Issue #16 – The Power of Price Increase – Part 1
When was the last time your practice raised prices? By how much were they raised and why? When is the next price increase appropriate and how do you plan properly? In this issue, YellowTelescope explains the psychology behind why so many doctors hesitate to, or don’t, raise prices and how to use logical reasoning to determine the appropriate time and size of a price increase.
After the worst economic crash in nearly 70 years, doctors and staff remain careful and bearish even 6 years later. Yet, when you look more closely, while surely things are far from their peak in myriad ways, the stock market has been at all-time highs for over a year, unemployment is down and dropping further, restaurants are full, companies that have unprofitable apps are selling for $16 billion dollars, and most doctors are growing and have been for years. As we are taught as finance majors in business school: fear drives markets to be imperfect as people act irrationally when afraid.
Our market, you must realize, is a financial market just like the S&P 500. When doctors are fearful, they stop raising prices, and sometimes even lower them, allowing patients to get services at below fair market value (FMV) – making happy patients and unhappy doctors. For those of us who went to Europe in 1999, it was certainly nice that the U.S. dollar made nearly everything inexpensive, but Europeans figured it out, created the Euro and now more Americans go to Europe than ever before, but now pay FMV, which is over double the price that was spent about a decade ago. Those were the “good ol’ days,” indeed. Guess what? For doctors, “these are the good ol’ days.” The take away for doctors reading this issue is to admit that they are worth it, that their FMVs have risen since 2008, and that they are not doing a service to their patients by undercharging, but rather are doing a disservice to their spouses, children, and staff who need raises by, quite literally, selling themselves short.
I’M WORTH IT – NOW WHAT?
So you now see the light – an increase is a good idea for your pricing model. Next, doctors must strategize. Defining the proper pricing strategy is quite different from determining actual prices. YellowTelescope recommends a price increase of a small size twice a year, every year, unless there is a recession or depression. Why this makes sense (or is it cents?):
- You haven’t had one in years and for cost of living and to keep up with natural inflation alone, every normal business has a price increase.
- Your costs are increasing – from rent to medical supplies, toilet paper, employee pay, and even malpractice and tail insurance.
- Each pending increase, if announced in advance to patients, psychologically creates a “book-end” for a patient. In essence, the patient has a natural no-pressure deadline to act or face a loss of further funds if they proceed later.
- There isn’t an exact amount by which you are raising your price – you can raise each surgery by a dollar or you can double your prices. The key is to know that psychologically, just the idea that a price increase is coming, whether it is by 1% or 100%, helps people to act and gives tools to the sales team to encourage patients to come to a decision.
Once a practice decides to raise prices, has a strategy to methodically raise fees semi-annually, and understands the logic and reasoning surrounding the benefits of these decisions, it must decide exactly how much it should increase prices. Should the increase be for all treatments and surgeries or just some? And how does a practice avoid raising them too aggressively and losing patients? Stay tuned for Issue 17 of the YellowTelescope Newsletter for these answers and more – and remember, you are worth it!