Introducing Treatment Pricing

By Kerri Lewis / 19 Aug 2019

Clinic owner Kerri Lewis discusses the key factors to consider when setting the prices of your services to ensure your business is profitable

When setting up your own business there are so many challenges to overcome that it’s easy to overlook important considerations. One is working out if the prices you’ve set for your services are actually making you money, or if you are working at a loss each time you perform a procedure. It may sound obvious, but it’s an alarmingly easy mistake to make and one that could negatively impact your business if you don’t give it due attention. This article will discuss the common challenges and key considerations practitioners have when setting prices for their services. The points covered will be most helpful to those in the early beginnings of starting their own business.

Establish personal goals

I’m guessing that one of the reasons you decided to work for yourself was for a lifestyle improvement. If I’m right, then you shouldn’t be content with taking what money happens to be left in the pot at the end of each month. Strategic advisor and business coach Dan Kennedy states that this behaviour is the number one reason why entrepreneurs end up broke. He says, ‘If you don’t know what your time is worth, you can’t expect the world to know it either’.1 If your ultimate goal is to sell your business later down the line, then you need to ensure that you are earning a healthy and consistent profit. 

This is because when it comes to selling, the value of a business is usually based on its profit and the consistency of that profit over a period of time.2 If this isn’t a goal for you, and you simply want to live comfortably then you should still follow the same profitable practices so that you can take a good wage and reinvest in your business.

How much do you want to be paid?

Before you start to set your prices, you must work out your break-even figure for each of your services. One of the many factors influencing your break-even point, of which I will delve into later, is wages. How much are you paying yourself? Once you’ve worked out your price, you’ll be able to use it when setting profitable prices for your services. Working out your base earning target (BET)3 is quite simple as a business owner; just ask yourself, ‘How much do I want to earn?’. Once you’ve done this, you can work out your hourly wage. For example, to set your annual salary (I will use £100,000 for ease here) divide this by the number of working days – we will use 233, which is calculated by taking 28 days’ holiday away from the 261 working days in 2019. Divide that figure by the number of daily working hours; in this example, I’m presuming eight. So, £53.65 is your hourly wage. 

In regard to staff wages, this can be largely guided by the industry norms; you can start by looking at the typical wage for each role locally to you. You may consider tweaking the ‘going rate’ depending on the level of experience and knowledge the individual candidate brings to your business. You may find that setting wages for staff who are actively bringing in money to the business is easier, such as a therapist; however, it can be more challenging understanding the worth of supportive roles such as receptionists. Discussing supportive roles, Stever Robbins from Entrepreneur.com states, “Their value isn’t so much in the money they make, but in the money they save. So, ask yourself, what it would cost not to have them on board, and use the answer to justify their salary.”

Now that you know how much you, and your staff, are worth per hour, not only will you be able to make better financial decisions as you’ll be able to see if certain tasks are worth your time, you will also be able to consider delegating to an additional staff member or outsource help.

Get to grips with your costs

Business publication Forbes sited ‘poor accounting’ as the number one reason small businesses lose money.5 I cannot emphasise enough how vital it is to be in control of your finances. If you’re guilty of burying your head in the sand and simply focusing on the day-to-day treatment of your patients I can confidently say, you will not be alone.

A good way to start understanding how the prices you set impacts your bottom line is a profitability spreadsheet (Table 1); it allows you to see how much of the price you set is eaten up by your costs.

If you do not fully consider all your expenses, including the cost of running your building for the duration of each treatment, your wage, VAT (where applicable), how much marketing spend is required to get each patient through your door, and so on, you may offer services at a loss. Once you’ve calculated all of those costs, you’ll be able to see what your profit margin is for each treatment and, if needed, adjust accordingly.

Working out your profit margin is fundamental to master as a business owner and there are many ways to do this. One approach I like to use is the ‘third:third:third’. This means that 1/3 of the price you set needs to cover overheads for the duration of the service, a 1/3 should cover cost the of the treatment and then 1/3 is profit – or 33%.6 This is a very basic guideline to use as a starting point, but you may feel that you can justify setting a higher price to get a larger profit on some treatments to align yourself with local competition, as well as factoring in your skills and experience into the price.6 If you discover you’re running at a loss after completing your profitability spreadsheet, you’ll now have the power to change it. You could choose to either increase your price, package the service in question with another service to add value to the patient, or discontinue the service altogether. I recommend to consider the first two options initially, especially if you have invested in additional training and equipment.

Market research

An initial concern for me when starting up in business was the risk of setting prices too high and out-pricing potential patients. Setting prices too low was also a concern because our profit would suffer and could impact the growth of the business. If you’ve not already done so, you should research your market, by simply viewing their prices online to see what others are charging for similar services.

This will give you an indication of how much potential patients are willing to pay in your location, for example one area of botulinum toxin in Leeds seems to vary between £120 and £195, whereas in Portsmouth the price generally falls between £145 and £200.7 I would advise caution when price matching a competitor as there are a number of factors to take into consideration. For example, you may have higher overheads than them, more experienced staff or a different target audience, so the reality may be that you lose money if you are chasing the sale.

Conclusion

Understanding your business finances are key to setting profitable prices in your business. If the services that you offer are not generating a profit, you may need to consider discontinuing them altogether or adjusting the price. Steady profit built over a period of time, whilst building your brand reputation, can be a useful method to ensure that patients don’t notice or are not bothered by huge price increases. As a business owner, the responsibility is yours to make sure the business is successful and the bottom line is, if you’re not making a profit your business will struggle to survive. If you find that you’re struggling with the commercial side of your clinic, seeking the help of a professional business coach for specific guidance on your finances, as well as other aspects of your running a profitable practice could be a worthwhile investment.

References
  1. Kennedy, D. No B.S. Time Management for Entrepreneurs: The Ultimate No Holds Barred Kick Butt Take No Prisoners Guide to Time Productivity and Sanity. 3rd Edition. Entrepreneur Press , 2017
  2. Digital Exits, 8 Steps to Sell Your Business (in 2019). https://digitalexits.com/sell-your-business/
  3. Davis S, 7 time management lessons from The World’s Highest- Paid Copywriter, June 2019 <https://www.samuelthomasdavies.com/dan-kennedy-time-management/>
  4. Entrepreneur Europe, How to Set Salaries <https://www.entrepreneur.com/article/159438 >
  5. Olenski S, To discount or not to discount? That is the questions, Forbes, January 2017 <https://www.forbes.com/sites/steveolenski/2017/01/16/to-discount-or-not-to-discount-that-is-thequestion/#9ec26ac4314d>
  6. Canadian Contractor, The rule of one third: are you making a minimum of 33 per cent gross margin?, December 2014 <https://www.canadiancontractor.ca/canadian-contractor/therule-of-one-third-are-you-making-a-minimum-of-33-per-centgross-margin/12136/>
  7. Date on file
  8. Fast Company, Price promotions may be killing your brand: here’s what you can do about it, April 2013 <https://www.fastcompany.com/3006315/price-promotions-may-be-killingyour-brand-heres-what-you-can-do-about-it>
  9. Wolfe L, How Groupon Works and How It Impacts Small Businesses, The Balance Small Business, September 2018 <https://www.thebalancesmb.com/how-using-groupon-can-hurt-yourbusiness-3867065>
  10. Aesthetic Business Transformations <https://www.aesthetic-bt.com/>

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