Pricing for Profit
Definition of Pricing:
“Pricing is the process of determining what a company will receive in exchange for its product or service. Pricing factors are manufacturing cost, market place, competition, market condition, brand and quality of product”.
A well chosen price list should do the following three things:
Achieve the financial goals of the clinic business (profitability)
Fit the realities of your market (will patients buy at that price?)
Support the product’s market positioning
Pricing your services correctly involves asking many questions, such as:
How much to charge for a service?
How do patients value the services and other surrounding intangibles?
What are the pricing objectives?
How to set the pricing – what are your total operational costs?
What prices are competitors charging?
What image do you want the price to convey?
Do price points already exist for your services?
How flexible can you be on pricing?
What are the chances of getting involved in a price war?
Price / Quality Relationship:
The price/quality relationship refers to the perception by most consumers that a relatively high price is a sign of good quality. This is especially true when it comes to clinic services.
Premium Pricing:
This is the strategy of consistently pricing at, or near the high end of the possible price range to help attract status-conscious patients. The high pricing of premium services and products is used to enhance and reinforce a luxury image. Patients will buy a premium priced service or product because:
They believe the high price is an indication of good quality.
They believe it to be a sign of self-worth.
They require a flawless service – the cost of the service going wrong is too high to buy anything but the best, for example advanced aesthetic skin services.
Setting the right price is one of the most difficult decisions to make when starting an aesthetic business or introducing a new service. If you hit on the right price, you patients will be happy, your profits will be higher and your bottom line will be healthy. Many clinic owners make the mistake of setting up a flawed pricing structure. As a result, they find themselves working too hard for too little. It requires a basic understanding of both your financial goals and business goals.
Common Pricing Mistakes in Salon Business:
Weak controls on discounting and special offers
Not tracking competitor selling prices
Price increases carried out poorly
Not factoring in all running expenses
Selling services under cost price
Establishing the right price for your services can feel intimidating, especially when starting off. Retaining patients while still earning profits is crucial, as making pricing decisions can go the wrong way very easily. Pricing your services too low may lead to being shortchanged whole overpricing can scare away potential patients.
The challenge is to strike a balance between affordability and profitability. With research, analysis and execution, clinic owners can comfortably price their offerings without fear. Proper pricing allows businesses to stay competitive, profitable and sustainably grow over time.
To Build a Profitable Pricing Strategy for Your Clinic:
Understand your costs.
Before you can set your prices, you need to understand your costs. Understanding your expenses will help you determine the minimum price you need to charge to break even. Consider your fixed costs, including rent, utilities, salaries, and insurance. Variable costs include the materials and professional stock needed to carry out your services. If in doubt about your costs, ask your suppliers for their expertise in relation to the cost of services and ask your accountant to give you the financial specifics you need to calculate all your running costs, including your own salary.
Understand your target market.
Your target market will have a significant impact on the prices you charge. If your target market primarily comprises price-sensitive patients, you may need to price your services lower than you would otherwise. On the other hand, if your target market consists of patients who value quality, you can consider charging a premium price.
You can also use price segmentation and create pricing strategies for different patient segments.
Analyse your competition.
Analysing your competition can give you a good idea of what prices your patients are willing to pay. Check your competitors’ pricing strategies, and try to understand why they chose those prices. You can then adjust your prices accordingly. However, beware of lowering prices to match your competitors, especially if it makes no sense for your clinic.
Test your prices.
After you have decided on a price point, always test your prices before making them final. Conduct market research and get patient feedback. Are your prices too high, too low or just right? Testing your prices will help you make informed decisions and adjust your pricing strategies accordingly.
Monitor and adjust.
Pricing is not a one-time event – it will always require continuous monitoring and adjustment. Be sure to monitor your pricing strategies regularly and adjust them as necessary. Keep an eye on market conditions, patient behaviours and competition. Always stay close to your suppliers and lean on them for advice. Changes in market trends can impact your pricing strategies, so stay ahead of the game.
What exactly is a Pricing Strategy?
A pricing strategy is a method used by businesses to set the price of their products and services. This involves analysing market dynamics, consumer preferences, competitor pricing and internal cost structures to strike the perfect balance between profitability and market competitiveness. It is not just about putting a price tag on your services – it is a strategic decision that will impact your sales, market positioning and overall clinic success.
