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Veterinary Forum September 2008 (Vol 25, No 9)

Doctor to Doctor — Using fees to steer your practice

by Ronald E. Whitford, DVM

    There are many strategies for fee structuring, but it boils down to basing them on cost-center analysis or the perceived value.

    Much has been written about the methods and formulas for setting a fee for each service. Unfortunately, individuals today live on credit and perceived value, so clients want to pay what they perceive the services are worth.

    I believe the fact that many "mature" practices are declining today has a lot to do with the perception of overpricing. Clients judge the unknown by the known. If you are overpriced on commodities, then the tendency is to think you are overpriced on everything else as well.

    Discounts, however, do nothing to enhance your professional image. Rather, they can generate the perception that your practice is a retail store running weekly specials. It may not be easy, but you should develop fees for services that are fair in terms of cost-effectiveness and/or marketing effectiveness. When a discount is offered, the end result is often a perception that the original price was too high.

    For example, if senior citizen discounts are offered, they should be provided during the slower hours of the day to encourage more traffic flow during that time. The practice should benefit as well as the pet owner.

    You should determine shopped fees for your area and price your services and products competitively if you want to gain and retain as many new clients as possible. When you lose a shopped service or product because of client perception, often you will lose other services and products as well.

    For every action, there must be a reaction. For every service and product that must be priced competitively for perception of value, other services and products must have higher markups to offset those that are priced competitively. Don't forget that there is no bottom-line profit until all fixed overhead expenses are paid.

    • Prescription fees for handling, packaging and labeling should be added to the final fee.
    • An injection fee should be added to the markup of all injectables. Injectables must carry a markup price appropriate for all associated purchases and handling costs.
    • Charging by the minute often penalizes the time-efficient surgeon or doctor unless there is a high per-minute charge for that efficiency.
    • Invoicing line items with a description of the drug use aids in the client's perception of value.

    In my experience, the typical veterinarian produces income only 50% of the time, at best. Therefore, service charges must include the veterinarian's time for completing other tasks that indirectly provide income-producing services.

    NEXT: Editor's Note — Recession-proof? Maybe, maybe not

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