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The mission of the HSAH Veterinary Solutions Workshops was to elicit expert advice and actionable business solutions to increase the practice success of the veterinary customers we serve while reinforcing the veterinarian to the pet owner as the best source of healthcare andproduct choices for longer healthier lives of the pet family member.

Each month we discuss the insightful viewpoints of four of the most respected and well-known financial experts in the veterinary business today. These insights were a result of a day-long workshop conducted by Henry Schein Animal Health, Elanco, Ceva, Merial and Zoetis.

Panelists:

  • Dr. Karen E. Felsted, CPA, MS, DVM, CVPM, CVA, PantheraT Veterinary Management Consulting
  • Gary I. Glassman, CPA, Burzenski & Company, P.C.
  • Dr. Marsha L. Heinke, DVM, EA, CPA, CVPM Marsha L. Heinke, CPA, Inc.
  • Fritz Wood, CPA, CFP, HF Wood Consulting

Pricing Strategies, Working With Metrics - 4th in Series

September 6, 2016

Editor’s note: This is the 4th in a series of monthly articles that discusses the insightful viewpoints of four of the most respected and well-known financial experts in the veterinary business today, who came together in late 2014 and 2015 at the invitation of Henry Schein Animal Health, Ceva, Elanco, Merck, Merial, Purina, and Virbac to share their expertise and informed opinions in the areas of pharmacy, nutrition and data.

They are: Dr. Karen E. Felsted, CPA, MS, DVM, CVPM, CVA of PantheraT Veterinary Management Consulting; Gary I. Glassman, CPA of Burzenski & Company, P.C.; Dr. Marsha L. Heinke, DVM, EA, CPA, CVPM of Marsha L. Heinke, CPA, Inc.; and Fritz Wood, CPA, CFP, HF of Wood Consulting. The mission of the “Veterinary Pharmacy Diets and Data Solutions Workshop” is bringing expert advice and actionable business solutions to increase the practice success of the veterinary customers we serve while reinforcing the veterinarian to the pet owner as the best source of healthcare and product choices for longer healthier lives of the pet family member. Be sure to visit henryscheinvet.com/betterbusiness to watch live video clips excerpted from the workshop that accompany each monthly article.

How competitive are your prices? Developing a strategy

As we’ve discussed in previous articles, online pet pharmacies and big box retailers have given consumers more choices and, in the process, have made prices for pet medications more transparent – and competitive.

It’s worth considering: Your clients’ perceptions about how you price your pharmaceuticals (including therapeutic diets) may be influencing their perceptions about other things. If they perceive your prices are far out of line with what your competitors are offering, they may begin to question what your practice is charging for services like preventive care exams, dentistry and diagnostics, for example.

Without a sound strategy in place, you could unwittingly be sending the wrong message with your pharmacy prices that can cause a lot more harm than just losing a sale here and there.

Every practice is unique, and how it approaches the pricing question depends on a number of things such as tolerance for lower margins, the prospects of losing clients or not attracting new clients in a highly competitive area, and more. Pricing strategies seen in veterinary medicine include:
  • The "markup" method, which basically multiplies the acquisition cost of the product by a certain percentage.
  • "Margin pricing," in which a practice endeavors to net a fixed dollar amount on every sale regardless of how expensive it was to acquire the product and provide it to the client.
  • "Community pricing," which, like the name implies, involves monitoring your competitors’ prices through online searches, physical visits or "phone shopping" techniques.
  • "Value pricing" where the price is set based on a perception of how valuable the product is to the client

A few guiding principles to keep in mind

Regardless of what particular strategy you use, keep the following in mind as you ponder the competitive price landscape and develop tactics of your own.

Be competitive and transparent. First, determine whether your prices really are competitive by checking what other sources sell the same products for. Some veterinarians wrongly assume that their pharmacy prices are higher than anywhere else. But when you factor in various discounts or rebates you can pass on to your client, your prices actually become quite competitive. You won’t know until you understand what your competitors are charging, so make it a point to determine where your prescriptions are being filled.

Be consistent. Whatever strategy you employ, apply the same policy to every client. You risk ill will or even losing clients if you make a habit of giving special "deals" to one and another finds you didn’t offer it to them. The same is true if you sell your medications in-store and online. It’s eye-opening to consider how many practices actually sell a product for less through their webstore than in person, the rationale being web-based transactions are less costly in terms of inventory or labor. But two-tiered pricing structures are fraught with risk, and could send the wrong message to a client.

