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A consistent pricing strategy is essential to the financial health of any veterinary practice. The income of a veterinary clinic is generated from professional fees, and from the sale of food, medicine and other items. The aim when establishing veterinary fees should be to set a price that is acceptable to the market, covers all costs, and generates a satisfying profit.1

But like many healthcare professionals, veterinarians can be strongly swayed by emotional factors1 when pricing their services:

  • The belief that stiffer competition effectively prevents a veterinarian from asking a higher fee4
  • The belief that veterinary medicine is not a profession but a calling, such that charging for services feels uncomfortable1,4
  • A lack of confidence from setting unattainably high professional standards for oneself1,4
  • Fear of client perceptions1
  • Inability to calculate the real cost and to attach a real value to a service1

How you set prices can make or break your veterinary practice, because prices spill over to other features of your business:

  • your profit margin per unit sold, with higher prices giving you a higher profit per item
  • your sales volume
  • your brand, image or position in the marketplace. Your price point sends a message to clients about your business and your services, creating a perceived value
  • your market share. The price you set makes you more or less competitive in the marketplace

Price setting your services or products is not just about generating revenue. It is also a marketing tactic that speaks volumes about the quality of your services.3 Clients often perceive high prices as a sign of high quality, especially when the product or service cannot be inspected prior to purchase.3  Understanding clients’ perceptions of the price/quality relationship is particularly important for services, which cannot be tested until used.

From a marketing point of view, an optimal price is the highest that customers are prepared to pay. A good pricing strategy strikes a balance between the price floor (the price below which the business ends up in losses) and the price ceiling (the price at which the business experiences no demand). Price optimization has the strongest impact on increasing profit.2

Four key parameters in setting prices are competition; market demand; brand strategy; and cost of services.

Consider the laws of supply and demand when setting your prices. If a product or service is in high demand, particularly if demand exceeds supply, then the market can bear a higher price. If demand decreases, consumers may not be willing to pay higher prices.

 

 i.        Competition

Factor in your competition’s prices when setting your own pricing, unless you are the only one in the market providing this service. If consumers perceive your services and your competition’s as having equal value, you may end up losing customers to your competitor if they are cheaper.  This does not mean you should offer lower prices than your competitors, but it does mean you must clearly communicate to your clients the added value you provide.

 ii.        Market Demand

Consider the laws of supply and demand when setting your prices. If a product or service is in high demand, particularly if demand exceeds supply, then the market can bear a higher price. If demand decreases, consumers may not be willing to pay higher prices.

 

 iii.        Brand Strategy

Remember that price matters for your brand image. Setting your prices without a thorough understanding of your brand objectives can destroy any brand-building efforts. What does your brand stand for? Are your clients expecting high-end  or low-end prices from you? If your prices are not in line with your brand image, you will  likely confuse clients instead of convert them.

 iv.        Cost of Services

Track the costs of your business. Any company that sells services needs to monitor what it costs to keep offering those services.  This is the first step in setting your pricing policy, so that your business remains viable, profitable and competitive.

Costs of services can be direct or indirect. A direct cost is a price attributed entirely to the production of specific goods or services. Other costs, such as depreciation or administrative expenses, are more difficult to assign to a specific product and are considered indirect costs.5

If you want to earn a profit, you must charge more than what it costs you to actually produce your service. The exception to this is if you are promoting your service as a loss leader. A loss leader is a service or product that is sold below cost as an incentive for consumers to purchase other services or products at regular prices.

What goes into setting veterinary fees is no simple matter. Establishing the connection between cost of care and value of care is a challenge at all levels of veterinary medicine. This talk will cover the five most frequent traps practitioners fall into when setting fees for their services. It will also provide practical tips to help participants tighten the links between price and value of the services they provide, so they can maximize income and profit.

 

References

  1. Jevring-Back, C. (2006). Managing a Veterinary Practice (2nd)  Saunders Elsevier.
  2. Dolan, R. J. & Simon, H. (1996). Power Pricing. The Free Press.
  3. Zeithaml, V. (1988). “Consumer Perceptions of Price, Quality and Value,” Journal of Marketing, vol. 52, pp 2-22.
  4. Mercader, P. (2011). Management Solutions for Veterinary Practices. Editorial Servet.
  5. Ackerman L. (2006). Blackwell’s Five-Minute Veterinary Practice Management Consult. Wiley-Blackwell.

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