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Issue: 70 - Oct 15, 2014
5 Signs it’s Time to Change Your Prices
By: Jan Miller, Veterinary Best Practice
Veterinary Best Practice

Hopefully you update your pricing at least one time per year. Most of you do. However, how many of you can tell when you actually NEED to update your fee schedule? If you aren’t aware of some red flags it may not matter that you update your fees once a year. Missing red flags throughout the year is similar to taking one step forward and two steps back. You are losing money at a steady pace in spite of thinking a once a year adjustment will keep ahead of the game.

Establishing an effective pricing strategy isn’t simply about responding to vendor cost increases. It’s also about knowing what your profit margin needs to be and maintaining it. Don’t let your profit slowly erode because you aren’t paying attention. 

Here are the 5 signs to watch for (I saved the best for last):

  1. Your competitors are charging less for an inferior service: What does this type of strategy do to a business? It decreases cash flow, and cash flow is everything. Without cash you cannot pay your bills. That’s the financial aspect. If you have a competitor whose brand is that of a low cost option for clients, that strategy must be mitigated by other profitable strategies. For example, if they advertise low cost vaccines and have those vaccines administered by techs, than the cost of providing care is less. If you are charging more for the       same vaccines and still having techs administer them, you are offering the same standard of care as your competitor only at a higher price. Where do you think clients will go? It is useless to compete with a “bargain” veterinary practice. When you provide value to the client you can charge for it. In the example above, you are not providing value you are simply matching a minimal service. As a result both practices come off as commodities to the consumer. In a commodity environment the lowest cost always wins.  Provide value and read the next sign.
  2. Your business is attracting bargain hunters. I know you have all heard the expression “You get what you pay for.” In business, the expression is more appropriately:  “You get what you price for.”  It is the price itself that makes the value. Ask yourself this: Are you the kind of shopper who always goes to outlet stores? If so, would you like to have you as a customer? Everybody gets shopper calls asking for prices on exposed services like vaccines, exams, spays/neuters. Shopper calls are not the same as bargain hunters.   Shoppers are what we call pre-qualified buyers. They have already decided they are going to take their pet to a veterinarian. Price may, or may not, be a determining factor.  Your job is to convince them to make an appointment with you. Don’t assume a shopper is a bargain hunter. If you sell yourself, you sell the value of your practice. Your prices won’t matter. Where does all this magic happen? At your reception/appointment desk. Put your best people there, train them well, and monitor their effectiveness. Your efforts will come back to you many times over.
  3. Your cash on hand is down from the previous year. What does this tell you? It tells you that more money is going out than is coming in. At the end of the year, you should have (hopefully) more money in the bank than you did the previous year. If you don’t, you are not keeping up with inflation, vendor increases, staff raises, and all those hidden expenses like credit cards fees and building repairs, rent and utility increases, etc.
  4. You always have something “on sale”. My favorite example of this is dental month. Ask yourself this question: Why would anyone pay the full cost of a dental procedure if they can get it cheaper every February? Then there’s heartworm prevention month, flea and tick month, new patient month…..
  5. YOUR GROSS PROFIT MARGIN IS SHRINKING. This is the quickest and easiest way to keep a tight eye on whether your prices need a tune up. What is your gross profit margin? It is the metric from your profit and loss statement that tells you what revenue is left over after you pay for your inventory products. What is included in inventory products (also known as your cost of goods or cost of services)?
    1. Drugs
    2. Medical supplies
    3. Flea and heartworm supplies
    4. Imaging expenses
    5. Lab expenses (both inside and referred out)
    6. Pet  food
    7. Surgical and anesthetic expenses
    8. Cremation and body disposal
    9. Retail
    10. Boarding expenses
    11. Grooming expenses

There are three reasons this is important:

  1. Gross profit margin shows you what percentage of your gross revenue you have retained after buying the supplies necessary to provide medical care. 
  2. What revenue is left over after buying inventory is what is left to pay for everything else. Your inventory is what is needed to practice medicine.    Everything else includes wages and benefits, office supplies, rent, utilities, loans, and PROFIT.
  3. If your gross profit margin is shrinking, it means one of three things:
    1. Your fees are not keeping up with the cost of supplies. 
    2. You have too much inventory.
    3. Someone is stealing from you.

See why I left this for last? This single metric can tell you so much about your business. Let me show you how it works (note: gross profit margin, gpm, is always displayed as a percent.)





Gross profit ÷ gross revenue = gross profit margin

$562,500 ÷ $750,000 = 75%

Gross profit ÷ gross revenue = gross profit margin

$520,000 ÷ $800,000 = 65%

Often times the practice owner’s first reaction is a positive one because revenue grew by 6%; something to celebrate for sure. However, upon closer inspection you see that your gross profit margin has shrunk by a whopping 10%! If you are maintaining tight control and oversight on your inventory management, there is no good reason for this to have happened. 

Of course it is logical to assume you will spend more on inventory when your revenue increases, if that increase is the result of more patients being seen or new procedures added to the practice. But your gross profit margin should still remain around 74% - 80% regardless of how much revenue the practice generates.

In the example given, while there is reason for celebration at a 6% increase in revenue, there should also be very serious concern about why the practice spent an additional $80,000 on inventory that they very likely did not need or use. Where is all that inventory and all that money?

There are three places to look:

  1. Your fees are too low.
  2. You are extremely over-stocked with product.
  3. In an employee’s pockets.

If finances seem a bit tight at your practice, look for these signs as you investigate why.