What is it?
Why would you do it?
When should you do?
Sometimes in an allied health practice we find it hard to set fees for our services. We have numerous considerations when adjusting a fee for service and often we need to navigate the treacherous waters that embody something so delicate in our patient’s minds. There is an overarching truth to setting a fee for your service and it is that, there is certainly a high price in which people will stop paying for the service. We would like to assume for the article that the lowest price is more so dictated by the practitioner providing the work and their opportunity cost rather than the customer demands.
So what is price testing or price elasticity testing? Simply put if the demand for service doesn’t equal exactly the supply EG every week practitioner Jason Smith, Physiotherapist, has 75 available appointments at $70 and every week he has 75 appointments booked in then we can assume the price is not elastic and is more or less right. If Jason Smith has a 25 week waiting list and charges $70 per consult then we can assume that the demand for his services are high enough for us to test the price of his services. In contrast to this, Jason may have 45-50 consults per week booked in at $70 and thus might need to look at reducing his fee for service according to the model.
Obviously there are some unique plus sides to have a long wait list and generally speaking we need to consider that any changes may result in a quick subsidence of bookings. The most important thing in the real world is to communicate to your customer of the fee changes well in advance. “Patient X just letting you know that your next consultation is going to cost $85”. Our recommendation is that you increase in increments no more than 15% at a time to reduce customer uncertainty and no more frequently than once a year. This is for comparable services and we have seen recently a number of practices employ the strategy of redefining certain services so that patient X can still receive a physiotherapy service for $70 however Jason Smith will now be charging $105 due to his greater expertise. This strategy potentially may be more effective but will need to be accompanied with a redefining of your service portfolio within your practice. For the most part this strategy is more palatable and is a version of what we are talking about. As a practice owner you need to be looking at overall revenue and potentially you are better off not even having a full list for the sake of a higher revenue.
When it comes to the example of the practitioner who is not quite full we would like to think that over time this would change. Reducing the price then increasing it again shortly after once the person is full will be more difficult and potentially counter intuitive to what you are trying to achieve with your brand.
Implementation comes down to timing, when is the right time for your practice, when is the right time to change your services, change your fees and communicate to your patients what’s happening. This is a question only you can answer and you want to consider carefully how the time of year will affect your patients (potentially start of year when health funds are kicked in), what is your appointment book looking like over a long period (compare trends over 3 months or more not just a few weeks). Patient stability is a good indicator of how effective a significant price change will be.
So we hope this basic overview was helpful for you all. Remember, utilise the tools you have at your disposal, never stop thinking about improving the business that you are running and always look out for opportunities. The success of and happiness of your patients hinges on the success of your business so keep pushing Hippocampers you’re killing it.
Something like the below for a graph