Educate your staff and your customers. Veterinarians have a secret weapon most of their competitors don’t at the point of sale: a trained staff. You would be amazed how the right human interaction can influence a purchase decision just before it’s made.

Even if you are uncomfortable with "selling", simply telling your client that heartworm preventive medication is easy to administer, is cost-effective and can save their pet’s life will many times make that decision easy. Second, make it a point to tell your clients that your prices are competitive. You can do this indirectly and "softly" with price comparison charts, or you or your staff can do so directly by saying "our prices are competitive" at the front desk or in the exam room, when you have their undivided attention. Third, understand that it’s difficult to promote a specific brand of heartworm or flea and tick medicine if you or your team don’t fully believe in its value. Some of your best product ambassadors can come from your staff, many of whom are very price conscious coupon clippers, so make your pet medications affordable for them.

Don’t sell yourself short. Obviously, if you sell under cost you won’t be in business for long. But many veterinarians cannot make the leap in understanding they don’t always have to have the lowest price to keep a client’s business. Just being in the "ballpark" by a few dollars is often enough. Price matching doesn’t mean you have to be cheaper. It just means you have to have parity. After determining what three or four of your main competitors charge, determine a range you’re comfortable with and stick with it. If you are able to price your medications a little higher than the competition with a successful pitch about the value-add that comes with the transaction (like convenience, service, expertise, etc.), make sure that value-add is real. Finally, relax. Understand and accept the fact that there always will be price battles your practice simply can’t win.

Deciding on nutrition pricing strategies - Nutrition

Much of what we discussed in the previous section on pharmacy applies to both therapeutic and wellness nutrition products. So let’s review the basics:

To determine whether your prices are in line, check out what your major three or four competitors are charging. In some cases, you may be surprised to find your practice is charging the same or even less, particularly on wellness diets. If not, perhaps minor adjustments are all that’s required.

Be transparent about your prices so your clients can make a hassle-free purchasing decision. If your prices are competitive, make a point of broadcasting it appropriately.

Understand that one of your practice’s strongest value propositions with therapeutic diets is that they are only sold through veterinary practices; this is even more reason for you to carry a strong selection of high quality wellness diets. You have a captive audience with therapeutic nutrition already. Many clients who may have their pets on wellness diets may end up at some point needing to put them on therapeutic diets. Conversely, many clients who have their pets on a course of therapeutic diets may understand the value of transitioning to a good quality wellness diet. If your practice carries both, and you have a sound pricing strategy, you have the potential to be a market-leading pet nutrition business in your community.

About 4% to 5% of a typical hospital’s gross income comes from nutrition and diets, so how price sensitive should your practice be? As we’ve noted in pharmacy pricing, it’s important to understand you likely will never win every challenge your clients confront you with. Remember the old adage, some profits are better than no profits. The nutrition products business can be an annuity for your overall practice; it requires only modest re-investment and staff "touches"and has great potential for repeat sales, volume, and profits.

You may already BE price competitive

As previously noted, consumers generally assume big box retailers sell pet food for less than veterinarians do. Similarly, many veterinarians wrongly assume their prices for wellness diets are much higher than what big-box and online retailers are charging.

Your practice may be more price competitive than you realize. In some cases, the wellness diets you sell can be as much as $1 cheaper than those being sold in big box stores. In fact, you may also be surprised to learn that prices for your therapeutic diets are likely somewhere in the middle of the top 10 selling wellness diets in big-box stores.

But your clients’ perceptions about the prices you charge may be somewhat distorted by packaging "sticker shock." If all your client is looking at is the price on a very large bag of food in your reception area and thinking about the check they’re going to have to write, they may end up walking out the door without a simple math lesson.

It’s called "cost-per-day." Would you be surprised to learn that most cat owners save anywhere from $300 and $800 a year when they switch to a hospital-dispensed diet? For example, the small single-serving tray packages in retailers typically sell for 79-89 cents each. Feeding instructions typically require four servings per day for a 10-pound cat. When you are able to educate your clients about the cost-per-day for your wellness diets versus the costs for some of the higher priced single-serving trays from the bigbox retailers, the savings can be very compelling.

