Competitive Pricing Strategies

Transcription

1 Competitive Pricing Strategies Maximizing Margins Staying Competitive Presenting Attractive Prices C. Scot Frink, MS

2 (Disclaimers) This presentation is not an attempt at price-fixing For owners, it is a means of self-analysis (not psychoanalysis) For employees, it helps you to understand just how much it really takes to run an office

3 Your practice is only good for your patients if you can keep your doors open Hearing care professionals are extremely well-qualified for taking care of their patients. They do, however, sometimes have difficulty discussing costs with patients one of the biggest stumbling blocks. Audiologists are university-trained as clinicians, not as business people. Hearing instrument specialists rely on the training of their mentors. For both professions, understanding business comes from previous experience or with time.

4 Goals For This Presentation Understand the needs for margins Analyze different pricing strategies Learn new methods of presentation to your clients.

5 What Are The Typical Costs of Operation? Payroll and Taxes Professional & Support Staff Rent & Utilities Merchandise for Resale Licenses, dues, insurance Supplies & Equipment Advertising Costs Everything else Stress, mental health, marriage if you don t do it right

6 Payroll & Taxes: Professional Staff Median pay for a hearing instrument specialist in 2010 was $46,780 (or $22.49 hourly) Median pay for an audiologist in 2010 was $66,660 (or $32.05 hourly) Adjusting for inflation, this is likely 3.5% higher. $48,431 $69,013 *US Bureau of Labor Statistics, 2010

7 Payroll & Taxes: Support Staff Hearing clinics typically have at least 1-3 additional staff members to support the audiologist. Some of the support staff and their respective salary and benefit packages may include: Receptionist ($20,000 - $30,000 + $4,000 benefits) Office Manager ($30,000 - $40,000 + $6,000 benefits) Billing clerk ($20,000 - $30,000 + $5,000 benefits) File Clerk ($10,000 - $20,000 + $4,000 benefits) Repair technician ($20,000 - $35,000 + $5,000 benefits) HIS offices typically had smaller support staffs than audiology clinics From 2003 survey of 11 offices in Oregon and Washington

8 Payroll & Taxes Taxes Payroll taxes amount to approximately 7.62% over and above the wages of the employee i.e., about $5,000 per year for the average audiologist about $2,500 per year for the average support staff If you earn $4,000 per month, it costs the office $4,300 to pay you! Corporate Income Taxes Local Taxes & Fees of Operation

9 Rent & Utilities Rent Electrical Telephone Water Internet Other?

10 Merchandise for Resale Hearing Aids Batteries Cleaning & Maintenance Supplies Repairs Assistive Listening Devices Merchandise not related to hearing loss

11 Licenses, Insurance, Dues Professional licensing (state & local) Business license Insurance: malpractice, property, liability Business & Equipment Insurance Professional Association Dues (IHS, State, etc.) Subscriptions Conference fees for continuing education

12 Supplies & Equipment Office Supplies Technical equipment (Hi-PRO, Diagnostic equipment, verification measures, etc.) Annual Calibration Expenses Computers & maintenance Telephones Furniture Postage

13 Advertising Costs Generally agreed that 5-15% of gross income should be spent on advertising. Higher for start-ups Lower for well-established practices that don t want to grow.

14 Review: Annual Cost of Operation Median Annual Income Generated Solo Professional Offices: $411,000 per year Multi-Professional Offices: $740,000 per year Multiple Location Offices: $1,441,000 per year *2011 Phonak Benchmarking Survey

15 This is just how much it costs to operate! How do you make a profit?

16 Sources of Revenue How much do you need to earn to keep the doors open? Billable Hour Concept: Patient Contact Hours, per year: 1,500 Billable Hour for a 3-practitioner office: Annual cost of $900,000 per year Billable Hour = $900,000/4,500 hours = $200 per hour

17 Identifying Your Sources of Revenue Primary Source of Income: Treatment ENT Clinics: surgical procedures Audiology Clinics: hearing aids Dispenser Offices: hearing aids Secondary Source of Income: Diagnostics (audiologists & ENTs) Tertiary Sources of Income: Support Merchandise & Services Repairs & Earmolds Assistive Listening Devices Reprogramming & Fitting Evaluations Services & Products unrelated to Rehab

