This is an important subject, so I’m going to address it via two blogs. The first of which is looking at why now is the right time to raise your treatment prices, and the second of which will look at how you tell your patients about it.
The first stage of this issue is addressing the necessity of regular price reviewing. Not just why it’s important for a business to review its prices on a regular basis, but why it’s also important for the patients that this review takes place.
The necessity of regular price reviews
Once a year, Trafford Council drop me a letter, usually about a million pages long, trying to explain why my council tax is going up.
The letter includes a long list of reasons, and at the end of it are the rates for next year. I can’t recall a year where it hasn’t been more than it was the year before.
And to some extent, there’s a similar exercise that goes on in terms of your general home utility bills.
These organisations don’t have a meeting in September where they say, ‘Do you think we ought to talk about putting the prices up next year? Because we don’t want people to get upset with us’. They just get on and do it.
You might argue, ‘Well, part of the reason for that is because it’s a lot more difficult for me to move house than it is to change dental practices’.
I understand that. But the reality is that as a consumer, I have been trained to expect that these things will take place. And so, it’s natural behaviour that organisations review from time to time.
Someone has to pay for increased costs
Common sense says that if you’re running a business and if your variable and/or fixed costs go up, somebody has to pay.
The variable costs in dentistry are the costs of your laboratory; your material costs; the costs of paying your self-employed clinicians, hygienists, therapists, and dentists; and, of course, the new arrival on the scene in 2020, PPE.
My personal view is that it’s going to be a number of years, not months, before there is any conversation around whether the level of PPE and the standard of SOPs are going to be reduced.
I don’t think we’re talking 12 months or when a vaccine comes in, we’re talking a very long time before there’s any relaxation. So, these new costs are with us and they’re here to stay.
Fixed costs are things like salaries, mortgage and loan repayments, utility bills, etc., where the trend over time is that they are more likely to increase than decrease. You have to make a decision as to how that cost is going to be paid.
There are different teams within your dental practice who can pay for this increase in costs (and while I obviously exaggerate the point in order to make it, it still remains valid):
The salaried team – you can gather your salaried team together at the end the year, and say, ‘I’m sorry, ladies and gentlemen, the running costs have gone up. So, we’ve got two choices: I can either reduce everybody’s pay, or you can all go and draw some straws over lunchtime and we’ll sack the short straw’.
Your utility providers – you can say to them, ‘I don’t want to pay the increase’. Well, that’s not going to get you very far, is it?
Your equipment suppliers – you can try to switch to cheaper labs, cheaper materials, cheaper clinicians, and fake PPE. That might reduce your costs, but it doesn’t sound like a very good strategy.
Your family – you can go home and say to your family, ‘No more holidays, no more school fees, no more nights out. We’re sending Netflix, Prime and all the other satellite channels back, because I don’t want to upset my patients by asking them to pay more’.
Your patients – the patients are going to have to pay a little bit more in order to make up the increased running costs. That’s what most organisations do and, therefore, that’s what a dental practice should do.
The fear that stops you putting up prices
There’s an inevitability about price increases, which is forced upon us by the crushing logic of day-to-day economics that dictate a price review.
So, what would stop a dentist doing that? The answer is emotional fear.
The word fear is actually a mnemonic for:
What happens is that the dentist fantasises that if they put the prices up, the patients will all leave.
And that creates a second problem: compound interest.
Small, regular price increases won’t start a patient revolt
Let’s imagine that you were logically required to put your prices up by 5% in order to maintain the profitability of your business.
And let’s assume that the same thing happened for five years in a row, and you didn’t put the prices up because of that emotional fear.
But at the end of five years, the bank manager says, ‘If you don’t put your prices up, I’m closing you down, because your business isn’t profitable anymore’. Now you have no choice.
So, here’s the University Challenge question:
If you’ve missed the price rise for five years and you now need to get back to parity, what’s the percentage that you need to put your prices up?
The answer (with compound interest) is about 27.5%.
When you implement small, incremental price increases, you will have the inevitable small percentage of patients who will grumble, because they always do.
But if you go for one catch-up every five years, you’re going to have a revolution on your hands. So, it’s counter-productive to wait.
Moving onto the second and third stages of why you should review your prices: COVID-19 and recession.
Watch out for red herrings of COVID-19 and recession
At the beginning of COVID-19, unemployment in this country was running at 1.5% of the workforce. It is currently predicted, with the extension of the furlough scheme, that unemployment will be running at about 5% by Easter.
In 2012, when David Cameron was the Tory Prime Minister of the United Kingdom, unemployment was running at just under 9%.
I don’t recall a single dentist ringing me in 2012 and saying, ‘I’m worried about putting my prices up because unemployment’s running at 9%’. I do not remember a dentist telling me that business was bad because unemployment was at 9%.
What has happened here is that we’ve got caught up in a media hype.
Don’t get me wrong, I felt very sorry for the 1.5% who were unemployed in January and I feel very sorry for the 3 million that are going to be unemployed by Easter. But it hasn’t made any difference historically to the business of dentistry and I don’t see why it should now.
Some sectors, like private dentistry, are booming
Almost every single one of my clients in the independent private sector is telling me that September and October were record months for sales. That they were not just back to pre-COVID levels, they were recording the highest sales months that they’ve had in the history of their business.
What evidence, therefore, is there that a price rise is going to get a negative reaction, other than from the people who grumble at everything you do?
Yes, there are sectors of the economy that are struggling. The hotel and restaurant industry is over 30% down on a year ago; arts and entertainment is over 30% down on a year ago; the aviation industry is 80% down on a year ago; the retail high street is 50% down on a year ago.
However, retail sales in the United Kingdom in September were 6.5% up on the previous year, across the UK. The home improvement industry is 30% up on a year ago; garden centres are 30% up on a year ago; health and well-being is 30% up on a year ago.
In the absence of vacations and even staycations, or going to the pub or the cinema or football, people are spending money on home improvement. And they are spending money on human improvement.
The healthcare sector online is booming in exactly the same way that independent private dentistry is booming.
And consider this. Most of the clients that I work with, after doing their analysis and financial forecasting, are realising that they probably need to increase prices no more than two to three per cent in order to restore their profitability, even taking into account the effects of PPE.
So, when I say ‘small, incremental price rise’, I mean 5%.
Taking into account all of the above, why would you have any reservations about such a small increase?
Look out for my next blog where I’ll talk about how to communicate this price rise to your patients.