Let’s talk about raising fees and increasing profitability. Most of you would certainly be in favor of the latter (more profits) but many of you feel a sudden nervous twitch contemplating the former (raising your fees).
In this day and age, some of you may also protest that fees are set in stone by payers. While this is true for some payers and for some of your practice, this does not negate the fact that eventually you have to increase your fees to be profitable. It can diminish its impact but by much less than you think. Here’s why:
1. “100%” Patients: Increase of fees has a definite impact on patients who are paying what you ask. Generally, this is limited to the two extremes in most practices: cash/non-insured and Personal Injury. So, even if that represents only 20% of your patient base, that means you get a raise for 20% of your patients, which is certainly better than nothing.
2. Communicate Fee Discontent: If you never raise your fees, all payers will believe that you are happy with their fee. In fact, they will have no reason to raise them in the future. Likely, they will decrease them. So, while certainly raising fees for capitated plans or plans where your contracted rate is lower than your fee won’t produce any extra profit, the principle will help you ensure future fee fairness.
3. Profitability Impact of Fee Increases: Most chiropractors never do the math of how profitable even small fee raises can be on your bottom line. Fewer still ever consider the impact of the flip side either – fee discounts. If we truly understood how significantly reducing fees affects profitability, we may approach insurance contracts, cash discounts, “coupon” programs and the like much more carefully. Take a look at the following research “discovered” by the big boys:
Fee “Secrets” of the Big Boys
The good news is that chiropractors don’t need to re-invent the wheel or come up with some sort of complicated mathematical reasoning to support this simple idea of raising your fees.
Back in the 1980’s, the bean counters at Kodak did the work for us by commissioning a study on price setting. This study is worth revisiting today given the rising office overhead costs in chiropractic today. One of the reasons why overhead is increasing is that your fees have not kept up with the rising costs of providing the care. There are many variables involved in setting your fees and only you can determine an appropriate fee schedule, but here is something to think about.
The story: executives at Eastman Kodak were concerned about increasing competition in their industry. Prior to the early ‘80’s Kodak had a virtual monopoly on film in US. This changed when Japanese film manufacturers were able to introduce their film in the US at lower prices. Kodak decided to conduct a study to determine the effects of price increases and price decreases on their profitability. The Kodak study assumed a 25% profit percentage (75% overhead) which is rather convenient for our purposes because it is fairly close to the average chiropractor’s net income today (recent salary survey studies show the average DC has a 65% overhead).
The Huge Cost of Cutting Your Fees
Assuming an anticipated profit of 25% of selling price (after overhead is met), a 2% cut (discount) in that selling price means you must increase your volume of sales by 8.7% to make the same profit obtained before the price was lowered.
- A 3% cut means a 13.6% increase in revenues is necessary!
- A 5% cut means a 25% increase in revenues is necessary!
- A 7.5% cut means a 43% increase in revenues is necessary!
- A 10% cut means a 67% increase in is necessary!
- A 15% cut means a 150% increase is necessary!
- A 20% cut means a 400% increase is necessary!
The Big Impact of Fee Raises
On the reverse side, look at what raising your fees does!
- A 3% increase in fees means the same profit 90% of revenues!
- A 5% increase means the same profit on 83.5% of revenues!
- A 10% increase means the same profit on 77% of revenues!
- A 15% increase means the same profit on 71.5% of revenues!
- A 20% increase means the same profit on 55.5% of revenues!
In theory, chiropractors could afford to lose nearly half their patients with an increase of only 20%!! Fortunately, the likelihood of losing that many patients is slim. Unfortunately, the possibility of increasing revenues massively (by 400% or so) is also remote, due to the fact that most practices are not 100% cash and payers will limit the overall impact of fee raises.
Small Victories Won Frequently
However, don’t give up and abandon ship altogether! This is how many chiropractors go crazy. Since we can’t achieve a HUGE victory with one move (fee increase), we abandon the idea and move on to some other “sure bet” that will (supposedly) produce monstrous profits.
Of course, that monstrous increase (which was featured in a full page testimonial style ad, printed in small font, complete with a meaningful before and after picture) comes at a price. You have to call into the special 800# to hear a recorded message, attend a secret seminar or join a $36,000 coaching program to learn the “secret.”
Instead of going for broke, what if we simply increased our fees and took the 3%, 5% or 8% boost it may achieve? And then move on to another small victory. Collectively, four small victories of 5% increase add up to 20% increase – not bad.
Since most chiropractors seem to have no clue as to how to master money or the “business side” of practice, they also have no idea of how a simple increase or decrease in fees and overhead can so dramatically impact their experience of practice and life and the quality of care they deliver. And how a simple thing like a fee increase doesn’t require any extra effort, doesn’t require you to change your whole practice style or attend a seminar in Bora Bora to learn how to do it.
The Final Obstacle
Some of you may still find yourself objecting in the face of this logic and research. If that’s the song playing in your head – stop it. Most objections to fees are there: in your own head.
Each year I visit a couple hundred chiropractic offices and talk to thousands of chiropractors at my seminars. Two things become universally clear: (1) your patients love you and (2) many chiropractors also apparently don’t have the self-esteem to realize that in a tangible way (i.e. raise your fees).
There’s no correlation between the fees you charge and your skill set. I’ve seen relatively “average” chiropractors happily profiting from above average fees. Unfortunately, the more common scenario is superior chiropractors laboring away with inferior fees. Interestingly enough, in his Gary Vaynerchuk’s book The Thank You Economy, he quotes the Customer Service Impact 2010 Report as saying that “85 percent of US consumers say they would pay 5 percent to 25 percent more to ensure a superior customer experience.” If your patients are receiving truly great customer service, they will be willing to pay for it – including fee increases!
I’m not a licensed counselor (thankfully) and have no intention of becoming one. If you want to wait 20 years to charge an extra $5 for your services, that’s your problem. But please realize it is a problem. Consider the Kodak Study the next time you consider your fees, raise them and choose to solve that problem now so you can move onto something else. Or you can choose to ignore or rationalize your problem and pay later. You do good work, doc – raise your fees!
Need help setting your chiropractic fees? All of our chiropractic coaching clients receive a Fee Optimization as part of their overall strategy to help them increase profits and work smarter — and much, much more! For more information on our coaching services, click the links above and to see how we’ve helped other clients like you improve their practice, be sure to check out our testimonials!