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SPONSORED: Dynamic Pricing

10/06/2022
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At Lily Head Dental Practice Sales we apply the Entrepreneurial Operating System (EOS) to simplify and achieve the vision for our business.

 The ‘EOS life model’ is:

  1. Do what we love.
  2. With people we love.
  3. Making a huge difference.
  4. Being compensated correctly.
  5. With time for our other passions.

I want to review how pricing your services aligns with you maintaining the profitability of your dental businesses and therefore enabling you to be ‘compensated correctly’. Or at least being able to make informed decisions on where we can sacrifice profitability in the short to medium term to reach our growth goals.

Looking at it from our client’s perspective. Every £20,000 of eroded annual margin will equate to a reduction in a practice valuation of up to £120,000.

There are some simple realities which apply to all dental practices.

  • Direct Costs of service will go up and down in line with your revenue.
  • Overheads will increase with the size of your operation, but not in direct proportion to revenue.
  • NHS remuneration is falling behind the rate of inflation year on year.
  • Principals are seeing the cost of hiring staff rise to reflect the current supply and demand scenario.

Managing pricing is one way in which we can alleviate some of these cost pressures.  It is essential that Principals review their pricing strategy to get the right balance between expenditure and income.  You want to have funds available for marketing, new technologies, new equipment and to accommodate increased costs of delivery.  The alternative could be simply overseeing a continuing decline in profitability.

  • The pricing policy will yield a positive financial contribution after allocation of both the direct costs and overheads.
  • The pricing policy should be based on the current market conditions, levels of service and allocation of direct costs and overheads.
  • It is imprudent to allow the pricing policy to be driven by any local price cutting from competitors.

Dental Practice revenue streams are either exclusively, or a mixture of NHS payments, Private pay as you go fees and plan membership fees.

Dentistry on behalf of the NHS.

For dental treatments conducted on behalf of the NHS, Dentists have no manoeuvrability in increasing their UDA rates.  ‘The Doctors & Dentists Review Body’ conduct an annual review of NHS providers.  They consider work force motivation, recruitment, sector earnings and funding budgets.

The outcome of these reviews results in NHS fee income is falling behind inflation, year on year.  This is contributing to declining margins for providers of NHS dentistry.

Challenges around recruitment of associates into NHS dentistry is creating a simple supply and demand scenario which is adding to costs.

That said, practices of this nature are in high demand because the NHS contract is seen as a firm foundation to grow the business further through organic private growth.

Private Fees

Private fees should be reviewed annually.  Patients find more regular, but smaller price changes more palatable than irregular large increases in fees.

We recommend the following approach to our clients.

Baseline data:

Work with your accountants to review your monthly management accounts as well as project your costs and revenue forwards.  Build in provisions for changes in direct and indirect costs.  Have the granular data to be able to understand your profit per surgery.  This will enable you to see what your profit margin is likely to be in 3 months, 6 months and 12 months.  The key is to predict forwards.

Pricing Mix:

It is not necessary to set prices so that the margin on all treatments is equal. Waitrose will price match and live with low margins on baked beans.  But will sell items in their delicatessen range which cannot be price matched at higher margins.

Review the demand for different services.  Predict how much of those high demand services you can deliver and what you think your market is willing to pay.

We also recommend you ensure your pricing is easy to understand and that you continue to track demand for specific services.

Competitor Activity:

Understand what your local competitors are charging and offering.  You should consider how loyal your patients are and what kind of service you are providing relative to your competition.  Some market research could be employed to help you understand your core customer and what they want from a dentist.  Do not just make a straight forward price comparison because you are providing a service which is unique to you.  You are not providing a commodity like ‘Mars Bars’.  Don’t let your competitors force you into unprofitable decisions.

Plan Income Fee & Banding Reviews

Plan providers will work with you to review your plan prices on an annual basis.  They will consider your required hourly rates, previous history as well as national and local benchmarking.

Prospective dental practice purchasers will always check on how plan fees are reviewed at a practice.

With Capitation schemes such as Denplan Care, it is essential to review your patient banding at least every 2 years.  As patients get older their treatment and care requirements often increase.  Your plan provider will help you with this.  It takes time but we recommend you tackle it head on.

Review your plan offerings.  There are a number of plans available.  Work with your plan provider to ensure you have a full range to suit your patients needs and the dental services you provide.

Stand by your decisions

If you are raising prices then you are bound to get some negative feedback.  Some patients may decline treatments or move away.

So, to convince your patients and prospective patients you will have to stand by your services and the prices you are charging.  It is likely to be your team members who are having the most discussions with patients, so it is essential the whole team understands the pricing strategy and why it has to be what it has to be.

This article was written by Abi Greenhough, Managing Director of Lily Head Dental Practice Sales.

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