Veterinarians haven't paid enough attention to this phenomenon when setting fees. Now they have to.
Steeple Creek Animal Hospital, 10:30 a.m. Dr. Jamie McPherson looked at the report. She compared it to the year before. Her brow knitted. She pulled up the practice software on her desktop and requested the year before that. She tapped her foot, nervously. The hourglass on the screen turned over and over.
"This computer moves like molasses," she said to the ceramic Dachshund on her desk. Finally, the report's numbers scroll down the screen.
"Drat, the same thing," she said. "Our number of routine surgeries is down for three years in a row." She leaned back in her chair and sighed.
Just then, Dr. Sandra Parker walked in, taking a long sip from her coffee cup. It dribbled a bit and Sandra's hand reflexively shot forward to stop the drops from hitting the floor.
"No spill, Sandra—you get an A-plus for body technique," Jamie quipped. Jamie smiled at her new partner and then her face grew serious. She asked Sandra to sit down. Sandra had been with the practice for only three years but had already agreed to start buying into the practice.
"Sandra, have you noticed we don't do the number of surgeries we used to?" Jamie asked.
"Not really," Sandra said. "But I guess I need to pay more attention."
Jamie went on. "I also checked our number of visits and office consults from last year, and they're down too. Our gross income numbers are holding steady, so I never really looked beyond that for some time now. I just don't know what to make of it."
Jamie got up and quickly moved to the reception area. Donna Biondi sat at the desk filing charts.
"Are we done for the morning, Donna?"
"Yes, doctor. I had several calls and made one appointment for next week. The others haven't called back."
"What about for this afternoon?"
"You have one recheck, a rabies vaccination with no exam and Mrs. Nelson is coming in for her usual nail trim."
Jamie looked glum.
"You look down," Donna said. "We were busy last week—remember?"
"I remember. A litter of 6-month-old pit bulls with parvo and Mrs. Johnson's German Shepherd with a full-blown torsion at 6 p.m. last Wednesday. What we need is a little more standard fare."
"I'll do my best," Donna chimed.
"I know you will—you always do."
Jamie head back to her office. Sandra had her nose stuck in an article in a veterinary journal.
"Hey, Jamie. This article says that at one time the profession was thought to be recession proof. It goes on to say that maybe there's more price sensitivity than most consultants thought."
"Well, I think they got it right this time. It sure seems that way around here."
"What do you mean?" Sandra asked.
"I mean, we've raised prices to keep up with expenses and improve our bottom line," Jamie said. "While doing that, our gross has stayed the same but our real numbers—the ones that count—are going down."
"What real numbers?" Sandra asked.
"The real numbers are client numbers and whether the clients are coming in or are slowly draining away," Jamie said, back in her seat and poring over the three years' worth of reports again. "They're either going somewhere else or just not going anywhere. If they're staying home, it means that, in the long run, we're training our clients that general care is unaffordable and they'll only come to us as a last resort."
"Won't they come back?" Sandra asked, hopefully.
"Many will, but a percentage will stay on the sidelines for a while," Jamie said. "They're all watching their finances closely. Some say 20 percent of clients would spend their last dime on their pets if they had to and that seems true here in our practice. It's the remaining 80 percent that worries me."
Just then Donna poked her head in the door.
"Dr. McPherson, I need your authorization," Donna said. "We had two new requests for medications from an Internet pharmacy."
Jamie looked at the requests. They were from two of her best clients. She showed them to Sandra.
"There wasn't a class on this in vet school," Sandra lamented.
So, what's Jamie missing here when it comes to the drop-off in clients? We can never be 100 percent sure, but there are places to look other than internal financial reports. Two of the most obvious culprits for the drop-off in business at Jamie's practice are fees and the Internet.
Let's look at price points first. Setting fees is an inexact science at best, but here are some things to consider:
Competition. If a potential client doesn't understand the nuances of medicine and surgery, they can at least compare your fees. Any phone shopper can call another practice to compare. If your price is significantly higher than another practice's, you'll see a drop in clients. It's simple economics.
The price at which demand drops off is a price point. The solution is to keep competitive prices competitive. This means keeping your price near the price point.
