Business for Health Business Skills for Private Medical Practices Module 21: Price Your Products and Services

Business Skills for Private Medical Practices A Quick Start Welcome! While you are waiting for the class to begin, please take the Pre-Test and make sure your name is on it before you hand it to the facilitator. Thank you!. Business Skills for Private Medical Practices

Agenda Welcome Pricing Goals Pricing Strategies Pricing Options Break-Even Analysis The Value of Price Adjustments Summary and Evaluation Close Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Learning Objectives During this session, you will: discuss your current price-setting practices; identify your pricing objectives; explain different price-setting strategies; list the number of different ways to price a product or service; Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Learning Objectives conduct a break-even analysis; practice setting prices; define key pricing terms; analyze how varying prices can benefit a health practice; discuss the next step; and state your key take-away from this session. Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Introduction You will have 1 minute to introduce yourself: 1. Your name 2. Your position 3. Your business 4. How long you have been in business Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Pricing Goals Business Skills for Private Medical Practices

Your Current Pricing Practices 1. How do you decide how to price your products or services? 2. How do you determine if you are charging too much or too little? 3. Do you ever change your prices? If so, how often and why? 4. How well is your pricing strategy working for you? Business Skills for Private Medical Practices

Your Pricing Objectives Cover costs Profit for business Profit for you Increase revenue More market share Serve community Business survival Provide for family Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Pricing Strategies Business Skills for Private Medical Practices

Price-Setting Strategies Market or Competitive Pricing Regulated Pricing Cost-Plus Pricing Discount and Promotional Pricing Differentiated Pricing Bundled Pricing Volume Pricing Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 1: ? Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 1: Bundled Pricing Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 2: ? Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 2: Discount and Promotional Pricing Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 3: ? Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 3: Regulated Pricing Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 4: ? Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 4: Volume Pricing Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 5: ? Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 5: Market or Competitive Pricing Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 6: ? Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 6: Cost Plus Pricing Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 7: ? Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 7: Negotiated Pricing Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 8: ? Business Skills for Private Medical Practices

Recognizing Pricing Strategies Scenario 8: Differentiated Pricing Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Pricing Options Business Skills for Private Medical Practices

Innovative Pricing Options This is a competitive brainstorming activity. Select a product or a service. List as many ways as possible to price it. The group with the most innovative or greatest number of pricing options for each category will win a prize. Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Break-Even Analysis Business Skills for Private Medical Practices

Break-Even Analysis and Pricing The purpose of break-even analysis is to determine the minimum number of sales that is required in order to avoid a loss at a designated sales price. In order to calculate your sales price, you need to know your fixed and variable costs. Business Skills for Private Medical Practices

Break-Even Analysis and Pricing Terms Variable costs: costs that change in proportion to the volume of your practice. Minimum affordable unit price: just covers your variable costs- only for a short period of time. Business Skills for Private Medical Practices

Break-Even Analysis and Pricing Terms Fixed costs: costs that are not dependent on the volume of goods or services sold by the practice. Break-even price: in order to break-even, you need to cover all of your costs, both fixed and variable. You make a profit when your income exceeds your costs at a break-even point. Business Skills for Private Medical Practices

Break-Even Analysis and Pricing Terms Minimum profit per unit: What you want to make after fixed and variable costs are paid. Unit price floor: the minimum price you will charge so that you can make that minimum profit. You set this price based on your profit goal ( 10%, 15% or higher). Business Skills for Private Medical Practices

Break-Even Analysis and Pricing Terms Additional unit profit: you get this if you are able to set a higher price. Unit price ceiling: the highest price you can charge and still be competitive in your market. Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Unit Price Ranges Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Variable Cost Business Skills for Private Medical Practices

Minimum Affordable Cost Minimum Affordable Cost = Variable Cost Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Fixed Cost Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Break-Even Price Break-Even Price = Variable + Fixed Costs Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Minimum Profit Business Skills for Private Medical Practices

Price Floor Price Floor = Fixed and Variable Cost + Profit Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Additional Profit Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Price Ceiling Price Ceiling= Fixed and Variable Costs + Minimum Profit + Additional Profit Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Unit Price Ranges Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 1. What is your minimal affordable price? Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 1. What is your minimal affordable price? 2 covers variable cost Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 2. What is your break-even price? Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 2. What is your break-even price? 3 = 1 (fixed cost) + 2 (variable cost) Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 3. What is your price floor? Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 3. What is your price floor? 4 = 3 (break-even price) + 1 (minimum profit) Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 4. When you sell at your typical sales price, how much profit do you make? Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 4. When you sell at your typical sales price, how much profit do you make? 2 = 5 (typical sales price) - 3 (break-even price) Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 5. If you decide to discount your product or service and charge only the minimal affordable price instead of your typical sales price, how much less profit will you make? Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 5. If you decide to discount your product or service and charge only the minimal affordable price instead of your typical sales price, how much less profit will you make? 3 = 5 (typical sales price) – 2 (minimal affordable price Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 6. If you decide to sell your product or service at the maximum price, how much profit will you make? Business Skills for Private Medical Practices

