It is necessary when determining a pricing structure for your clinic that you take multiple factors into account. It is easy to choose one mark-up method and to apply that across the board, but there’s more to it than that.
The categories to be considered are:
- Service Fees, including Shopped and Essential
- Inventory Fees, including Shopped, Standard, High-Cost, and Infrequent
The very first thing to consider when pricing services is to realize that the purpose of your pricing system is to maximize value, not cost. Your clients will shop around for some services based on price. If your goal is to offer the lowest price, then your job is easy. Cut everything by 50% and you are done. Literally.
Study after study has shown that consumers seek value over savings because they understand that “you get what you pay for.” When presented with four coffee makers priced $20, $30, $40, and $50, most shoppers will purchase the $40 unit, because they demand quality but aren’t going to “waste money” on the top of the line model. They do not recognize much difference in quality between the two top models and thus the perception of value is automatic. “I saved $10!” It is precisely the same with veterinary care; they want the best medicine possible but not at a good price. Hovering around the 80th percentile for your market will maximize your profit while helping create a perception of value for your clients.
The clients that care only about cost are the clients that will most often argue the bill with you, ‘forget’ their checkbook when they pick up after surgery, tie up doctor time trying to get a free diagnosis over the phone, etc.
Your job then, is to find out what your clients value and then to ask yourself, “How do I know that?” Surveys are one way. Another excellent method is to organize a Focus Group of your favorite clients, your “Top Ten” and to pick their brains. They will feel great about being singled out as an important part of your practice and will tell you exactly what you want to know. Once you know for certain what your client’s value, give it to them! You can’t charge what you are worth if the perception of value isn’t there. If they state that they value on-time appointments, find a way to make that happen for every client. If they like your location, great! Look into increased signage or visibility. If they name your professionalism, look at changing the way your staff is uniformed, how they present themselves, etc. If they like it, give them more. While you work toward increasing the perception of value in the practice, also work toward moving your prices into line with your competitors.
Service Fees Are Split into Shopped and Essential
You deserve to get paid for your skills. That is the one thing that your clients can not get online, from Petco or anywhere else. There are shopped service items that must be priced extremely competitively; think “loss leader.” If you operated a grocery store, when would be the best time to sell Turkeys? Thanksgiving, so what do they do? They offer it at a 50% discount or more! Why would they lose all that money? They know you have a lot of options when it comes to Turkey purchasing, and they want you to buy their Turkey, even if they lose money on it, because you will also buy potatoes and stuffing and biscuits and pumpkin pie filling and cool whip and as long as we’re here we might as well pick up some cereal and Advil and milk and go get another cart, this one is getting full.
Shopped Service Items are common procedures like spay, neuter, declaw, cesarean, and the like. If you want to know what is shopped in your area, ask your CSR’s. These are the procedures that get them in your door and once they’ve done that, it’s your job to show them the value of staying there.
Essential Service Items then are everything else. This is where the 80% rule applies; find out what the market is charging, and aim for the value-added 80th percentile.
Inventory Categories are Much Simpler
Shopped items are the Heartgard, Frontline, Interceptor, Rimadyl, and Deramaxx like-products. These are long term use items that are a monthly expense for the client over the life of the pet. Those are the items 1-800-PetMeds and the like are marketing. No client is going to get a prescription of prednisone for their dog with the herniated disk and say, “No thanks. I am going to let him suffer a while and shop around.” But if their dog is on Nsaid therapy for her bad hips, they have time between this month and next to browse the internet for bargain Rimadyl. So match their price, if you can. Take a loss if you must and realize that you will make it up on the non-shopped items. Once a client begins using internet Rx, it becomes easier and easier for them to shop ALL of their prescription needs. Don’t let them develop the habit.
Standard items are those that you use on a regular or semi-regular basis. Clavimox is probably a good example of a standard item. With these items, your mark up should be 150%-175% of your cost. Note: this is the mark-up, not the total price. If the item costs you $1.00, you should be charging $2.50-$2.75 plus a dispensing fee for it. See attached page on dispensing fees.
High-cost items are those that really stretch your client’s ability to pay. Good examples are Atopica or Percortin. Mark up on these items should be 50%-90%, plus dispensing fee. If an item is $100 cost to you, $150-$190 is a reasonable price for your client.
Infrequent items are those that you use once in a blue moon. You have to stock them, but they sit on the shelf forever before being sold. To recover some of that lost capital that has been wasting away on your shelf, mark these items up a bit higher than average: 225%-275%.
Granted, there will be conflicts in this system; what about the expensive item that we don’t use very often? Do we mark it up as Infrequent or as High Cost? Use your best judgment and bear in mind that the goal of the pricing is to demonstrate value, not low consumer cost. Better yet, find a way to get the item on an immediate or next day set-up and don’t stock it. Or, negotiate a better price from your vendor. Or find some other method to mitigate the cost so that you can continue to show your client what an incredible value you offer them.