Pricing Strategies: Some Options for Your Playbook
All veterinary practice managers wish we had the magic touch to find that sweet spot for our fees — the balance between clients' perception of value (compliance) and financial growth (profitability). We want to facilitate care for our patients, but we also need to consider the practice's financial health. As a result, we constantly struggle with pricing strategies in our practices, and I hear a great deal of angst from other veterinary teams, as well.
In a recent Veterinary Hospital Managers Association white paper, Utpal Dholakia, Ph.D. mentioned that many practices are using cost-based pricing (usually a two-times markup), competitor-based pricing (through "anonymous calls" to other practices), or no formal method at all (basically, guessing). Each method has its pros and cons, but a veterinary pricing strategy can't be one-size-fits-all for every product or service. Cost-based markups may not account for the full expenses associated with delivering a product or service, and following your competitors' lead if they're just guessing is going down the rabbit hole.
So, how can practices establish pricing strategies that work for their business, clients, and patients?
Consider Your Goals
When thinking about strategic pricing, focus on your end goals. Here are a few questions to consider about each product and service you offer:
- Is this something you offer to all of your clients, like preventive care, or an invoice item linked to a chronic illness?
- Are you more focused on compliance or profitability for this invoice item?
- Can this invoice item create additional care opportunities for the patients, clients, and practice?
- Is it easily shopped online? Your ability to mark up this price will be very limited.
- What stage of practice life are you in? Are you focused on creating client bonds that support growth and bring lifetime value to the practice or on short-term profitability for a pending sale?
All of these factors will come into play, and yes, going through each question for every invoice item will be more work than simply marking everything up. However, you will ultimately drive growth and profitability in your practice by being willing to adjust your pricing to meet your goals.
Strategic Pricing of Early Detection Diagnostics
How do you apply your strategic goals to pricing? Take the example of pricing early detection diagnostics.
Our practice prices preventive care offerings differently than we do patient care options. Why? We're trying to drive three outcomes during our preventive care visits: client compliance with our standard of care, increased revenue per patient visit, and the opportunity to provide additional care when necessary. We use the following strategies to help us reach these outcomes:
We offer three levels of early detection panels: Essentials, Comprehensive, and Premier. These three tiers provide choices for our doctors, because what is appropriate for an active, young, mixed-breed pup is not always the right choice for the senior Great Dane. Our doctors make recommendations based on a patient's physical exam, history, breed, age, and lifestyle risks. We want to drive compliance with medically relevant options, so our patients can benefit. Having choices shows our clients that we can find solutions that work for their financial situation. These panels represent our doctors' input at the design level, and then we created the package or bundle that made sense for us.
All of us like getting more for less — our clients like it and our teams like being able to present a "good deal" to clients. When we offer a useful early detection diagnostic panel to clients for less than the individual items would cost, we're essentially offering more value, which then drives more revenue per patient visit. Many of the fixed costs during our preventive care visit are the same regardless of what revenue the appointment generates. If we offer more to our patients and clients, and they say yes, we generate more income for that time slot. If we can do that day in and day out, the practice benefits.
Pricing for Compliance
This is often a difficult concept for many practice managers and owners because lowering prices seems counterintuitive to driving growth and profitability. Actually, compliance-based pricing creates additional opportunities to help your patients and drive your business forward.
Compliance Is Good for Your Practice's Financial Growth: The data from a recent report by the American Animal Hospital Association is clear: Compliance with performing early detection diagnostics in preventive care visits leads to opportunities to provide the care your patients need. When you detect and intervene earlier, you improve the patient's quality of life and possibly reduce overall treatment costs, which benefits both patient and client. These additional opportunities for care also drive downstream revenue, which benefits the practice.
Compliance Pricing in Action: How did my practices do it? We took a panel-by-panel approach and determined our costs and goals. We talked with our teams and top clients and used their input. We wanted to encourage both clients' compliance and perception of value. As a result, we decided on a range of prices for our early detection panels that were below the standard two-times markups. We deliberately chose less profit per test to drive that "yes" and underscore our commitment to early detection diagnostic testing with our clients. In the end, our strategy improved compliance, increased demand, upped revenue per patient visit, and drove downstream revenue. Our team members also appreciate having affordable options for our clients with financial stresses.
Pricing decisions are critical for veterinary practices' success. Take the time to think about your goals for different invoice items and categories including your practice's life stage, and make your pricing reflect what you need and want in your practice, not what your neighbors are doing. Remember that pricing strategically is a year-round activity — businesses that pay attention to their pricing more than once a year will be more successful in the long run.