Optimize Your Profitability

November 2021 |

Four steps to evaluating your pricing and fees.

As we near the end of the year, you may be considering your fees and whether you need to make adjustments. Historically, the veterinary profession has taken the approach of annual fee increases.

Utpal Dholakia, a professor of marketing at Rice University in Houston, suggests a more structured process and approach. In his book, How to Price Effectively: A Guide for Managers & Entrepreneurs, Dholakia recommends analyzing the “Four Pillars of Pricing”:

1. Costs. Your profit and loss statement is a valuable practice-management tool. It can inform you of rising costs, fixed expenses that might not be so fixed any longer, and your levels of profitability. Costs set the minimums of all fee structures—a business that can’t cover its costs won’t be in business for long. Keep your eyes on your P&L each month to assure your labor costs and fixed overhead expenses aren’t getting ahead of your service fee structure.

2. Customer value. Customer value refers to the total amount of money that pet owners are willing to spend for the care of their pets. Pet owners typically expect a veterinary practice to get the medicine right before they ever walk through the doors of a practice, and this has a very basic level of value. It is the perceived experience they and their pets receive while you are delivering veterinary care that can elevate or diminish the overall value of your services.

Veterinary hospitals that enhance the client and patient experience elevate their customer value. Some ways to do this include: providing exceptional customer service, saving clients time, creating a peaceful and soothing ambiance, and providing higher ancillary services such as guest Wi-Fi access or a beverage/snack center. These factors have a direct correlation to your fee structure and should be considered when making pricing decisions.

3. Reference prices. Pet owners will price shop, calling around to area animal hospitals to check on prices. The veterinary industry has publications with reference prices, or benchmarks, to keep up with veterinary fee trends. These reference guides are valuable tools for helping to make pricing decisions:

  • The American Animal Hospital Association’s Veterinary Fee Reference. Buy it at aaha.org.
  • Well-Managed Practice Benchmarks includes fee benchmarks from 100 top-performing practices in the country. wmpb.vet

4. The value proposition. “A value proposition” is a formal expression of a veterinary practice’s marketing strategy, specifically describing or differentiating your hospital’s unique differences from your competitors. When differentiating yourself from competitors, you really need to pay attention to who or what you view as your main competitor. If online competition is fierce for you, you may want to put more weight on costs. If you have more veterinary hospitals than ever within a 5-mile radius of your practice, then give more weight to reference prices and customer value.

Every veterinary practice is unique—the key is to differentiate yourself in one way or another. Once you’ve done that, using these “Pillars of Pricing” can help make your decisions regarding fees in the coming year less stressful—and right on target to help your business continue to grow.