Fee, fi, fo, fum: Smart pricing doesn't have to be a fairy tale

In an economy where clients want to barter a few meager beans for your cream-of-the-crop services, the idea of cultivating a healthy fee schedule may sound like a fantasy. And if your practice is taking the ax to hours, benefits, and maybe even employees, you may think freezing fees or rolling back prices are your only viable options to keeping the farm, so to speak. But giant markdowns can actually cause you more harm, in both the short and the long term.

Besides the obvious profit you lose out on by discounting, price reductions hurt you because they condition clients to expect lower prices. This mindset makes it difficult to increase prices later because clients are more likely to perceive future increases as much larger than the discounts. And they most likely are—to make up for the profit lost during a price reduction, you must raise the fee more than that of the original discount. For example, a 30 percent reduction may require a 43 percent increase later just to bring the price back to normal.

Rather than falling for the tall tale that discounts keep clients happily ever after, climb your way to a thriving practice in the sky by adding value to the services and products you provide, and charging appropriately for them. Here's how.

USE A FEE FORMULA

Determining the price of value isn't easy, and that's where Benchmarks 2009: A Study of Well-Managed Practices, conducted by Wutchiett Tumblin and Associates and Veterinary Economics, comes in. We surveyed more than 200 value-based fees (those requiring doctor time and knowledge) to gain insights into how some of the best practices across the country price their services. While the fees, in dollar terms, may vary from region to region, we found that the relationship between the exam fee and all other fees is similar. To evaluate and compare your practice's fee structure, see "Price services based on value".

COMMUNICATE YOUR VALUE

Once you have an idea of how much your services are worth, it's time to communicate that value to clients. Certainly, pet owners may be declining necessary pet care because they're facing financial limitations. But it's possible that your low compliance rate may be the result of a communication gap between your healthcare team and your clients. To identify whether the right messages are getting through, try videotaping your outpatient appointments (with the client's permission, of course). Then view the tape and evaluate the doctor's and technician's presentation style, message, and body language.

Observe the client's body language for signs of confusion or misunderstanding. Is he or she receiving a clear and specific recommendation? Does the client have time to make a decision? Is he or she encouraged to say "yes" to necessary healthcare? Discuss the results with the entire team to create awareness and develop an action plan you can incorporate into daily practice. Conduct this exercise on a regular basis and note improvements along the way. Remember, every client encounter is an opportunity to affirm the value of your services. But to do so, everyone in your practice must deliver a clear, concise, and consistent message to clients.

FROM THE BEAN POLL

Practices across the country take "stalk" of how they're doing.

We're down 6 percent, which really makes us down 30 percent.

We're in a particularly hard-hit area. Two years before the recession, our practice was seeing 25 percent to 35 percent growth. This year we're down 6 percent, which really makes us down 30 percent. We are at the higher end of fee schedules in our area and some less loyal clients initially headed to lower-priced practices. But many returned because they said they weren't satisfied with the level of care they received elsewhere. \

A year ago we switched our focus from growth to staff training and client compliance. We're actually seeing more heartworm tests, fecal exams, and wellness packages now than we did before the recession. Although we've frozen prices on shopped-for services for the last few years, we've continued to increase our nonshopped fees, and we plan to gradually increase the price of our dentals back to normal.

—Dr. Bob Beede, Intermountain Pet Hospital; Meridian, Idaho

Our pricing reflected the rate of inflation, which has been low this year.

The first quarter of our year seemed to reflect the general anxiety expressed by the "man on the street." Clients seemed to a bit more reluctant to accept routine preventive procedures for their pets than before, even though the unemployment rate is low in our area. To calm consumer anxiety, we didn't raise fees in the first half of the year. But by mid-year we made small fee adjustments to cover our team members' cost-of-living raises—which were admittedly small. Our pricing increases reflected the rate of inflation, which has been low this year.

Now I'm finding that clients are less reluctant to comply with recommended treatment plans than they were in the earlier part of the year. I can only hope that they perceive the sincerity in our attempts to address their needs.

—Dr. Jonathan Durocher, Durocher Veterinary Clinic; Thibodaux, La.

I think we're holding our own, if not beginning to gain some ground.

Our revenue is down approximately 6 percent through July from the year before, but we've managed to keep our earnings flat by aggressively containing expenses, raising fees, and—unfortunately—instituting a wage freeze. We also had to eliminate two part-time positions earlier in the year. But we've rebounded to close to normal in the past several months, and compared to our immediate competitors, I think we're holding our own, if not beginning to gain some ground.

Our fees are somewhat higher compared to competing practices in our area, so we never eliminate client complaints, but we haven't seen a measurable increase in them. Also, our hospital director has an amazing ability to discuss the value of our services. Most of our upset clients ultimately go away with a satisfied understanding—if not an outright acceptance—of the procedures and associated fees. I think one thing that sets us apart from our competitors is the level of communication. One of our common compliments is, "I wish my pediatrician explained problems with my children like you explain problems about my pet."

—Dr. Kevin Caylor, All Pets Veterinary Hospital; Rancho Palos Verdes, Calif.

We don't apologize for our fees, but we do remind clients that our costs are the same as their doctors'.

People around here are doing about as well as last year this spring, but most were off 10 percent to 20 percent last fall and winter. We had staffed for 10 percent growth, so we were off about 10 percent. To recoup losses, the practice froze salaries and equipment purchases and kept prices pretty stable, excluding a few selected services that were out of date and underpriced. So far the client response hasn't been bad, but I do see clients decline services I'd expect they'd accept. We've seen more urgent care cases as a result of the deferral of elective preventive care.

Regardless of the year, there are always people who will decline recommendations and complain about fees. We don't apologize for our fees, but we do remind clients that our costs are the same as their doctors'—and we're using the exact same things. Medical equipment is expensive, as are lab costs, supplies, diagnostic test kits, and drugs. So far, we've improved margins.

—Dr. Stewart Beckett, Beckett & Associates Veterinary Services; Glastonbury, Conn.

A profitable practice is within your reach, if you're willing to make the climb. Review your fees quarterly and implement increases as needed. If your fees fall below those published in guidelines such as Benchmarks 2009: A Study of Well-Managed Practices, the American Animal Hospital Association's Veterinary Fee Reference, or the National Commission on Veterinary Economic Issues Web site (ncvei.org), or if your costs have increased, changes are warranted.

Denise Tumblin, CPA, is a Veterinary Economics Editorial Advisory Board member and the president of Wutchiett Tumblin and Associates. For information on her Progress in Practice session at CVC San Diego, visit www.thecvc.com/sd.