This article discusses two approaches to help you set (and maintain) your pricing. If you’re questioning whether your pricing is competitive or correct in these challenging economic times this article should provide you with some peace of mind.
Unless you provide highly specialised services pricing shouldn’t be undertaken in isolation.
Elective treatments, like those offered by most therapists, are deemed to be fairly elastic and as such price matters.
So take a look at your peers/competitors in the local area and see what they’re charging to get a feel for the market rate. Don’t feel bad about doing this. They are likely to be checking your rates on an ongoing basis and it’s a perfectly valid approach used across a whole host of industries.
The easiest way to do this is to open your browser and first switch to Incognito/Private browsing. Why? Because the majority of search engines (Google. Bing etc) customise search results based on your previous browsing history and behaviour. Going private/incognito allows you to see a vanilla search result more akin to what a new customer might see if they were searching for your services.
Then search for your speciality in your area (for example “Psychotherapy London”) and check out the pricing pages of the first 5-10 practices listed in the search results. Make a quick spreadsheet of the comparable treatments and their effective hourly rate. Take an average of these rates to get a feel for the market rate.
When you go through this exercise keep in mind “utilisation”.
What is Utilisation? – It’s the % of available (billable) time that you spend with fee-paying clients. For example, if you have the capacity to work 30 hours per week but only see clients for 15 hours per week your utilisation is 50%.
For example, the market rate might average out at £50/hour but there might be an outlier at £100/hour. There could be a whole host of reasons for this but a probable cause is that they are only 50% utilised (because of their high price) and as a result, their effective income is £50/hour, which would put it more in line with the market rate. This could also be a lifestyle decision where in a high demand market a practitioner can “justify” charging a high rate accepting that this will result in less demand (and lower utilisation) but having the benefit that they only need to work half the hours.
An alternate approach to using the “market rate”, which is largely determined by your competitive environment, is to take a “bottom up” approach and work out what you need/want to satisfy your personal and professional objectives and work from there.
By taking a “bottom up” approach you can be sure that your pricing (in conjunction with your demand forecast) is going to meet your financial requirements, which is critical. But occasionally, it can also identify circumstances where you are able to charge less (and gain market share) by virtue of the way you run your business. Perhaps you only offer online consultations and you don’t have to carry the overhead of expensive clinic space.
Think Easyjet vs. British Airways OR Netflix vs. Blockbuster
To help with this “bottom up” calculation we’ve produced a very simple online ready reckoning tool that allows you to enter your target income and then calculates what your hourly rate should be. It also allows you to factor in a level of utilisation and importantly it factors in overhead recovery (i.e rent, rates, admin costs, professional fees etc.)
To use it follow these steps:
- Click on this LINK which will take you to the tool – see below
- If you are familiar with Google Docs you can make a copy of this document so that you can create your own instance of the tool or alternatively you can copy (Ctrl/cmd-C) and paste (Ctrl/cmd-V) the cells and paste them into Excel.
- You should enter your data into the white cells. The remaining cells are locked so that you can’t edit them.
- Start by entering the target fee income that you want. This will show you how much you need to earn per week taking into account 4 weeks of paid holiday and Bank Holidays.
- Then specify how many hours you want to work per day and choose “yes” or “no” to “Do you want to work weekends?” Hopefully it’s “no”!
- Adjust the utilisation figure. If you’re unsure what to enter make a conservative assumption, say 50%.
- Lastly enter your annual overheads (rent rates etc.). This is REALLY important as you need to make sure these costs are recovered in your hourly rate over and above the cost of your time. Even if you work at home we would advise recovering this cost as there is an economic value associated with using a room in your house even if you don’t view it as a genuine cost.
When you have completed these steps you will see what your hourly rate should be.
Obviously this doesn’t necessarily mean that this is what you should charge but this “bottom up” approach ensures that you are meeting your minimum financial requirements. Alternatively, if you are considering starting-up it might help you to make your “go/no-go” decision.
Of course the “elephant in the room” in this article is “demand”. If your expertise is highly specialised, you have a long “waiting list” or limited capacity you obviously have the option to bump your rates although for some this may present something of a moral dilemma.
Conversely, if demand is low you have the option to lower prices but if you are genuinely running your practice as a business there will come a point where this no longer fulfills your financial objectives and is no longer viable.
WriteUpp is a cloud-based, practice management system for health and wellbeing professionals.
Its GDPR-ready and ISO27001 registered and features a whole host of time-saving features, including patient registration, scheduling, note-taking, assessment forms, SMS/email reminders, invoicing and online payment (via Stripe) and online booking.