18 Methods of Pricing Hearing Aids Unbundled vs. Bundled Pricing Unbundled: cost is lower and patient pays for services with each visit Advantages: makes initial cost lower to patient and therefore more competitive on the marketing side Disadvantages: patients may be reluctant to follow-up Bundled: Most or all costs included in instrument purchase Advantages: little or no additional costs for the patient, which makes them more likely and committed to follow through. Disadvantages: higher up-front cost may make it more difficult to compete

19 Methods of Pricing Hearing Aids Concepts: Unbundled vs. Bundled Pricing Cost of Goods multiplier Mixed Method Flat rate fitting fee Grouped pricing (tech levels) Prestige Pricing

20 Unbundled vs. Bundled Pricing Bottom Line: The Is No Such Thing As A Free Lunch Invoice cost plus hourly rate (medical model) Hearing evaluation & consultation, $200 Fitting fees and follow-up visits (2-3 hours = $400 - $600) Average Invoice Costs Economy: $250 $1,100 - $1,300 binaural Basic: $550 $1,700 - $1,900 binaural Advanced: $850 $2,300 - $2,500 binaural Elite Level: $1,250 $3,100 - $3,300 binaural On-Going Services: $200 per hour Batteries & Supplies are separate

21 Unbundled pricing Strengths: Exactly reflects the effort you ll put into the instruments Lower up front cost is very attractive to the patient Because of competitive pricing, primarily sell high-end Higher overall volume of sales Weaknesses: Patient may feel they are being nickel and dimed (Franklined?) with each visit and likely to grow reluctant to return, less loyal. Practice will have to have excellent cash flow, loyal patients, and / or other sources of revenue (i.e. ENT surgical income) to be successful

22 Cost of Goods Multiplier Bottom Line: Free service leads to loyalty Invoice cost x 3 most common (tradition?) Average Retail Costs Economy: $250 $1,500 binaural Basic: $550 $3,300 binaural Advanced: $850 $5,100 binaural Elite Level: $1,250 $7,500 binaural On-Going Service: Included for life of aids Batteries & Supplies may or may not be included

23 Cost of Goods Multiplier Strengths: Patient has less fear of being charged when service is needed ( = greater patient loyalty). Better cash flow since your receiving payment in advance for services to be rendered in the future Less need for other sources of income. Weaknesses: Doesn t necessarily reflect the effort you ll put into the instruments (high-maintenance vs. low maintenance) Higher up front cost is less attractive to the patient Greater diversity of technology sold since costs are higher, lower overall volume of sales Cheap aids very cheap, expensive aids very expensive

24 Mixed Methods Bottom Line: Everything in Moderation Invoice cost x 2 plus a base fitting fee ($600 ea.?) Average Retail Costs Economy: $250 $2,200 binaural Basic: $550 $3,400 binaural Advanced: $850 $4,600 binaural Elite Level: $1,250 $6,200 binaural On-Going Service: Included during warranty, additional if out of warranty Batteries & Supplies included for limited time or specific quantity

25 Mixed Method Strengths: Moderates price range (cheap not too cheap, expensive not too expensive Patient has less fear of being charged when service is needed ( = some patient loyalty). Weaknesses: Doesn t necessarily reflect the effort you ll put into the instruments (high-maintenance vs. low maintenance) Prices are competitive, but still higher than unbundled. Greater diversity of technology sold since costs are higher, lower overall volume of sales Still some need for other sources of income.

26 Flat Rate Fitting Fee Bottom Line: Everything gets the same service Average the costs of services over a year and add to invoice for flat service to everyone Billable $200 x 7.5 hours = $1,500 Average Retail Costs Economy: $250 $1,750 monaural, $2,000 binaural Basic: $550 $2,050 monaural, $2,600 binaural Advanced: $850 $2,350 monaural, $3,200 binaural Elite Level: $1,250 $2,750 monaural, $4,000 binaural On-Going Service: Included during first year only, then additional if out of warranty (@ $200 per hour) Batteries & Supplies: Included for first year? (add $100 ea.)

27 Flat Rate Fitting Fee Strengths: All patients can be treated the same since each one generates the same level of revenue. Lower up front cost for binaural fittings is attractive to the patient Because of competitive pricing, primarily sell high-end Good overall volume of sales, higher binaural rate. Improved cash flow over true unbundling. Weaknesses: Less competitive for monaural entry-level Possible nickel and dime after the first year, less loyal. Still possible need for alternative revenue sources.

