5 things to consider before adjusting your fees in 2021
Adapted from The Veterinary Fee Reference, Eleventh Edition
Setting fees intelligently is not an easy task, and many owners and practice managers will be reviewing potential fee changes as they transition into 2021. Before attempting to make a good decision about what to charge for individual services, here are some things to consider, each of which plays an important role in setting successful fees for your unique practice.
- Examine the financial position of your practice
Take time to review your financial statement and key performance metrics for the past few years. In addition to the fees charged to clients, key drivers include the number of clients in the practice, the frequency with which they visit the practice, the number of services they choose to accept each time they visit, the amount of discounts or missed charges, and whether the fees charged to clients are actually collected. Additionally, the most comprehensive indicator of financial success in any small business is the true operating profitability. This is a difficult number for veterinary practices to obtain because it doesn’t show up on any report a practice regularly receives, even when those reports are properly prepared. You may need help in calculating your true profitability, so don’t be afraid to reach out to a veterinary financial expert. Review all these figures and determine where you might need to make improvements. Increasing fees is one way of improving profitability, but it’s not the only one, and raising fees may have unintended consequences over the long run.
- Review what competitors are charging
Many practices have set their current prices based on what was charged in the past or best guesses. Some hospitals increase all their service fees by a set percentage every year rather than examining pricing individually or looking at pricing trends in the profession. Reliable data and a solid pricing strategy are essential for setting veterinary fees that are appropriate for your unique market. Do some digging on what practices in your area are charging and invest in a benchmarking guide such as The Veterinary Fee Reference. All of this will help you understand where your practice fits in your local market as well as the options your clients have when they seek veterinary care for their pets. Be sure to compare pricing on individual services, and take your practice’s circumstances—such as the number of veterinarians on staff, where your practice is located, and the median household income levels of the clients in your area—into consideration. These factors all impact what your practice can charge and how effective you’ll be in developing a successful fee schedule.
- Understand your goals
Fee changes (increases or decreases) need to be made strategically with a particular goal in mind. Currently, most practices increase fees for two reasons: (1) to hold profits stable against rising costs, and (2) to increase profitability. It is important to think about these concepts separately. Annual fee increases may make sense if the cost of the products or of providing the services has increased. Raising fees to “keep up with inflation” means your costs of doing business (e.g., rent, staff costs, drugs) have gone up and you need to raise fees just to stay even. The increase in fees offsets the increase in your costs. Review the past year of costs to determine whether there have been any cost increases at your practice. The annual percentage change in inflation during the past four years has averaged 2.1% per year. Beyond adjusting for inflation, automatically increasing fees each year is not a sustainable business strategy. Fee increases simply to increase profits without a concurrent increase in the value of the product or service to the client can be made—to a point—but will become increasingly difficult to justify to clients.
Instead, come up with your individual goals before making any fee changes. For example, prices may be raised on some services that are unique to the practice. Conversely, the price charged for products may be decreased if competitors in the market are charging less and the business wants to hold onto its market share. Or, prices may be decreased to encourage the sale of a product or service that simply hasn’t been getting traction. Discounts may be offered to drive traffic during slow times, such as for dental radiographs or fluoride application during National Pet Dental Health Month.
- Plan client communication and marketing
Remember, price is generally considered to be one component of an overall business strategy, not a standalone activity. Historically, pricing has been thought of as a marketing activity. Although communication alone may not make clients accept fees, marketing and communicating value to clients is still a particularly important focus for a practice. Make a solid plan to promote any fee changes via targeted marketing campaigns through email, print, or social media, and invest time and resources into client education that focuses on the services that have had a price adjustment. A client’s dissatisfaction with the price charged for a service may be about the price, but it also may be because the client didn’t understand the value of the service. To accept the practice’s pet care recommendations, clients must first understand them and value them more than other things on which they might choose to spend money.
- Offer financing alternatives
Remember that even clients who are fully committed to providing quality care are looking at payment alternatives. To effectively recommend payment options such as pet insurance, third-party payment plans, or internal financing options, veterinarians and their staff must first understand the programs themselves. Recommendations to clients are most helpful when they include not only general points but also the reasons why the practice thinks a product or company is the best option. For medical products, for example, clients don’t just want to know that their pets should be on heartworm preventive; they want to know which brand your practice recommends and why, as well as what could happen if their pets are not on a heartworm preventive.