How not to raise prices - a lesson we never seem to learn

Tommy Wright was sitting at his desk staring blankly at the wall. He had just arrived home from a meeting on the West Coast and was excited on the flight home about what he had learned at a practice management seminar given by a large drug company.

David M. Lane

The speaker was dynamic and persuasive - everything that he wished he could be, but wasn't. He was told that his practice could flourish if he would set income targets and look at income centers. He would also need to give raises to staff and increase prices at least 10 percent to hit these targets. He needed to market his practice more effectively and schedule clients more effectively. The workbook and notebook from the meeting were sitting in front of him, and he didn't really know where to begin.

This was the second practice management meeting in the past three years that he had attended, and he was determined to implement at least some of the speaker's recommendations this time. The last time he tried to raise prices however, Sophie, his longtime receptionist pitched a fit. She hadn't attended the seminar and was certain that the clients would scream "bloody murder". He was frozen in fear wondering what Sophie would say this time around.

Just then Sophie knocked on his office door and asked if she could talk a minute. Sophie was middle-aged and a very good receptionist. She sat down and promptly asked for a raise. Dr. Wright squirmed imperceptibly in his chair. He knew that he had been meaning to give everyone in the office a raise as soon as business picked up-he just hadn't gotten around to it.

"Sophie, I must apologize for not talking to you sooner about a raise," he said.

"In fact, I just came back from a seminar and need to raise some prices here and there to help me do just that," he added brightly.

"Oh, don't do that. The clients are stressed about prices already," she announced.

"Well, I really can't see how I can give you a raise at this time." Dr. Wright's cheerful countenance clouded as the conversation progressed.

"I have been here 10 years now and we seem to be busy, and I haven't had any raise this year at all," she intoned.

Dr. Wright thought about this for a moment.

"All right, you can have a 30 cent raise starting next paycheck. Tell Margie."

Dr. Wright was now sweating. What would he tell the rest of the staff? And what about Margie, the bookkeeper. She was already after him to let her pay last month's drug bills. He really didn't have the money right now for much of anything, including raises. He glanced down at the workbook. It invited him to open it and start his practice life anew.

Just then Mary, Dr. Wright's assistant, called and said that Jerry Pate was in the exam room. She explained that "Barney" was back after being hospitalized last week and was vomiting again.

Dr. Wright put the workbook down and stood up to have a look at "Barney". Just then, Margie came in the office and piled the daily mail onto Dr. Wright's desk-right on top of the workbook from the meeting. The workbook was filed away the next day right next to the notes from all previous practice management lectures.

"I'll get this started next week," he thought to himself.

The workbook and notes never surfaced again.

Two months later, Dr. Wright sat in his office quite concerned. Three people had called in to cancel the only appointments he had for the afternoon, and he was dead in the water. He looked at the magazine that he had been reading. Out from the pages stared a picture. It was the picture of the lecturer he had seen a few months ago. To the left was a stack of unpaid bills. Dr. Wright stood up and announced to himself that this would be a great day to finally raise prices.

Dr. Wright pulled up his computer program and began to work. He looked at his office call charge and wondered when the last time he had raised it. He scrolled through the history of a few clients. He looked at office call prices for some very good clients and followed the transaction history back and back. He was becoming more and more alarmed the further back he went. It became apparent that he hadn't raised the office call price for several years. Then, to his horror, he realized that he hadn't raised most prices since he purchased the computer program more than seven years ago. How could that possibly be? He remembers tinkering with the prices from time to time. As he thought about this, he realized that the prices that he has raised over the years have been for drugs and sometimes vaccinations. As he plunged further, he realized that most of his good clients were not vaccinating their pets like they had in years past.

Afraid to face Sophie with his decision, he called his wife and said that he would be working late at the office. He waited until Sophie had clocked out and re-booted his computer. He started whacking away at the computer. He was desperate, and he was determined. This was D-Day, and he was storming the beaches to rescue his practice finances. First he raised his office call an even $5 and then attacked the spay and neuter prices with a vengeance. Next he raised the prices of all the drugs again-this time a good 10 percent or so. He then started to get cold feet. He thought to himself that his clients had called in and cancelled this afternoon. He then fixated on the new practice that opened down the street with much fanfare. She was a young lady who was a local, and there was a buzz about her coming back to her hometown that filtered into his ears wherever he went. He started to sweat a little and wondered if this was such a good idea after all. He looked at his vaccination prices and made a dramatic assumption-my clients must not be coming in because these prices are too high. He then decided to lower them a little to make sure that he was competitive with the new doctor down the street.

Dr. Wright then stepped back from his computer and mused at the screen like a painter eyeing a finished masterpiece and proclaimed, "That ought to do it!"

The next morning after seeing Mrs. Smith he hid from Sophie as long as he could until she came quickly to the back with a look of complete mortification on her face.

"Mrs. Smith is asking about the exam charges this morning? She noticed that you charged her $5 more than standard, and she is our best client. Did you jump the charge way up there?"

Dr. Wright wiggled and flushed. His embarrassment showed.

"We haven't raised prices in a long while, and I thought it was about time," he whimpered.

"Well she is very concerned with the predictability of her bill."

"Just charge her the old price." Dr. Wright mumbled almost inaudibly.

Sophie smiled and disappeared to the front.

Mrs. Smith drove away in her Lexus.

