — perhaps heartworm/tick disease screening and fecal parasite testing in dogs and retroviral and fecal parasite testing in cats. What is the current pet owner cost for these services? What is the practice profit for these tests? Then, build from there. What would pet owners think is a reasonable price for the additional information gained from preventive care diagnostics? How much additional profit is appropriate to generate per test? This is the sweet spot.

But we're not done yet! Determining pet owner cost is not a set-it-and-forget-it activity. Once a great price for preventive care diagnostics is determined, we need to monitor the outcome. Many practices don't find the Goldilocks Zone on the first try; it's trial and error.

Measuring Success

After the team has become comfortable with the new testing protocols and everyone is communicating effectively with pet owners, it's time to measure success. Look at:

  • The team's feedback. They will be able to tell if the price seems reasonable and if they are excited to offer an increased level of care at an attractive price point. Subjectively, are more clients accepting or declining the recommendation?
  • Pet owner response. What are the clients saying to the team? Are they hearing more "maybe next time" responses or "Wow, that's less than I was expecting"?
  • Hard numbers. How many testing profiles are running now compared to last month or before starting this effort? What percentage of wellness visits include preventive care diagnostics? How has the laboratory revenue changed in total dollars and as a percentage of revenue?

If clients are not responding as well as anticipated, consider lowering the price to gain compliance. If the response is overwhelmingly positive, there may be room to increase the price and increase profitability without dramatically impacting client acceptance. After any change, it's important to measure success and adjust again as needed.

Providing patients with the best possible care is always the top priority. Preventive care diagnostic testing is an opportunity to gain deeper insights into patient health sooner, so they can stay healthier, longer. Preventive care is also a unique way to improve the financial health of the practice. With a deliberate approach to pet owner cost decisions, we can find the sweet spot, the Goldilocks Zone, where more pets get care and practice goals are met.

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Elizabeth Hetler

Dr. Elizabeth Hetler is the Veterinary Business Training Manager at IDEXX, where she is responsible for uniting the clinical and economic importance of veterinary diagnostics. She practiced companion animal medicine in the Chicago suburbs and has held positions as an associate veterinarian, practice owner, medical director of a corporate practice, relief veterinarian and is a Certified Veterinary Practice Manager.  After over seventeen years in clinical practice, Dr. Hetler joined the IDEXX team to pursue her passion for helping the profession practice high quality medicine and operate thriving businesses.

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