THINKING BUSINESS
a blog by Chris Barrow

Your January Price Rise for patients - what to do?



This topic has appeared in client conversations over the last couple of weeks, no doubt initiated by plan providers asking their practices what they want to do "about this year".


We are not just talking about adjustments to plan premiums here. For all practices who offer private treatment options, the start of a new calendar year is the opportunity to review their fee per item price list.


This year we can stir a global pandemic and recession into the mix.


Which gives rise to a significant increase in the phenomenon of FOMM - frightened of making a mistake - by putting prices up.


Surely, one could surmise, given the deluge of bad news with which the media bombard us every morning, now is not the time to be talking to patients about price increases?


I want to change the narrative on that and I'll be encouraging and supporting my clients in pressing forward with price reviews and supplying them with the ammunition to do it..


To begin that process, I want to tackle the subject of price adjustment in three stages (and forgive me please for starting with some very simple assumptions - I know that you know this):

  1. Why bother reviewing prices every year?

  2. What prevented this pre-Covid?

  3. What's preventing it now?

Why bother reviewing prices every year?


Your business operates financially on a very simple model:


Sales - variable costs - fixed costs = profit.


Your accountant will adjust the final profit before tax by using legitimate tax allowances but we know that's not real money and as far as cash flow is concerned the above formula will suffice.


Sales can be influenced by two factors only:

  1. Productivity - how much do you sell and

  2. Price - what do you charge

Variable costs and fixed costs are affected by market forces and so, in a perfect world, you would be monitoring them in real time (like Walmart, who have sensors on their shelves and can see when products increase or decrease in popularity and adjust the price - if it rains and umbrellas start to sell, they adjust upwards - rather like Uber with their cab fares).


In dentistry you cannot be that agile, so one has to choose a periodicity over which prices will be reviewed. Annually is nothing more than a commonly accepted convention - think utility bills and council tax.


Once a year, therefore, you should review variable and fixed costs and adjust accordingly to maintain profit - simples.


Some of you may remember a vintage Coach Barrow workshop on financial management, in which I would comment that every expense in a dental practice had to be paid for by one of three teams:


Team A - the patients

Team B - the employees

Team C - the owner and their family


Again simplistic but it made the point. If you don't review your prices and you don't reduce pay or eliminate team members, then the patients have to pay. If you don't, your family pay.


The process of reviewing variable costs and fixed costs also includes taking a look at some external factors that can be of influence, so the full list would look like this:

  1. Consumer Prices Index - CPI - (the old Retail Price Index) - what has happened to the cost of goods and services generally in the economy?

  2. Average Earnings Index - what has happened to the cost of employees in the same economy?

  3. Variable costs - what changes have taken place in my lab bills, my material costs, the cost of my self-employed clinicians and (for this year) the cost of PPE?

  4. Fixed costs - what changes have taken place in my day to day overheads (the largest of which will be salaries) and (for this year) the cost of implementing new SOPs?

  5. Sales - are there any factors that would either expand or inhibit our ability to make sales (thnk fallow time and split rotas).

All of this requires some basic spreadsheet skills, so that you can create a cash flow forecast for 2021 and, thus, deduce the prices that you will have to charge to make it all balance.


So far, we haven't gone past secondary education level in the mathematical skills required so, frankly, there is no excuse for not doing this.


CPI for the 12 months to September 2020 was 0.70% (not much but as I'll mention later, it all adds up over time - you ignore at your peril).


The average earnings index over the same period presents a difficult picture currently according to the official Government web site, as the 2020 lockdown has affected the analysis - for the purpose of this exercise, it would be fair to say that UK pay has shown zero growth in the year.


Given that, the main analysis that is necessary right now would be a detailed examination of variable and fixed costs to see what the main changes have been.


What prevented this pre-Covid?


There has historically been a reluctance to address the issue of price rises for the reason stated previously - FOMM - which manifests itself as fear - the "fantasy expressed as reality" that patients will refuse to accept the price increase and leave the practice in droves.


So owners put things off, sometimes for years, and watched as their profits were gradually eroded by inflation and the price rises and wage reviews demanded by their suppliers and teams.


This is where the maths gets interesting.


Imagine a 5% price increase, avoided every year for 5 years because of FOMM.


So, when we get to the 5 year point and the owner is under pressure to rectify the omission, by how much do the prices need to rise to get back to parity?


Good old compound interest (ah - sometimes I miss my school days) indicates a 27.60% price rise - to stand still.


So my question is - "which do you prefer - asking your patients to pay 5% more each year - or asking them to pay 27.60% more every 5 years?"


Whatever you do with price reviews, a micro-minority of patients will complain and maybe even leave but the 5-year review is far more likely to create an Andy Burnham-like standoff.


Big message - make sure you review every year - small incremental rises are more palatable and create an expectation that they will take place.


What's preventing price reviews now?


Covid-19, the recession, unemployment, no-deal Brexit, tiered-lockdown.


Take your pick.


However, if you have done the aforementioned analysis and have discovered that your variable and fixed costs have increased in 2020, there's no point in going back to your suppliers and your employees and asking then to take a cut because you are afraid of your patients' reaction.


As to announcing over the dinner table that, not only is Christmas cancelled but also the whole of next year, because the consequence of your price review avoidance will be a tightening of belts at home - well, I'll leave you to consider the consequences.


The patients must pay.


Just before you start the sleepless nights however, can I make a few observations about those patients?

  1. Retail spending in the UK for August 2020 was 2% up on the previous year. People are spending their vacation/staycation/commute/business lunch money on different things and in different ways. Online shopping is through the roof, growth sectors include D.I.Y, gardening, health and beauty;

  2. Dental practices are booming - implants, short-term ortho, smile makeovers, long term care and plan sales are at an historic high;

  3. In January 2020 unemployment in the UK was at 25% of the 2015 level. If unemployment doubles this year (as predicted), it will be at 50% of 2015 levels by this Christmas. Back in 2015, when David Cameron was P.M., I don't recall any dental clients telling me that sales were down due to unemployment?

My belief is that, as leaders, we have to at least balance the narrative here. I don't for a moment underestimate the seriousness of the situation we are in but I do challenge the negative hysteria used by the media to maintain ratings and sell advertising.


Winter is coming but it's not Game of Thrones - we will get through this.


It was the late, great, Belfast comedian Frank Carson who coined the phrase "it's the way I tell 'em" and there is no doubt that your messaging to patients has become of paramount importance.


So here's what I'm doing for my clients.


High on my task list for next week is a draft letter to patients, introducing and informing them of next year's price review and the results for them. My clients have got enough to do - so I'll be helping out in that department and also offering help with the calculations they need to determine their own relevant percentage increase.


My community of clients are going to be well informed and armed to deal with this.


You should look at our coaching programme - next week I'll be launching the 2021 version and I'm thrilled that 108 of my 2020 clients have already indicated that they will be taking the journey with me into next year.


If you would like to receive no-obligation details of the 2021 Extreme Business coaching programme, simply email me at coachbarrow@me.com

















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