In this blog, Marketing Director, Luc Wade, explains the complex decisions you need to consider when pricing your dental services.
Luc Wade blogs:
One of the secrets to business success is pricing your treatments correctly.
Price appropriately and your dental business will prosper. Get your pricing strategy wrong and you may create problems in the future.
Unfortunately, there is no singular, formulaic pricing strategy that fits all businesses. So when setting your prices you should consider some key factors, including defining your target customer, competitor research, and importantly understanding the relationship between service quality, expertise, and price.
Below are some pointers.
1. You want to make money
Seems obvious right? But it’s not always considered. Making a profit means generating enough revenue from selling your services so that you can cover your costs, pay yourself a fair salary and perhaps reinvest some of the profit into growing your practice by investing in marketing, new staff and/or new technologies.
A common mistake we see regularly is practice owners believing price alone drives sales when it’s your ability to sell that drives sales. This means setting the culture, having a sales process in place and training your staff to sell as well as measuring performance.
2. Risks of poor pricing decisions
Be very careful that you are fully covering costs when setting your prices. Pricing your services too low can have a disastrous impact on your bottom line. Further, giving away treatment will cause problems further down the line when you want to offer promotions and discounts.
Some dental practices mistakenly under price their services attempting to convince the public that their treatments are the least expensive alternative hoping to drive up the volume, but more often than not it is simply perceived as ‘cheap” and you will attract “low value” patients as a result.
Patients want to feel that they are getting their “monies worth” but importantly, also the best care available and most are unwilling to visit a dentist they perceive as cheap, cutting corners or using inferior products.
Overpricing can also bring its own set of problems since patients will always be comparing you to your competitors. More on this later.
3. Understand your business priorities
You may want to be known for the quality, level of service, convenience, location and expertise, rather than just being the cheapest. If so, you may want to price your services higher to reflect any point of difference.
4. Know your target audience
The more you know about your target audience, the better you’ll be able to provide what they value and the more you’ll be able to charge. Undertake some market research ranging from informal surveys of your existing patients to the more extensive research projects
5. Cost review
Understand your cost of materials, staff, rent, loan repayments, and everything else to work out your breakeven point. Then consider what margin you wish to make on it. Typically, after the owner has taken a fair salary the average dental practice makes between 2.5% and 7.5%. Set your target and factor that into your costs and that is what you should charge.
We recommend getting into good habits and making a spreadsheet of all the costs you need to cover every month, which might include the following:
- Your actual treatment costs, including labour.
- All of the operating expenses necessary to own and operate the practice.
- The costs associated with borrowing money.
- Your salary as the owner and/or manager of the business.
- A return on the capital you and any other owners or shareholders have invested.
- Capital for future expansion and replacement of fixed assets as they age.
The totals should give you a good idea of the gross revenues you will need to generate to ensure you cover all costs.
6. Know Your Competition
Look at the competition. Are the treatments offered comparable to yours? What about service, location, convenience? If so, you could adopt their pricing as an initial gauge. Then, look to see whether there is additional value in your services; do you, for example, offer additional services with treatment, are your team better trained/qualified, more experience, is your practice open longer, perceived as higher quality, are you going after the same target audience?
Consider how your target audience perceives your practice and treatments and the competition. Be brutally honest in your evaluation, as the answers to these questions will influence your pricing decisions.
7. Should you raise or lower prices?
Pricing all your products based on a fixed mark-up from cost will get you so far. Your pricing strategy should allow for variance depending on all factors covered so far including:
- What the market is willing to pay.
- How you are perceived in the market
- What your competitors charge.
- Demand for your services
- The volume you can sell
These factors will create the opportunity to raise or lower prices and generate more profit. Spend some time understanding what’s working for you. Analyse the profitability of your existing treatments, so you can consider a strategic shift to do more of what works and less of what doesn’t.
Your research may indicate that you’re not attracting your target audience. You may need to reassess your positioning and marketing if this is the case. You may choose to discount your products or give potential patients something for free in order to get them into your practice. Maybe the discount is to a certain audience like students or local workers rather than on a treatment, or simply time-based. This will allow you appeal to an attractive audience and you have an opportunity to sell additional services to increasing the overall value of a patient.
Whatever, you choose, you should always be testing new prices, new offers, and new combinations or “bundles” to help you to appeal to your target and increase sales at a better price. But, be sure to measure the increase or decrease in treatments you sell and the underlying profit.
I hope you find the above has given you some food for thought. How you set your prices and how you position your practice could be the difference between the success, or failure. Always
- Have a plan and set budget, agree on targets
- Measure performance
- Listen to your patients
- Keep an eye on your competitors.
If you would like our help with pricing, business forecasting or marketing strategy please get in touch on 01872 300232 or email us at email@example.com.