Human psychology. Savvy marketers know that people respond to how a price "looks" or "sounds" to them. A price of $29 is more appealing than $30—it feels less expensive to our emotional mind. And often our emotional mind wins out over our rational mind.
Setting prices to appeal to the emotional mind pays off—even in our profession. Keeping a surgical price under a certain psychological barrier is important. Price points are partly emotional.
Stability. Clients and staff get comfortable with a certain price. If you don't raise or change prices often, then clients become accustomed—too accustomed—to the prices. Frequent but small changes in prices are a crucial step to preventing this phenomenon.
Also, it's important to train your team members that pricing can be an emotional issue for them, too. No one wants to explain fee changes when they're arbitrary. Remind them that improved medicine and inflation make price changes a necessity to maintain the same level of patient care and staff benefits. If they recognize this, it can help them talk positively to clients about increases, instead of grousing along with them.
Your psychology. As a product or service becomes more and more expensive, veterinarians—and even practice owners—may consider the product or service to be "too expensive" for a particular client and decline to offer the service or product as often. That's when the veterinarian has crossed his or her own emotional price point. As an owner, it's important to monitor associate veterinarians for a reluctance to recommend certain products or services. You can see it in low or declining average transaction fees.
Neglecting to recommend the best medicine leads to outdated inventory—a total loss—and a decline in doctors' skills with more complicated procedures. This is a lose/lose situation for everyone.
You have two choices: Buck up, promote the service, and charge the fee you deserve—or lower the price below the psychological price point you've set for yourself.
The Internet has dramatically increased the number of sellers competing with us. This is a disappointment to almost every veterinarian I know. Clients can even get veterinary "advice for a price" over the Internet now. Our once strong oligopoly may no longer exist (see "What's an oligopoly? It was you!" below). The playing field is much flatter and larger.
Many veterinarians have never taken the time to manage their practices properly because oligopolists (businesses that benefit from few competitors) are, by definition, price makers and not price takers. A prime example of a price taker is a farmer who must take the going price for crops or livestock.
Many years ago, we veterinarians were much fewer in number, making us either oligopolists or monopolists. Often, there was only one veterinarian per county. Since we could set our own prices, our profession participated in a positive economic environment with little attention to business management. We've inherited that management legacy over the ensuing decades, and it has hurt our collective bottom lines. Now the Internet has hit us right between the eyes. But maybe that's a good thing. We're finally faced with some overdue changes in our business.
Just because we've been price makers and have enjoyed a typically positive economic environment in the past decades doesn't mean we've been profitable in the usual business sense. A lot of veterinarians simply enjoy their profession. Making money has often been secondary. That's not necessarily a bad thing—it just makes it more difficult to sell or transfer assets to a future buyer.
Poor attention to expenses and prices has created a problems for our bottom line for decades. In addition, labor costs continue to climb as we depend more and more on staff to deliver quality care to our patients.
One particular problem has been our increased profit margins on product sales to help offset labor costs. With the Internet, that won't work anymore. Labor and veterinary salaries must be shouldered completely by the public by way of increased fees for consultation (office visits) and technician fees. Unfortunately, right now the public isn't in the mood for big price increases. But this is the future, and it will have to happen sooner or later.
Despite of the current economy our future remains bright. Veterinarians are unique. We as a profession have a special place in society despite current or future business cycles. We must be very nimble now. The owning of any business is not for the inattentive.
What's your take-away from Jamie and Sandra's predicament? For veterinarians, it means we need to:
> Improve management
> Set prices appropriately, paying attention to the psychology involved
> Refine our approach to pharmaceutical sales, e.g., setting up our own online pharmacies
> De-emphasize product sales and re-emphasize what we went to school for: medicine and surgery.
In spite of this economy, our future remains bright. Veterinarians are unique. We work in a profession that has a special place in society—recession or not. We have to be ready for change. Owning a business is not for the inattentive.
Dr. Lane is a graduate of the University of Illinois. He owns and manages two practices in southern Illinois. Dr. Lane completed a master's degree in agricultural economics in 1996. He is a speaker and author of numerous practice-management articles and offers a broad range of consulting services. He can be reached at firstname.lastname@example.org.
For a complete list of articles by Dr. Lane, visit dvm360.com/lane