5 x Different Types of Pricing Strategies:
Cost-Plus Pricing
This is a traditional approach, involving setting a price based on the cost of production, including materials, labour, overheads and then adding a mark-up for profit. This straightforward approach is commonly used where the costs of production are relatively stable and well understood.
The weak spot is that it may overlook market demand and more competitive pricing tactics.
Competitive Pricing
This involves pricing based solely on what competitors are charging for their services, without taking the cost of their overheads or consumer demand into account.
This strategy aims to capture market share by offering comparable value at a competitive price point. It requires regular monitoring and adjustments to stay competitive.
Value Based Pricing
Focusing on pricing services according to the perceived value they offer to patients, rather than based on cost or competition. By understanding the benefits and value proposition of your services, you can then set prices that reflect the value they provide to patients. Obviously, this requires a confident understanding of patient needs to justify seriously premium pricing.
Penetration Pricing
Setting a low initial price to attract patients and gain market share quickly and easily. This is particularly effective for new entrants to the market place, aiming to penetrate competitive market places or for an established clinic introducing a new service. By offering services at a lower price point than competitors, the plan is to increase demand and attract price sensitive patients.
This strategy is a balancing act: it may result in revenue reduction due to lower pricing, but should lead to rapid use of services, increased brand awareness and hopefully, in the long run, customer loyalty.
It can be a helpful barrier to entry for competitors, as it makes it challenging for them to compete with you just on price alone.
Skimming Pricing
A strategic approach where a clinic initially sets a high price for its service before gradually reducing over time. Commonly used for new services with unique features. This high pricing helps clinics maximise profits from eager patients willing to pay a premium, to be in at the start. As demand slows down, the price is lowered to attract the price sensitive category of patients.
Again, a balancing act: skimming pricing can help the clinic to recoup costs quickly, while creating a perception of exclusivity and premium quality. However, it also carries the risk of alienating people who find the initial price unaffordable.
Err on the side of caution – careful market research is very important for all pricing strategies. Pricing can be complex. It is natural to feel overwhelmed by all the various factors, such as competitors, overheads, running costs, industry trends and profit margins. So, take your time, do your research, get the financial advice you need, learn your numbers and understand what matters most to your business and to you.
My top tips in setting your prices:
Keep your prices realistic:
A realistic price is the price you set after taking into consideration various factors, such as:
The direction of your business
Your cost structure
Your resources and financial goals
Avoid setting your prices on ‘what every other clinic is charging’. What is right for your competitors may not be right for your clinic. Their goals and strategies may be different from yours. Research your competition and see what they are charging, but do not copy their pricing structure just to charge what everybody else is doing.
Set your prices based on your own situation.
Cover all costs
The price of each service should cover the cost associated with it, its contribution to overheads and profit. A successful strategy is one that results in the most pounds after all the costs have been met.
Be careful of setting your prices too low: it may attract a large sales volume but you may not be making enough revenue to cover the costs of selling the service. If you set your prices too high, your sales volume may be so low you can’t cover operating costs.
Check your prices against inflation
Your prices must keep up with inflation. Inflation increases you cost of doing business, with the prices of your materials, overheads and other costs increasing. If you maintain your prices despite raising inflation, you will erode your profit margin.
Allow your business to increase your prices at least once a year, but give your patients sufficient notice about the price increase. Once you’ve established your prices, remember to constantly monitor operating costs to ensure profits.
Include the value of your time in pricing
Avoid committing the mistake of not including a salary for yourself. Your time is very valuable and you need to include it when calculating your prices.
Patients are not always looking for the lowest price
Price is not always the topmost concern of patients. There are many patients who do not mind paying higher prices, particularly if they know they are purchasing exclusivity or your clinic is located in a high end or convenient location.
Many patients are willing to pay premium prices for quality services, speedy delivery, helpful and professional customer services, excellent product knowledge and advice.
Use discounts with care
Offering discounts can be a good strategy for encouraging repeat sales, bundling sales and early payment from clients. You can use discounts to stimulate demand for your products and services during downtimes. Just make sure you don’t give out the wrong signal or give the impression that your clinic is in difficulty.
Pricing in important for several reasons, not least because it will determine the profit margins for your clinic, and in the end…..your own salary!
Liz McKeon is an internationally renowned industry business expert, best-selling author, entrepreneur, executive coach, trainer and mentor.
Want to start pricing your way to bigger profits? Give us a shout at www.lizmckeon.com, drop an email at [email protected], or just ring +353 1 892 8007—we’re here to help!
