The business of veterinary medicine is fascinating. When we all embarked on our journey to become veterinarians, how to succeed as a veterinarian seemed to have nothing to do with the business of veterinary medicine. Goal number one was getting into vet school. Goal number two was paying for vet school – i.e. student loans. And goal number three was getting a job and getting paid for it. Somehow, we all assumed that things ended there for us as far as veterinary economics was concerned. Our negotiation for a higher salary would be with our bosses, and we could let our bosses figure out how it would all work with clients, pets, services and products. We would try to generally stay out of the business mess.
But then as we advanced in our careers, some of us started to get frustrated with our bosses. Why didn’t he buy that ultrasound machine that I wanted and needed to use? Why doesn’t she pay her staff more money? How did my paid vacation disappear when I went to proSal? Why are we always being pressured to sell wellness packages? And then we thought we could do it better. So some of us became bosses and then after a while, we started to understand that just like our former bosses, we didn’t have all the answers. We also started to understand some of the answers we had been given.
One of the biggest questions I get asked from owners and associates alike is how does one price a product or service. The simple answer to that question is this: the price you can charge for a product or service is the highest price the market will bear. Is it to do with what’s fair? Generally, pricing has nothing to do with what is fair. Yes, at both extremes of pricing a product or service (ie super low price or super high price), there are ethical questions. Is it fair to charge people hundreds of dollars for a life saving epipen when the product costs so little to produce? No, that does not seem fair. So as a veterinary business owner, how do you decide what to charge while still upholding one of the highest ethical standards ascribed to a profession?
Fairness in pricing involves looking at all stakeholders involved in the veterinary business. Stakeholders in your veterinary business include your lay team members, your associates, your clients, your patients, your vendors, you and your family, etc. Fairness implies balance. You must balance the financial impact to you and your team versus the financial impact to your clients. In most cases, a veterinary practice has far fewer business owners and employees than it has clients. Therefore, any pricing decision has a far greater individual impact on you or one of your employees than on any of your individual clients. For example, a $5 increase in the average transaction fee (from a general price increase) for a practice with 10,000 transactions per year (perhaps generated by 5000 clients) means potentially $50,000 more for you and your staff. For the individual client, they spend $10 more for the year on average while you and your staff (say you and 9 employees) receive an average of $5000 in increased pay potentially. The key point here is your clients can handle a price increase much better that you and your staff can handle a price decrease.
More importantly, you are well within ethical boundaries if your prices are within range of what provides you and your employees fair compensation for your investment of time, capital, education and stress. So now we circle back to our answer: price your products and services at the highest the market will bear until you feel that you and your staff are being unfairly overcompensated. (Please post a comment to this blog if you know of any practice that unfairly overcompensates it’s owners and it’s employees.)
By the way, as a general guideline, use the following benchmarks for compensation: practice profit should be 20% of revenues, yearly rent if you are a veterinary facility owner should be 10% of the appraised value, yearly salary as a full-time veterinarian should be around $95,000 plus or minus $20,000 depending on the region, and staff wages should be $15 per hour plus or minus $2/hour depending on the region – in order to be a high quality practice (www.payscale.com). If you can’t reach these benchmarks, don’t be ashamed of any price hikes in your products and services. Remember the words “what the market will bear”; these words limit your price increases as well. Most of the time, however, the market can bear much higher prices than veterinary business owners and their employees can stomach. Check back for future posts on pricing lab work, generic versus brand name pricing, and pricing expensive injectables for larger pets.