How is it some vet clinics seems right on the money when setting fees, while others play follow the leader? Getting your fee structure right can be the key to making your business a success, writes John Burfitt
Considering the work that goes into setting up a practice in terms of staffing, equipment and marketing, it’s surprising how little focus is often applied to determining the vital area of fee structure.
That’s the view of some business leaders who observe that, when it comes to establishing an appropriate practice fee structure, it is too often left to a game of hope and chance.
“Developing your price strategy is one of the most important activities in achieving success in business and in beating your competitors, and yet very few managers approach this with any real confidence or clearly defined intention,” says Greg Roworth of Business Success Systems consultancy. “Too often, we tend to default to a price matching our competitors, but don’t work out how to compete at other levels.”
In the Australian veterinary profession, no set or standard fee structure is in place for practitioners to follow. The ACCC clearly states the industry cannot collude to set fixed prices, and it’s up to each practice to determine their own charges.
Which has instead created a comparison model that many follow, according to Dr Diederik Gelderman, business coach and author of the book Veterinary Success: Secrets Revealed.
“Many vets will typically charge what everyone else is charging, and yet never investigate what it really costs to run a practice and if their fees cover the basic costs,” Dr Gelderman says.
“For example, I had a vet explain he charged $250 to perform a spray because that’s what the vet down the road was charging. There was never any question about whether that other vet was even making a profit, and yet they just copied that model.”
AVA spokesman Dr David Neck reveals he too has observed similar guessing games among colleagues.
“Just before opening a new clinic, a head vet would ring around others in the area and ask how much does this cost and that cost, and then they would adjust their new prices accordingly,” he says.
Those times, Dr Neck says, are changing for the better with more informed decisions about fee structure being made. But he agrees more vets need to think about value based charges and not just competition fees or standard delivery costs.
“It comes down to the basics of knowing what it costs to be in business and that your fees cover that, but also how they reflect the value of the services you’re offering,” he says.
Dr Neck recalls an experience a decade ago that was a game changer in the way he looked at fee structure. A colleague was about to open a new practice and had the hefty backing of a non-vet investor. When the backer asked about return on investment, Dr Neck’s colleague meticulously worked out a fee structure.
“You should be charging on the value of the service you offer, not on the delivery costs. Delivery cost and the value received by the client are totally different.”—Dr Diederik Gelderman, author, Veterinary Success: Secrets Revealed
“I watched closely as this friend did all the mathematics of each procedure and product to determine a fair fee to be able to afford to run the practice and give the investor a return,” he says. “This guy approached opening a clinic as a serious business venture with a clear fee structure. Watching that approach from beginning to end changed my thinking about what we do.”
Business Success Systems’ Greg Roworth says a fair fee price should be determined by a range of factors. He states most important are the ones outlining that people buy primarily on value, that the lowest price competitor does not always win, and that people always buy first for emotional reasons.
“There are many instances where people prefer to pay higher prices for almost the same service, because of the perception that the higher price is more valuable,” says Roworth.
“So, a business needs to find ways to add value to the core service on offer. How can you make your offering more valuable than what your competitor offers? It’s far better to develop a marketing strategy based on increasing your perceived value to take the price element out of the equation.”
It’s a point that Dr Gelderman agrees with. “You should be charging on the value of the service you offer, not on the delivery costs,” he says.
“Delivery cost and the value received by the client are totally different. Value is about good service, good care and good follow-up, so that the client knows their animal is in the hands of the best practitioner, rather than the one with the cheapest fees.”
Dr Gelderman quotes the example of a highly-accomplished vet he was working with who could remove a spleen in half an hour, and so only charged for that time.
“Most others I know take over an hour to do the same procedure, so this guy was actually devaluing his service. His fee should be about the value of what he could do, not about that he was so skilled he could do the operation in less time than most others.”
Working on value adding to clients is a core part of the business for Victoria’s Peninsula Vet Care, says general manager Cameron Young. He quotes the business adage that price is the determining factor in only 13 per cent of purchases as a rule he has always followed.
“So, you need to take a look at your practice and work out what it is you’re doing that makes up the rest of that 87 per cent,” he says. “That takes in all kinds of variety, but it is an area you must be clear about. What is it that makes your business stand out?”
When setting fees, adds Young, it’s an area that must be closely monitored throughout the business year, and should never become a case of ‘set and forget’. “If you are following your numbers, you shouldn’t be waiting for 12 months to see if your pricing is right for your market,” he says. “This is something you might need to look at monthly or at least quarterly to see if they are right on the money.
“If overheads change, and yet you have not adapted your fee structure, a year is a long time to wait to do something about it. In the meantime, you could be losing a great deal of money, and no practice I know of can afford to do that.”