28 Grouped Price Structure Method Prices are arbitrarily assigned for all manufacturers based on technology level On-Going Service Costs: Included in price to the end of the warranty. BTE ITE ITC CIC Economy $850 $800 $900 $1,100 Entry-Level $1,650 $1,600 $1,700 $1,900 Mid-Range $2,450 $2,400 $2,500 $2,700 Elite $3,250 $3,200 $3,300 $3,500

29 Grouped Price Structure Method Strengths: Simpler system for hearing professionals Simple system for presenting to patients Only 16 prices to consider; easier to memorize Weaknesses: Does not take into account the wide variety of prices available from manufacturer to manufacturer, discounting programs, etc. (it ignores the actual invoice cost) Example: One manufacturers mid-range digital may cost $400, while another s costs $500. In this case a $100 price difference will either lead to losses in some situations or unfair bias in others.

30 The Prestige Method Bottom Line: Charge a premium because you re worth it. Cost of Goods Method (Invoice x3) Add in full services Batteries for life of instrument (10 years = $500 value) Longest Warranty available (4 years = $600 value) Free annual hearing screenings ( 5 years = $100 value) Average Invoice Costs Economy: $250 $1,999 monaural, $3,998 binaural Entry-level: $500 $2,749 monaural, $5,498 binaural Mid-Range: $850 $3,749 monaural, $7,498 binaural Elite Level: $1,250 $4,999 monaural, $9,998 binaural On-Going Service Costs: Included for the life of the product

31 The Prestige Method Strengths: Patient has no fear of being charged when service is needed ( = greater patient loyalty). The highest cash flow since your receiving payment in advance for services to be rendered in the future Less need for other sources of income You can be very selective about the patients you see Weaknesses: Doesn t really reflect the effort you ll put into the instruments (high-maintenance vs. low maintenance) Higher up front cost is less attractive to the patient, less competitive. Greater diversity of technology sold since costs are higher, lower overall volume of sales Perceptually, all aids are expensive.

32 Methods Comparison Invoice Cost: $250 $500 $750 $1,000 $1,250 Unbundled $1,100 $1,600 $2,100 $2,600 $3,100 COG x3 $1,500 $3,000 $4,500 $6,000 $7,500 Mixed Method Flat Fitting Fee Prestige Method $2,200 $3,200 $4,200 $5,200 $6,200 $2,000 $2,500 $3,000 $3,500 $4,000 $3,998 $5,498 $6,998 $8,498 $9,998

33 Understanding Manufacturers Discounts Types of Discounts Volume Discounts: requires commitment on your part (ethical dilemmas?) Business Development Funds: offered if you follow-thru on your volume commitment (i.e. the rest of your discount ethical dilemmas?) Advertising Co-ops: reimbursement for advertising costs Coupon reimbursement Product commitments Equipment Co-ops (product commitment) Promotional offers

34 Understanding Manufacturers Discounts A 30% volume discount is not necessarily better than a 20% volume Discount: Example: Brand X Brand Y Single Unit Price $550 $375 Discount 30% = -$90 20% = -$75 Total Cost $385 $375

35 Understanding Manufacturers Discounts Factor in all discounts to find your true invoice Example #1: Brand X 6-channel Brand Y 6-channel Single Unit Price $795 $795 Discount 30% = -$239 20% = -$159 Advertising Co-op 0 -$50 Invoice $556 $586 BDF $0 $58 Real Cost $556 $528 COG Retail (x3) $1,675 $1,600

36 Understanding Manufacturers Discounts Make sure you re comparing apples Example #2: Brand X 4-channel Brand Y 6-channel Single Unit Price $795 $795 Discount 20% = -$159 20% = -$159 Advertising Co-op -$50 -$50 Invoice $586 $586 BDF $58 $58 Real Cost $528 $528 COG Retail (x3) $1,600 $1,600

37 Understanding Manufacturers Discounts Advertising Co-ops: Annual advertising costs for a medium office = $80,000 3 full-time Practitioners likely sell 600 hearing aids per year Cost of advertising per hearing aid = $133 each Theoretically, you could therefore lower the price of all your hearing aids across the board by $133 each if you did NO advertising, but who is willing to take that chance? Many manufacturers offer co-oping of advertising to help cover these costs

