How to Set Your Prices Without Pricing Yourself Out of Business
As a veterinary professional, one of the most important decisions you will make is determining your pricing structure. Setting the right prices for your products and services is crucial for your practice’s reputation, survival, and overall success. However, it is a delicate balance. Get it right, and you can maintain a thriving business that provides excellent service. But if you set your prices too low, you will find yourself struggling to stay afloat and ultimately risk pricing yourself out of business.
The Dangers of Pricing Too Low
1. Burnout and Staff Turnover
It’s a snowball effect: lower prices equals lower profits, which equals underpaid staff. Veterinary professionals are in high demand, and if your practice can’t offer competitive salaries and benefits, it will become a challenge to retain skilled veterinary professionals. Burnout, dissatisfaction, and high turnover rates are all consequences of underfunded veterinary practices; all of which will have a direct and negative effect on the quality of care your practice can offer.
2. Risk of Financial Instability
Charging too low of prices can result in you not being able to cover your practice’s costs. Without enough income to pay for overhead costs or reinvest in your practice, you may find yourself in a financial hole. This can lead to extensive and unnecessary debt, a reduced ability to expand your practice to keep up with a growing client base, and ultimately, bankruptcy.
3. Compromised Quality of Care
With insufficient profits coming in, your practice may be forced to cut corners on things such as equipment, training, or hiring qualified staff. This can severely impact the quality of care your practice is able to provide to your clients and patients. Clients are more likely to leave and seek care from practices that they perceive as providing better care, even if it is at a higher price.
4. Reduced Profit Margins
While your practice may experience an initial boost in clients by offering lower prices, it is highly unlikely that your practice would be able to stay afloat long-term. Low prices mean slimmer margins, and with increasing operating costs (such as supplies, equipment, and labor), it becomes nearly impossible to stay financially viable in this situation.
5. Inability to Properly Handle Your Practice’s Debt Load
It is often necessary to incur some form of debt in order to cover the costs of things such as upgrading outdated pieces of medical equipment, expanding the size of your clinic, or covering the costs of continued education and certifications for employees. If your clinic is offering too low of prices, you will find it extremely difficult to keep up on repaying your debts.
How to Set Prices for your Veterinary Services
1. Understand Your Costs
In order to set fair, yet profitable baseline prices, you need to know how much it costs to run your practice. This includes:
- Fixed costs such as rent, utilities, insurance, and employee salaries
- Variable costs such as medical supplies, medications, and diagnostic equipment
- Your desired profit margin (average veterinary practice profit margins run between 10%-25% depending on the size and type of the practice – small animal hospitals are generally in the 10%-15% range, while specialty and emergency practices are generally in the 15%-25% range)
- Your practice’s current debt load
2. Research the Market
It can be helpful to know what your competitors within your geographic area are charging. Competitive pricing doesn’t mean undercutting every other practice, but rather finding a balance between affordability and the quality of services your practice offers. Some important things to consider include what local veterinary practices are charging for similar services and if your practice offers any specialized services not frequently offered by other local veterinary practices that might warrant a premium price.
3. Value Your Expertise
If you have advanced training, certifications, or offer any specialized services, be sure to factor this into your pricing. Pet owners who value high-quality, expert care are generally willing to pay more, especially if they feel their pet’s health and well-being are in the best hands.
4. Consider Offering Tiered Pricing Options
If possible, you could consider offering multiple pricing tiers based on different service levels. For example your practice could charge different amounts for a basic check-up, a full diagnostic work-up, and a premium work-up with extended consultations and follow-up care. Tiered pricing can accommodate clients with varying budgets and allow them to choose the level or service and care they feel comfortable with.
5. Monitor and Adjust Regularly
Pricing is not a one-and-done task. Regularly review your pricing to ensure it still aligns with your expenses and your practice’s growth. Don’t be afraid to adjust prices if you are finding that certain services are either too costly or undervalued.
6. Be Transparent
Pet owners appreciate transparency when it comes to pricing. Offer clear, upfront pricing for your services, and don’t tack on hidden fees that may shock clients when they go to check out from their visit. This helps your practice build trust and keep your clients coming back.
Important Things to Consider
- While many veterinary clinics feel that offering lower prices offers them the ability to help more animals – the opposite is generally true. If a veterinary clinic is offering prices that are not sufficient enough to sustain the practice, it is only a matter of time until the practice becomes insolvent and can no longer help any animals at all. Setting prices a bit higher offers a veterinary practice the ability to remain viable and continue helping animals. Another benefit of setting higher prices is having the ability to offer pro bono or discounted rates in extenuating circumstances, resulting in your clinic being able to help even more animals!
- An in-depth business plan that includes detailed financial projections offers the ability to ensure the viability of your practice is realized. It is important to remember to review your business plan on a routine basis (at least quarterly) to make sure your clinic remains on course.
- A good way to minimize your clinic’s debt load is to set aside a percentage of profits each month to be able to use towards things such as future investments, clinic upgrades, or unexpected costs/repairs. Everything comes with a cost and a successful business must always be prepared for the unexpected. Having rainy day funds available can help alleviate the stress of unavoidable and unexpected expenses.
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