Does your practice have a pricing problem?
Setting and adjusting veterinary fees is a hugely important and complicated task for practice owners and managers, and requires understanding what competitive practices are charging, how your expenses are changing year over year, and what your clients are willing and able to pay for services. In my work, I have noticed that many practices are delaying this kind of analysis and simply increasing their prices by a set percentage each year, which can eventually work against the practice.
Pricing is especially important now as we face the financial consequences of the worldwide COVID-19 pandemic. Many businesses have closed, millions of people have filed for unemployment, and most households are carefully reconsidering their expenses in a time of financial uncertainty. Despite these changes, some veterinary practices continue to do very well, but many are seeing a decline in revenue and profits, and pet owner concerns about the cost of care will no doubt increase as this situation goes on.
Additionally, most of the pet owner studies conducted in the profession indicate that price was already an issue for many pet owners, and many team members indicate that cost is the most common reason pet owners leave a practice.
The answer to these issues is not to lower all your fees. However, practices need to be more strategic in their fee setting and fee increases, especially in 2020, rather than just raising fees by a certain percentage every year. Consider the following factors when reviewing your prices.
Does your practice need to rethink your current fee strategy?
This is the first question to be answered when evaluating your fees. The following are indicators of a healthy practice with accurately set service fees:
- Your practice is truly profitable. At least once a year, look at the practice’s profit-and-loss statement, after making the appropriate adjustments to convert net income to true operating profits. Is your practice covering all expenses and bringing in a strong net profit?
- Your practice is experiencing real growth. Review how well your practice has done in three areas to determine whether you have real growth: the number of client transactions, the number of visits, and the number of new clients.
- Clients are readily accepting your recommendations. Talk to your staff and review how much pushback and resistance your clients are giving to your care recommendations. Review how many clients have balances due or have had difficulty paying for services.
If all the above is true of your practice, it is likely that your current fee strategy is working and your client base is accepting of your prices.
If your practice isn’t as profitable as you’d like, isn’t growing, or has client pushback to services, price may not be the issue, but you need to at least consider that possibility. In addition to better pricing strategies, don’t forget that profitability can be increased through other means, such as increasing marketing programs to bring in more clients, reducing expenses, and improving productivity.
What do competitive practices charge?
Veterinary practices commonly use published fee references to set their prices, and these kinds of guides can be extremely helpful in understanding what other veterinary practices are charging and where you fit into the community. Fee references such as AAHA Press’s The Veterinary Fee Reference and information found in Benchmarks 2019: A Study of Well-Managed Practices are essentially a large conglomeration of data on what other practices are charging. These are useful resources to understand where your practice falls in the mix and to see how certain types of your fees are priced compared to hospitals like yours.
Do as much local research as you possibly can. Get to know the prices and client experiences at the practices around you so that you know both what your community expects and the value offered by your competitors. It is critical to remember that just because another practice charges a certain amount for a service and clients pay it, there’s no guarantee it will be the same at your practice. To charge the same price, you have to offer the same value to customers.
Also, keep in mind that price strategies such as bundling related services and products together, using promotional pricing and offering good/better/best packages will often encourage clients to select a higher level of care. Payment alternatives are also critical; pet owners are used to subscription payments in all walks of life, so educate clients early and frequently about the options you offer.
What are your clients willing to pay?
Regardless of what we consider fair pricing, it’s ultimately up to the pet owner and whether they feel that the value is on par with the services provided.
The VHMA conducted a study that surveyed US pet owners of varying demographics on what monetary value they place on veterinary services. Unsurprisingly, the results (available in the Pet Owners Economic Value Study) were that pet owners often prefer to pay less than the price perceived as reasonable in the marketplace.
However, again, this doesn’t mean you should lower prices. You may find it helpful to compare your fee schedule with the Pet Owners Economic Value Study results. If you find that there is a huge gap between what clients are willing to pay and what you are currently charging, you can examine other factors. What pet owners will be willing to pay can be influenced through education, a better product or service, or a great client experience. Pet owners still determine what veterinary care is worth, and we have to find a way to accept that or offer a product or service that they value more.
Is your hospital struggling to decide on a pricing strategy? Come join me at the 2020 virtual Connexity conference, where I’ll be leading a session to navigate the gap between what clients want to pay and what you want to charge.
About the author
Karen Felsted, CPA, MS, DVM, CVPM, CVA, is a CPA as well as a veterinarian who has spent the past 20 years working as a financial and operational consultant to veterinary practices and the animal-health industry. She also spent three years as CEO of the National Commission on Veterinary Economic Issues. She is active in multiple veterinary organizations, has written an extensive number of articles for a wide range of veterinary publications, and speaks regularly at national and international veterinary meetings. In 2011 and 2017, Felsted was awarded the Western Veterinary Conference Practice Management Continuing Educator of the Year award, and in 2014, she received the VetPartners Distinguished Life Member Award. She is leading the Navigating the Pricing Gap Between What Clients Want to Pay and What Practices Want to Charge session at the 2020 Connexity conference.
Photo credit: © Gettyimages/erdikocak