38 Understanding Manufacturers Discounts Advertising Co-ops: Coupon co-ops: product is reimbursed as you order it Advantage is that you re not fully committed towards ordering their product Disadvantage is the it takes longer to recoup the co-op Makes the most sense to advertise the product or brand you have had the most success with and are most likely to order anyhow Product co-ops: your pre-purchase a certain quantity of products depending on the amount of co-op (i.e., $2,400 co-op with a commitment to purchase 18 top-end instruments over the next 3 months) Advantage: manufacturer typically pays all the advertising cost immediately, which improves you cash flow Disadvantage: may lead to an inappropriate bias to get out from under the commitment Makes sense if you will definitely order that quantity of products before the deadline

39 Understanding Manufacturers Discounts Equipment Co-ops: Requires unit commitment New Visible Speech System= $5,000 Single Practitioners likely sell 200 hearing aids per year Raise the price of each instrument by $25 each to cover the cost of VSS? Manufacturer may be willing to co-op $50 per instrument ordered to help defray the cost of the VSS.

40 Understanding Manufacturers Discounts: Promotions Order 6 BTEs and get an additional 10% discount Order a coupon book for 10 circuits and get the circuits at ½ price Order 90 top-of-the line digital instruments at single unit price over the next 6 months and get a 10-day trip for 2 to Ireland Order a pair of mid-range digital BTEs and get $500 in traveller s cheques Always avoid offers that: Put you in an ethical conundrum Make no sense for your business

41 Understanding Manufacturers Discounts: Promotions 6 +10% off, coupon for ½ price circuits: If you order enough of these on a regular basis, stock up. Order 90 top-of-the line digital instruments at single unit price over the next 6 months and get a 10-day trip for 2 to Ireland How does this make sense? If the SUP is $1250 and your normal discount is 20% off, you ll be paying $22,500 for this trip!!! Big-time ethical problems Order a pair of mid-range digital BTEs and get $500 in traveller s cheques If they are instruments you regularly order, why not? Ethically, you should use the cheques to defray other office expenses (i.e. office supplies, etc.)

42 Service Charges What Do You Charge? Time Is Money Settle on a fee schedule and stick to it Adjust it for cost of living accordingly Keep it reasonable, or they won t come back

43 Service Charges Do You Charge? Competitors may offer free evaluation, but someone somewhere is really paying for it. Your education and experience is worth something. Otherwise, all you ARE just a salesperson selling a product. You aren t. You are a medical professional providing on-going treatment.

44 Service Charges: In-Office Repairs For in-office repairs, charge an hourly rate; again, time = money. Billable hour $200 Most in-office services can be completed in 15 minutes or less = $50 (???) Some offices don t charge for the basics (cleanings, battery doors, retubing, etc.) and a lower charge for more extensive services ($60/hour rather than $200) In some cases, it is a judgment call use common sense.

45 Service Charges: Factory Repairs For factory repairs, a few different options: Simplest way is to double invoice cost Can become quite costly for the high-end instruments, remakes Invoice + fee for processing repair Billable hour over invoice (30 minutes = $100?) For recase situations, add a charge for the time taken for impressions and future buffing (i.e. an additional $50 for additional 15m) Less for billable hour if non-professional processes? Services included under warranty?

46 Service Charges: Earmolds Remember to cover all of your costs Professional wages = $25-$35 per hour 30 minutes for EMI & order write-up 30 minutes for fitting Billable hour = $200 (???) Cost of earmold = $ $45.00 Total cost = $ $70.00 Margin for overhead? Billable hour over invoice? $245 - $270?

47 Comparing to the Competition How do you compare? What are your strengths and weaknesses? What are their strengths and weaknesses? Are they really bad guys? Watch what you say It is SERVICE and RELIABIILITY that keeps them coming back

48 Comparing to the Competition Price Shoppers Show them how to shop (apples to apples) Get impressions Give written price quotes Build a relationship Don t worry Call and compare

49 Presentation to the Patient Methods Price written on a brochure Written price quote fill out a form Professional presentation: The Price Quote System

50 Questions Please complete an Evaluation Form for this seminar These presentations slides will be available to download at ihsinfo.org/convention

51 Contact Information C. Scot Frink (503)