Calculating Prices: Scenario 1 6. If you decide to sell your product or service at the maximum price, how much profit will you make? 4 = 7 (maximum price) – 3 (break-even price) Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Scenario 1 Price Ranges Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 1. What is your minimal affordable price? Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 1. What is your minimal affordable price? 4 covers variable cost Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 2. What is your break-even price? Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 2. What is your break-even price? 6 = 2 (fixed cost) + 4 (variable cost) Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 3. What is your price floor? Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 3. What is your price floor? 8 = 6 (break-even price) + 2 (minimum profit) Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 4. When you sell at your typical sales price, how much profit do you make? Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 4. When you sell at your typical sales price, how much profit do you make? 4 = 10 (typical sales price) - 6 (break-even price) Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 5. If you decide to discount your product or service and charge only the minimal affordable price instead of your typical sales price, how much will less profit will you make? Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 5. If you decide to discount your product or service and charge only the minimal affordable price instead of your typical sales price, how much less profit will you make? 6 = 10 (typical sales price) – 4 (minimal affordable price Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 6. If you decide to sell your product or service at the maximum price, how much profit will you make? Business Skills for Private Medical Practices

Calculating Prices: Scenario 2 6. If you decide to sell your product or service at the maximum price, how much profit will you make? 6 = 12(maximum price) – 6 (break-even price) Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Scenario 2 Price Ranges Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Question How do you determine your break-even point if your practice offers many different products and/or services? Business Skills for Private Medical Practices

The Value of Price Adjustments Business Skills for Private Medical Practices

Important Definitions Two key determinants of the market price are supply and demand. Supply: The capacity to provide products or services for purchase. Demand: A buyer’s desire, willingness and ability to pay a price for a specific quantity of a good or service. Business Skills for Private Medical Practices

Important Definitions Profitability: the ability to earn a profit because income will exceed expenditures. Profit margin: the percentage of revenue that remains as profit after paying all expenses. Business Skills for Private Medical Practices

Important Definitions Example Supply Demand Profitability Profit Margin Business Skills for Private Medical Practices

Making Price Adjustments- An Example Promotional Prices How is the price change likely to affect: Demand for products? Business Skills for Private Medical Practices

Making Price Adjustments- An Example Promotional Prices How is the price change likely to affect: Demand for products? Increase demand Business Skills for Private Medical Practices

Making Price Adjustments- An Example Promotional Prices How is the price change likely to affect: Profitability of the pharmacy? Business Skills for Private Medical Practices

Making Price Adjustments- An Example Promotional Prices How is the price change likely to affect: Profitability of the pharmacy? Profitability will go up, as long as the new prices don’t eliminate the margin. The margin is the sales price minus the original purchase price. Business Skills for Private Medical Practices

Making Price Adjustments Price Bundling How is the price change likely to affect: Demand for services? Business Skills for Private Medical Practices

Making Price Adjustments Price Bundling How is the price change likely to affect: Demand for services? Increase demand because if the women get diagnosed, they will need other services Business Skills for Private Medical Practices

Making Price Adjustments Price Bundling How is the price change likely to affect: Profitability of the health clinic? Business Skills for Private Medical Practices

Making Price Adjustments Price Bundling How is the price change likely to affect: Profitability of the health clinic? Profitability will go up if the women have a need for additional services Business Skills for Private Medical Practices

Making Price Adjustments Pay What You Can How is the price change likely to affect: Demand for services? Business Skills for Private Medical Practices

Making Price Adjustments Pay What You Can How is the price change likely to affect: Demand for services? Selectively increase demand for services and decrease customers who can’t pay Business Skills for Private Medical Practices

Making Price Adjustments Pay What You Can How is the price change likely to affect: Profitability of the health facility? Business Skills for Private Medical Practices

Making Price Adjustments Pay What You Can How is the price change likely to affect: Profitability of the health facility? Profitability may go up a little, since they have to run the facility anyway- and now they’ll get some income where before they had none. Business Skills for Private Medical Practices

Making Price Adjustments Pay What You Can There might be a cross-subsidy, where richer customers pay a higher rate for the privilege of not having to be seen with poorer customers. More richer customers paying a higher rate will offset the lesser fee that the poorer customers pay. Business Skills for Private Medical Practices

Making Price Adjustments Pay What You Can However, the health facility needs to cover fixed costs. Hopefully, the poorer customers will pay enough to cover the fixed costs. If not, it can be considered a service to the community. Business Skills for Private Medical Practices

Making Price Adjustments Pay What You Can 3. How will you advise the community of this option without encouraging those who can pay the established rates to come for this special “pay –what- you- can?” Business Skills for Private Medical Practices

Assessing Current and Potential Price Adjustments Price Adjustment I’ve Tried Why I Tried It How Well It Worked Business Skills for Private Medical Practices

Assessing Current and Potential Price Adjustments Price Adjustment I Could Try When Desired Results Business Skills for Private Medical Practices

Summary and Evaluation Business Skills for Private Medical Practices

Business Skills for Private Medical Practices Evaluation Sheet Business Skills for Private Medical Practices

Business Skills for Private Medical Practices The Next Step Price your products and/or services: Estimate your fixed and variable costs for the two products/services that contribute most to your total revenue. Determine a fair profit margin. Select a pricing strategy. Business Skills for Private Medical Practices

Business Skills for Private Medical Practices The Next Step Set your prices for these two products or service. Experiment using two different price adjustments. Business Skills for Private Medical Practices

Business Skills for Private Medical Practices The Next Step Conduct a break-even analysis on these products/services that you might potentially discount- either to promote them or to attract new customers. Business Skills for Private Medical Practices

Let’s See How Much You’ve Learned Please take the Post-Test. We will compare it to your Pre-Test to see how much you’ve learned in this session. Thank you. Business Skills for Private Medical Practices

Business Skills for Private Medical Practices My Key Take-Away Business Skills for Private Medical Practices