Choosing the right price for your services
This article, which is part of a series looking at the business side of practice (written in conjunction with Antje Blaettner and Philippe Baralon), looks at the perception of veterinary prices – how do clients really see our fees, compared to how we think they see them?
Invoices above 200€ represent less than 2% of the transactions in a typical veterinary practice, but account for 20% of the revenue.
Different transaction values should be handled differently – when a client’s bill is considerable, a skilled communicator should be able to explain to the owner why the total cost is what it is.
Many clients do not want the cheapest price for their pet – rather, they want the best service or product.
Data shows that most clients of a veterinary practice visit only once a year (or even less) and they are unlikely to have exact recall as to what their last bill was.
Many of the financial aspects of running a practice have always been a problem for most veterinarians. This may be partly because we are primarily clinicians, not business managers, partly because we are bound up in the emotional aspects of caring for pets, and partly because we do not have the skill set that allows us to know how to structure our fees and then explain them to owners. This article offers an evidence-based approach for when it comes to choosing the right price for our services and products.
Making sound pricing decisions has historically been a challenge for many veterinarians. There are several reasons for this:
- It is difficult to calculate the real cost of veterinary services. Since most of the outgoings in a practice are fixed (people, equipment, premises), it is not obvious how to allocate a fair portion of these costs to a specific medical procedure. This is especially true if we have never been trained to do it as part of our university education!
- It is difficult to appreciate and understand how the pet owner’s perception of value is created. This often results in veterinarians overestimating the clients’ sensitivity to price.
- A lack of communication skills and training puts us at a disadvantage; if we cannot properly explain to a client the reasoning behind our treatment recommendations and the value that they will provide to their pet, it is not surprising that some clients reject these recommendations – not because of the actual cost, but rather because of the perceived lack of value!
- The role that emotions play, and in particular the unjustified feelings of guilt that are generated in our minds whenever cost is an issue. Many veterinarians feel bad when there is a confrontation with a client about the cost of a procedure, often forgetting the paradox that undercharging for services normally implies underpaying their team for their effort.
As veterinary surgeons we need to get over these problems, as they hold us back from developing the business and offering the best possible animal care. Data can play an important role in this context, bringing clarity and preventing emotional biases from confusing our analysis. Let’s look at three evidence-based case studies which may help us view “the pricing issue” from a different perspective, unmasking (and debunking) some of the common financial myths that are unfortunately entrenched in our profession.
For a consumer, a very low price can be suspicious, whereas a higher price can signal quality.
Case study #1: “The true (and surprising) size of most veterinary bills”
What is the average transaction value (ATV) involved when an owner visits a veterinary practice? This was key question in a recent VMS survey (www.estudiosveterinarios.com) that analyzed 6.5 million transactions from around 1,000 Spanish practices during 2020. Figure 1 shows the cost distribution split into three categories, while Figure 2 shows how each category contributed to the overall revenue stream of the practices involved.
We can highlight certain facts from these results:
- A surprisingly large number of transactions (76%) are of relatively small monetary value (50€ or less), so they are highly unlikely to trigger any major financial conflict with pet owners. Most of these transactions are probably routine in nature, with low communication complexity, and can be managed by any appropriately trained member of staff.
- At the other extreme, an invoice of 200€ or more represents less than 2% of the total number of transactions; however, their economic relevance for the business is important, since they account for 20% of overall revenue. Therefore, it would seem reasonable to approach these transactions more carefully, with a structured message and ideally with the direct involvement of a veterinarian equipped with good communication skills.
- The relative proportions of these categories will change depending on the particular segment of the veterinary market. Major referral hospitals will certainly have a much higher number of larger value transactions, and their staff will need to be better equipped with the necessary communication skills and techniques to handle the ensuing economic conversations with clients.
|Conclusion: Data shows that 98% of interactions with clients result in a bill lower than 200€. Pricing can certainly be an issue with some clients and with some procedures, but we need to see this topic in the overall context.
Case study #2: “Understanding the psychology of veterinary service pricing: why pet owners don’t always prefer it cheaper”
Understanding how consumers evaluate prices has always been an important challenge for marketing experts. It is hard to use traditional techniques such as surveys to find out if a certain price is seen as low, high, or fair, since many people will tend to answer these questions strategically (i.e., rather than telling the truth, they will answer in a way that they believe is more beneficial for them). The Dutch economist Peter Van Westendorp became famous for developing a technique known as Price Sensitivity Meter (PSM) that overcomes this problem. The technique works by first exposing the consumer to a detailed description of the product or service which is being evaluated, for instance:
“Canine pentavalent vaccination: this involves administration of multiple vaccines to your dog by a licensed veterinarian; this will protect it against five common canine diseases (distemper, adenovirus, parainfluenza, parvovirus, and leptospirosis). Before the vaccine is administered, a full physical examination will be carried out on your dog to confirm that it can be vaccinated without risk to its health”.
A series of four questions is then asked:
- What would be a price so low for this service that you would reject it because you would be concerned about its quality?
- What would be a price low enough for this service that you would consider to be attractive and a good deal?
- What would be a price for this service that you would consider to be expensive but which you would still see as acceptable if your perception of quality and trust towards the service provider was good enough?
- What would be a price for this service that was so high that you would consider it to be ridiculous, and therefore not even contemplate accepting it?
Figure 3 shows the actual results obtained when VMS applied this technique with 2,000 Spanish pet owners in 2021. When the findings were compared with the actual vaccine prices being charged by 600+ Spanish veterinary practices (Figure 4) it became evident that almost 25% of these practices were charging a price that owners regarded as suspiciously low! (Figure 5).
Figure 3. Price sensitivity meter (PSM) for canine pentavalent vaccination.
|Low marginal price = 30€ (lower than this is suspicious)
Expected price = 40€
High marginal price = 50€ (higher than this is considered to be excessive)
|Conclusion: Consumers (i.e., pet owners) don’t always necessarily prefer lower prices. Where a person has difficulty assessing quality level (such as in veterinary medicine) a very low price may send the wrong signal about reliability.
Case study #3: “most clients don’t think as much about our prices as we do”
Figures 6 and 7 show the cumulative frequency of canine and feline patient visits to Spanish veterinary practices from a 2019 VMS survey. In summary, 47.9% of all cats and 41% of all dogs were taken to their registered practice only once a year. On top of this are the large number of the nation’s pets that were taken to a veterinary practice less than once a year (estimated at 10-15% of all dogs and up to 50% of all cats). With these figures in mind, do we believe that most clients can remember precisely the cost of all our services, and are going to complain bitterly when we update our price list due to inflation?
|Conclusion: A large percentage of pet owners visit their practices so infrequently that it is unlikely they will have precise recall of how much they paid previously.
When an evidence-based approach to practice fees is used, it reveals unexpected facts which should remove any anxiety from veterinarians dealing with pricing issues. Consumers are often less price-sensitive than we imagine, and we should set the price of our products and services properly. A considered and proactive approach to the finances of the business will ultimately result in the practice team, our clients and the pets we treat all being winners.
Figures 1, 2, 3, 4, 6 and 7: @ redrawn by Sandrine Fontègne
Dr. Mercader established himself as a practice management consultant to veterinary clinics in 2001 and since then has developed this role in Spain, Portugal and some Latin-American countries. Read more