Pricing Veterinary Services

Mike Pownall, DVM, MBAwww.slideshare.net/mpownall

Veterinary Pricing

3

Competitive

• Annual

• 30 Responses• 61% Raised Prices within 1 year• 9% Average Increase

We’re Not Alone

>50 %

3-8 %

Prove It

What is Good Pricing?

Doing the same, or less, but giving more value to the customer and more profit to the business

What is Good Pricing?

Encourages client behavior that benefits both client, business, and pet

2.6 5.3

Pricing Challenges

1% vs 10%

1% Price Increase

$5000

10% Price Decrease

$50,000

Freemium

Freemium

Loss Leaders

Penetration Pricing

Dynamic Pricing

Dynamic Pricing

Variable Pricing

Fortune.com April 29, 2014

Monthly Fees

Pay for Performance

Full Price Transparency

Comparative Pricing

Price Elasticity

…change in price affects demand...

Price Elasticity

• 89% of horse owners would tolerate 10% price increase

• 77% would tolerate 20%• 73% feel fees are low compared to

value of horses

Dynamic Pricingin

Vet Med?

Dentistry Promotion

No Call FeeFebruary only

164% increase in dentistry

45% increase in extras

93% increase in billing9% Discount

6% New Clients

10% increase in dentistry over next 3 months

Strategy & Pricing

What is Strategy?A description of how we identify what our clients value and how we can deliver it by competing with a sustainable advantage

over our competitors

Value

Value = benefit to client - cost

Client Value

UPSTREAM DOWNSTREAM

VALUE

Client Value

UPSTREAM DOWNSTREAM

VALUE

Client Value

UPSTREAM DOWNSTREAM

VALUE

Clients

everytable.com

The Loyalty Effect

What is a Loyal Customer?

• Engages the practice frequently• Has a positive attitude about the practice• Recommends the practice to friends and

colleagues• Less price sensitive

More Profitable

Probability of Buying

Loyal Clients 60% - 70%

Lost Clients 20% - 40%

Prospective Client 5% - 20%

Source: The Loyalty Effect and Loyalty Rules by Frederick Reichheld

Drivers of Client Loyalty

4

AttitudeCustomer/Patient Focused

Customer Experience Perceived quality

Purchasing processSupportive & caring staff

Brand ImageIndustry Leader

TrustworthyInnovative

Perceived Value Product Service

Pricing & Customer Loyalty

Hard Benefits

Soft Benefits

Bundled Pricing

Customer 1Willing to

Pay

Customer 2Willing to

PayExpected Sales Most Likely

Service 1 $18 $12At $18 will sell 1

At $12 will sell 2

$12

$24

Service 2 $17 $21At $21 will sell 1

At $17 will sell 2

$17

$34

BundledPrice

$35$0

$33$66

$29$58

5%

off all services & meds in year

Paid in Full by March 31Account must be current

50%

$99/Year2 day free shipping

Video, song and book accessUnlimited photo storage

Shop more – 2xSpend More – 40%

Membership is increasing – 50%

Why??

uk.businessinsider.com 10/21/15

What do We Sell?

Knowledge in units of time

TDABC

Time Driven Activity Based Costing

TDABC

• Labor• Fixed Costs• Cost of Equipment

TDABC

• Cost per minute of labor• Cost per X-ray, Ultrasound,

etc• Cost per mile

Cost of Goods Sold

Only sell with a transaction

Payroll

Labor

Payroll

Payroll

Payroll

Operating Expenses&

Vehicle

Digital Radiographs

Digital Radiographs

Digital Radiographs

Digital Radiographs

Total Costs

Client Type• New• Single horse• Multi horse• CC on file• Bad Payer

Client Type TimeNew 10 Min

Existing 5 MinSingle Horse Same Drive

Multi Horse Same DriveCC on File 10 MinBad Payer 60 Min

Example #1• New single horse owner• Rides for pleasure• CC on file• 30 minute drive• 20 miles one way• 30 min exam for “Swollen Eye”

Total Time = 90 minutesVet - 90 x $0.75 = $67.50Tech - 90 x $0.42 = $37.80CSR - 20 x $0.31 = $6.20Total labor Cost = $111.50Driving - 40 km x $0.41 = $16.40Transaction Cost = $24.91Total Cost = $152.81

Swollen EyeProfit for basic eye exam

$0

Lameness Workups• 4 horses at trainer barn• Absent owners

• 2 have credit cards • 2 are new clients with no info

• 30 minute drive• 20 miles away• 1.5 hour visit• 8 X-rays total

Total Time = 150 minutesVet - 150 x $0.75 = $112.50Tech - 150 x $0.42 = $63.00CSR - 2 x 15 x $0.31 = $9.30

- 2 x 60 x $0.31= $34.10Total labor Cost = $218.90

Driving - 40 miles x $0.41 = $16.40Transactions - 4 x $24.91 = $99.64X-Ray Cost - 8 x $25.28 = $202.24Total Cost = $537.18

Lameness ExamsProfit for 4 Lameness Exams

$164

What is Good Pricing

Doing the same, or less, but giving more value to customer

and more profit to business

What is Good Pricing?

Encourages client behavior that benefits both client,

businessand horse

Dynamic Pricing

Incentivize through scheduling

Swollen Eye$0 Profit

2.5 hours of vet work = no profit5 hours of driving = no billing

7.5 hours & no profit15% of vet time

What if….

Bundled 5 calls togetherReduce Call Fee by

50% ?

For Example2 hour total drive time rather than 5

$70 x 5 hours = $350$70 x 2 hours = $140 Saving $210

Reduced Call Fee EffectCall fee = $60

5 calls x $60 = $300

5 reduced call fees = $150$210 - $150 = $60 Profit

Swollen Eye2.5 hours of vet work = $60 Profit

2 hours of driving = no billing

4% of vet time

Reduced Call Fee Effect3 extra hours in week @$192/hour156 extra hours in year = $29,952

6% increase in sales• Lowered vet & tech cost• Lowered transaction cost• Increased profit• Happy & loyal clients

EfficienciesClient typeCODBetter schedulingBetter use of HR

Dynamic PricingTime of year• DentistryLocations • Reduced call fee

Measuring Client Loyaty

The Net Promoter Score

Past Customer Surveys

Useless

• Inconvenient• Intrusive• Annoying• Nothing measureable• <10% response rate

The NPS

• Promoters (9-10)• Passives (7-8)• Detractors (0-6)

Promoters – Detractors = NPS

The NPS• Promoters (9-10) 30%• Passives (7-8) 60%• Detractors (0-6) 10%

Promoters – Detractors = NPS30%(P) – 10%(D) = 20% NPS

Good Profit vs Bad Profit

The NPS

• 4 questions• constantcontact.com• Surveymonkey.com• Target clients• Results shared

Results

• Ave NPS score = 84%• Ave response rate = 33%

Challenges

• Time• Repeating clients• No industry standard

100 Pennies• Insurance• Accounting/Legal• Facility• Equipment Repair• Telephones• Bad Debt

• Inventory• Vet/Tech Wages• Office Wages• Advertising• Vehicles• Benefits

Profit??

Inventory

23%

Vet/Tech Wages

33.6%

Office Wages

14%

Advertising

1.3%

Vehicles

3%

Benefits

1%

Accounting/Legal

1%

Facility

5%

Equipment Repair

.07%

Telephone

1%

Bad Debt

.05%

Profit??

8.5%

Pricing Tips • Strategy• Discount carefully• Train staff• Log complaints• Measure• Be creative

• mpownall@oculusinsights.net

• www.oculusinsights.net

www.slideshare.net/mpownall