Another pricing obstacle is inventory space. By virtue of their size, diets can require a significant amount of floor or wall space in your practice. Nothing is more annoying for a client than to be told you’re out of stock or to be required to call three days in advance to get what they want. Moreover, wellness diets can become commoditized in consumers’ minds because of their now mass market availability.

But that shouldn’t deter you. If your clients are viewing wellness diets as commodities, they more often than not will move to the lowest denominator of price. Your practice can combat that by moving the wellness diet out of the commodity arena with the right value proposition. A big one is home delivery. You may get away with selling your client a wellness diet for a few dollars more the first time in your office, but if your client is now going to have to make a trip to get it, price is going to matter more. If you offer the convenience of home delivery, that becomes less and less of an issue.

Finally, this may be applicable to many businesses, but it’s no less relevant for veterinary practices today: Roughly 20% of what you sell in products and services generate about 80% of your income for those products and services. Consider focusing less on the other 80% of what you may sell at much lower quantities, even though your profit margin might be greater. The best profits are typically tied to volume and nutrition can provide both volume and profit } DATA

"Metricing": Working with data

Working with metrics, otherwise known as "metricing," is not an exercise confined to the "geeks" of the world.

Metricing is a necessary and vital part of running any veterinary hospital business today. Without accurate data on the activity of your practice – from sales and expenses to client compliance and employee performance – it’s difficult to make sound decisions about marketing, expansion and new products, just to name a few.

As we’ve stated previously, outdated, incomplete, unreliable or just poorly managed and maintained data can seriously impair or even cripple your practice. Yet, anyone with the right tools can work effectively with metrics, regardless of their level of proficiency with numbers and data analysis.

Whatever tools you use, make sure you know how to use them so you maximize their potential for helping you analyze data and make good decisions. Even QuickBooks can stymie some practice owners, and too often even the best practice management systems can be like a Ferrari stuck in a school zone because veterinarians don’t fully understand their capabilities. If unsure, consult your supplier or your CPA.

Working with metrics boils down to three major objectives: what to measure, how often to measure, and how to report what you’ve measured in easily understood ways.

Often the first step in working with metrics is deciding what’s most important to keep your practice financially vibrant and healthy in the long-term. Basic metrics target data such as payables and receivables, employee hours, practice income, etc. Going beyond fundamentals can vary from one practice to the next depending on the problems or opportunities in the practice.

Often the choice of metrics has little to do with the size of a business.

When he was running General Electric, arguably the biggest and most complicated business in the world, Jack Welch was asked by a reporter, "What do you measure?" To that, Welch replied, "Three things: How much cash do we have in the bank? How happy are my employees? And how happy are my customers? And not necessarily in that order." Of course, this is a big picture answer—it’s a starting point. More detailed metrics in each category are critical as well.

The frequency at which you monitor data varies between weekly and annually. In many cases, a monthly review is suitable for most kinds of metrics.

Finally, familiarize yourself with the most basic, fundamental metrics. These metrics are available from useful accounting reports, including but are not limited to: a general ledger (a record of all transactions, both expenses and revenue) financial statements (balance sheet, profit and loss report, and cash flow statement) and data from the practice management information system. The basic underlying framework for the foregoing reports is a veterinary-specific chart of accounts, which categorizes each and every monetary transaction into meaningful groupings that allow consistent and reliable data about practice financial standing.

With these basic tools in place, you can then begin to slice and dice the information to uncover a myriad of metrics that associate one kind of data with another. Examples include costs as a percentage of gross revenue and revenue growth per doctor. Of course, it’s essential you have trusted partners like a practice manager, practice consultant and accountant to guide you on using this data appropriately and strategically.

In coming articles, we will discuss some of the ways you can and should analyze all the myriad types of data you collect, because tracking and trending provides a kind of roadmap to see where your practice has been, and where it’s going. We’ll examine some of the most important data you should be tracking and monitoring, and why.

We also will discuss, techniques like forward booking and reminders, as well as using your data to build tools like satisfaction surveys. The resulting information will yield valuable insights on employee and client retention and future recruitment possibilities.

Later, we’ll take a look at ways your practice can use data to monitor and manage compliance.

About the Author

Dawn Burdette, Executive Director, Sales Leadership and Development has served HSAH for over 25 years. Dawn has served in a variety of positions in sales and management. This includes training our sales force on the business of veterinary medicine and bringing business solutions to our customers that increase financial success for veterinary practices. Dawn currently serves on the AVMA’s Veterinary Economic Strategy Committee.
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