Case study #4: No more discounting of services.
It is quite common in the veterinary profession to discount services when your client may not be able to pay in full at time of service. But what is the true impact of giving a discount? Does giving a 10 percent discount just mean one has to sell 10 percent more to make up for what the practice gave away?
Let’s look at a simple example. If the average treatment plan is $1000 and it costs you $500 to perform the procedure, your gross profit is $500, or 50%.
When you give a discount your costs do not change, only the gross profit changes. With a 10% discount via cash or through a rewards program, the gross profit now drops to 40% ($1000 – $100 = $900, minus $500 = gross profit of $400 or 40% of the $1000.)
To discover the true costs of discounts you must ask yourself “How much more must I charge for procedures to generate the same gross profit dollars as before the discount?”
In the above example, the practice was making $500 or 50% — with the discount the practice generates just $400, or 40%. Take the original $500 gross profit and divide by the new 40% gross profit after discounting:
$500/.40 = $1250
Now your practice must charge $1,250 in order to make that same $500.
To find the percentage of sales increase required to return the same gross profit dollars when compared to the original treatment price, take the dollar amount of the new treatment cost minus the original treatment cost, divided by the original treatment cost.
($1250 – $1000) / $1000 = 25%
Your sales must increase 25% to maintain the same gross profit if you give a 10% discount.
The primary reason for discounting is due to push back from clients over fees, but you don’t have to feel guilty or defend the prices you charge for providing optimal care to the client’s pet. Most pet owners understandably have no idea of what it costs to run a veterinary practice, so when you hear statements such as “you only care about the money,” remember that such comments are based on a limited understanding of how your business operates.
You can avoid these emotional roller coasters, eliminate the financial push back and make the “money talk” a more pleasant experience by offering flexible payment options instead of discounts. While at first glance it may be hard to believe, by allowing veterinary clients to pay over time, you can stop discounting and recoup 100% of your fees.
As wages remain stagnant you need to help clients find ways to manage the cost of your recommended treatment plan. When the economy takes a turn for the worse, as is currently the case with high inflation and supply chain problems, your practice can better weather the storm by offering flexible, pay-over-time financial solutions that are professionally managed by a third-party payment management provider.
During times like these that are fraught with fear and insecurity, there is much to gain by extending empathy and compassion to your clients, in the form of offering manageable payment solutions to help them manage the cost of necessary care. Having the option of paying over time is often more practical and meaningful to clients than a discount.
As case study #4 illustrates, one practice went from about $1400 per month in discounts to zero discounts over nine months, simply by extending in-house payment plans.