Running a business is like running a marathon race. You try to cross the finish line first when it comes to the quality of the products and services that you are retailing, the uniqueness of the customer experience and, importantly, the prices that you charge. The level of price competitiveness can be a significant factor in whether you triumph in the race against your competitors, or whether you blend in with the foot-draggers.
The million-dollar question remains: “How do I get my pricing right?”. Getting it right is a delicate balancing act, spinning the need to continuously generate revenue and maintain good profit margins, whilst remaining competitive in the marketplace. Keeping your eyes on both goals can often be a pretty daunting task.
Typical mistakes made while pursuing the right pricing model
Let’s delve further into two archetypal pitfalls that can await you, en route:
Referencing competitor prices
Imagine that you have just opened a new healthcare consultancy. You’ve got everything planned and now you need to figure out the price of your services. A logical move would be to check what your nearest competitors are charging. Mary, who has been in the business for over two decades, and has a large practice, charges £50/h. On the other side of the neighbourhood, John’s fledgling practice has been around for just over a year. Although small, with a price of £40/h, it seems to be attracting increased number of clients. So, by analysing these variables, you ascertain the following – you provide a more comprehensive service than John but lack the experience of Mary, so you decide to set your price halfway between the two, at £45/h. As easy as pie! Or, is it?
Getting stuck
Using the costing structure of others as your referencing point, can often land in you in financial hot water. No two practice owners have the same goals and your cost and revenue model is unique to you, as are your personal and business objectives. So why would you set your price based on what others are doing vs what you want and need to do? Equally, does a competitors price mean they’ve found the price customers are willing to pay for your service? However, once set, your pricing structure has a major factor in the revenue and profit of your business, and if you’ve priced incorrectly, you can be 3 months down the line before realising that given your costs and revenue position, you’re not making the profits you’d like to. So what do you do? Increase the price? How will your existing clients respond to that? Or find new clients? What investment will that require? Either way, you’re in a difficult position, which has largely come about as you took your pricing from the value of other people’s services.
Packing and pricing a suite of services
One increasingly popular way of pricing is to create packages. So rather than price each consultation, create an initial consultation price, and then package future appointments in blocks, from 3 anywhere up to 10+. This approach can bring a number of benefits as you can make the initial consultation longer, allowing you to create a much stronger relationship with your client, and during that time, provide them with a clear understanding of the core issues and what the roadmap is to get them physically better than they were before their injury. By doing that, a client can see a clear plan to getting fixed, and is therefore much more likely to buy a package of appointments, especially if they can be discounted against the individual price. The other benefit of this approach is that it gives you, as the practice owner, a simple indicator to look at how each of your clinicians are addressing their clinical delivery with their clients, giving great coaching opportunity to address any issues they may feel uncomfortable with or to take learnings that the other clinicians will benefit from.
Equally, you can look to set different prices, with different profit margins, when you have a range of different services to offer. So, you may look to make a sensible profit margin with a competitive price for your core service, but extend that margin for complimentary services that you know are more ‘sticky’ with certain clients or where it makes sense for your clients to extend their treatment. Ultimately, the goal of a practice has to be to ensure that your clients are in the best physical shape that they can be when their treatment is over, so looking to establish a culture of delivering a range of different services that provide a great service to your clients and bring in different profit opportunity for your business is a winning strategy.
The right pricing model for your healthcare practice
Getting the pricing model right should not be a reflection of what everyone else is charging, but a mirror of your overall business plan. The choice of such model usually boils down to two options:
Volume based
This approach suggests charging your clients less, in order to attract higher volume of patients.
Quality based
This pricing model focuses on delivering a unique, high quality service, that will give you room to charge higher prices.
However, unless you have a clear forecast (e.g. how many rooms and clinicians you will need in the future, etc.), you will not be able to come up with a suitable pricing model. Always have a clear overview of both the existing and new costs in your business, and take these into consideration, when generating your model.
Also, be wary of the price squeeze effect. If you are, in the long run, spending more than you are pulling in, you would most likely end up upping the price, to compensate for the shortfall. Always analyse whether any spending that you may have is required. Eliminating unnecessary expenditure will reduce the upward pressures that might be bubbling underneath your pricing model.
The price/service correlation and pricing advice
So setting a price is about seeing it in the context of your overall goals and ambitions for your business, and the type of service you want to deliver.
To recap, here are the key variables to take into consideration, when developing your price:
- Include forecasting as a component of price planning
- Don’t structure your cost based on the price that your competitors charge
- Don’t embark on new spending odysseys until you see the impact of the current financial plan on profit
- Consider packaging and different pricing models, with different profit margins, for complimentary services
Ultimately, you have the complete freedom to set your own price. Be wary of getting stuck in a competitive price model – it’s your business, your goals and your forecast, so create a clear pricing strategy and stick to it.