Dr. Wright looked again at his computer and muttered to himself that a lot of good men died on Omaha Beach.

One of the first things that a veterinary manager needs to realize is that staff cannot take the practice hostage financially. It is true that all receptionists field callers demanding pricing and estimates. They also have to deal with asking for money at the end of each visit. It is natural for some veterinary staff to believe that raising prices just further complicates their workday. Additionally, the longer prices remain unchanged, the more likely that clients and staff working the phones will feel comfortable with the idea that it will always remain so.

Fee hostage crisis: Day 365

It is a problem if the people you hire in your practice view the office as just another business and not a professional office with a complicated delivery system. Complications are what we deal with all day long. Delivering quality medicine gets more complicated every day and a receptionist's life, as well as everyone else's life in the practice, will remain complex if the practice is to grow and prosper. Therefore price increases are just going to be part and parcel of delivering quality medicine. The staff also needs to anticipate that prices and protocols will always be changing.

On the other hand leadership in the practice needs to create predictable change whenever possible through training and staff meetings. Professional offices should generate income based on the knowledge base and technical experience of the professionals in the office. Professional knowledge and expertise is a scarce commodity and worthy of a fair return. This is an essential component when training staff concerning the nature of the services provided. Staff unwilling to view themselves as a part of a professional team where a constantly evolving price structure is necessary in order to deliver better services should be terminated. In order words, after a long talk with the Sophie's of this world they will have to "shape up or ship out" with regard to pricing issues. We can't afford it any other way.

- a barge in a river

Slow and deliberate change

Changing your management structure in a veterinary office is like going on a diet. You get yourself ready through reading ads or seeing someone else that has lost weight. You get all psyched up. After the initial enthusiasm has worn off along with a few pounds, the external factors around you throw you off track. Before you know it, you have gained back the weight and then some.

Like a diet, changes need to be permanent.

Veterinarians are often long on going to meetings and short on implementing change when they return. If you look at your practice over time with regard to income trends and expense trends, one of the first things you notice is that these line items seem to change very slowly, if at all. Therefore, in order to change your practice around, you are going to have to be in it for the long term. Short-term energy thrown at a long-term solution equals no change. In reality, running a veterinary office is more like piloting a barge in the river slowly moving upstream than scurrying from wave to wave in a motorboat. Small moves at the helm affect the course that the barge takes several miles ahead. Small moves in the wrong direction ground the barge on shifting sands. The solution is to look ahead as far as you can and make your adjustments and not look back. Dr. Wright started waffling right away and got stranded once again on a financial sandbar. He may be there for a while.

Many veterinarians only want to raise prices selectively*. They think they understand client psychology and economics enough in order to pick the right prices to raise and which ones they cannot raise. I guess they also know the next hot stock to buy from their broker as well. The fact is all prices must be raised in a continuing and predictable manner if you have any hope of moving your barge further upstream.

Pricing strategies that will pay off

For these veterinarians it is common to raise prices that have little effect on their bottom line and leave the "biggies" alone in order to hide from the issue or to stay "competitive" with other practices. I would have to ask: "Are you witnessing this behavior from your creditors and loan officers?" They, of course, raise their prices to remain profitable. This is a concept that seems base and too "commercial" to many practitioners. Yet profits are the fuel that promotes high-quality medicine.

Some consultants have advocated a strategy of tying all pricing adjustments to a certain procedure such as a rabies inoculation or a basic office call. This approach assumes that the demand and public perception of these procedures is forever predictable and not subject to external market forces and preferences. This is not the case.

What works is a predictable plan of raising the prices at defined intervals during the year**. Your personal price list of codes does not need to be changed except in the sense that unused coding or pricing procedures should be eliminated and new codes introduced that reflect the demand the public is making upon practices. For example, here is a viable plan for raising prices in a typical small animal practice:

· If your computer program allows, ask to raise all prices globally, then raise them a small percentage. I recommend 2 percent.

• If the computer rounds the price, make sure that it rounds it upward.

• You shouldn't worry about odd pricing, but if this bothers you, round up prices to the nearest 25 cents. Some computer programs allow for this. It should be noted that the public has much less resistance to an odd fee such as $31.11 than to the lower fee of $30.

• Expect staff to worry about oddly priced codes. This is normal but today's computers should make it easy to estimate costs. Expect some resistance from a few staff members, but stick to your guns.

• Continue to raise drug and supply costs as you have before. These are real and tangible changes and should be in addition to these small percentage increases that you make globally.

• Repeat this procedure quarterly-I recommend something significant that definitely will get your attention. Perhaps these dates will get your attention. - Jan 15th, April 15th, June 15th and September 15th of each year. This, of course, is when quarterly taxes are due. This is not exactly every three months but it is four times per year.

Once you establish this pattern, there will be little griping from clients and staff.

*Under many circumstances raising prices selectively is viable as long as you know enough to raise prices of those items that are not shopped, i.e. they have an inelastic demand curve. This would need an in-depth discussion and could be explored in a future article.

** Others including Drs. Marsha Heinke and Gerald Snyder have advocated this in the past.

So, now you have a mechanism to move the barge. Look ahead but watch for markers in the water that keep you from going astray. Make your little corrections and by all means never look back-but if you happen to look back I am certain that the motorboats will be far behind.

Looking upstream