For more than a decade, the rule of thumb for setting fees in veterinary medicine was simple: Raise 'em! The corollary
to this rule of thumb was: don't worry about clients not wanting to pay; if you communicate the value of the procedure, they
will gladly open their pocketbooks.
However, the recession has forced all businesses to re-evaluate how they operate. Not only are businesses having to deal
with the current impact, they must look forward to what will likely be a changed post-recession environment. It is unlikely
consumers will return to their free-spending ways. Some simply won't be able to and others are reducing spending out of choice.
Many practices have not increased fees during the last two years at the rates they had previously. There is also evidence
in the recently released Bayer Veterinary Care Usage Study and in other reports to indicate that fees may have been impacting
the frequency with which pet owners visited veterinary practices even before the recession hit.
In the Bayer study, 53% of the survey respondents completely agreed or somewhat agreed with the statement "The costs of a
routine visit to the veterinarian are usually much higher than I expected." Only 44% of pet owners disagreed (either completely
or somewhat) with the statement "I am always on the lookout for a less expensive option for veterinary services or products."
The study indicated that both the absolute price as well as the escalation of veterinary fees was a concern to pet owners.
During one of the focus groups, one of the pet owners said: "All of a sudden, the price just skyrocketed. You could go when
it was 60 bucks, now I can't get out for less than $150."
There isn't a precise definition of "affordable care;" what is affordable to one person may not be affordable to another and
affordability is tied very closely to the concept of value and the availability of financing. Pet owners aren't generic in
their makeup; i.e. in their attitudes towards veterinary care and their ability to pay. One of the things veterinarians need
to do is identify the market niche they are trying to capture and focus all of their pricing and customer service efforts
into what is right for that niche. For example, if your niche is a client base with a high amount of disposable income that
is willing to pay for great service, then you can charge more as long as you are providing the kind of high tech, high touch
service they want. But not all clients want that or can afford it and it is possible to have a very profitable veterinary
practice with lower prices as long as you also control your costs and see a lot of patients. The general approach in our
profession towards pricing has been that every practice should charge high fees but we've put less emphasis on the idea that
if you're going to do that, you also have to have high benefits to the client. There isn't one right price for a particular
veterinary service; you won't be able to get away with charging the same high prices as the practice down the street unless
you offer the same kind of value to the clients. And we don't seem to take into account as often as we should that there
is a large group of pet owners for whom high end veterinary care will never be an option, no matter how much they love their
pets or how much value we demonstrate. The average household income in the US is about $50,000 for a household of just under
2.5 people; $5,000 veterinary services are not going to be possible for many of those households.
Fee setting strategies will always be part of the management of a practice but before you just automatically increase the
prices charged to clients, step back and look at your overall financial position and what you are trying to accomplish. The
first piece of information you need to know is your practice's operating profitability; this is the most comprehensive indicator
of financial success in any small business. Unfortunately for veterinary practices, this is a difficult number to get because
it doesn't show up on any report a practice regularly receives, even when those reports are properly prepared. Neither the
"net income" figure on a practice's financial statements nor the "taxable income" line on the tax return represents true operating
profits, due to personal accounting choices, the use of non-GAAP accounting, differences in tax regulations for the preparation
of tax returns of different kinds of legal entities and the influence of debt. In the small business arena, these reports
are simply not designed to determine true operating profit figures. You will need help in calculating your true profitability—talk
to a veterinary financial expert or use the NCVEI/VetPartners Profitability Estimator available at
http://www.ncvei.org/. Increasing fees is only one way of improving profitability and shouldn't be used to cover up operational inefficiencies.
If you have a highly profitable practice with reasonable growth in revenue driven by real growth in the numbers of clients
seen and the services they buy, then the fees you charge are probably just fine for your market niche. But if your practice
isn't as profitable as it could be, you aren't attracting new clients, and your visit and transaction numbers are declining,
then pricing (or its related issues—value and financing) may be an issue.