Discounts: Manage them well to protect your bottom line

Discounts: Manage them well to protect your bottom line

Feb 01, 2009

To discount or not to discount — that is the question. But what is the answer?

Your practice may have the highest prices around, but if discounts aren't logical and controlled, all the fee increases in the world won't help cash flow.

Gray areas include client discounts, employee discounts and charitable giving. We will discuss why practices discount, when fee considerations are relevant and strategies for using discounts effectively.

Discounts and profit in conflict

As an owner/manager, you soon appreciate that, for each level of service, every dollar that can be eked out means more profit for improving the practice. Theoretically, all fixed and variable expenses already have been covered (unless you give away so much that you come up short).

Management must control how and when any fee is reduced. Every service or product given away compounds the effect of poorer economic performance.

Without control, a practice can evolve into a discounting culture, where any staff member finds reasons to discount. This dilemma stems from the caring persona of the profession itself. Doctors and staff want to help as many people and animals as possible, but aren't always willing to charge for their valuable time, knowledge and expertise. This becomes problematic because everyone expects to be paid well and receive periodic raises, bonuses and ancillary benefits.

Discount strategies

There's room for discounts within a good practice strategy, but management must have logical reasons for them. If the discount strategy is to entice more client acceptance of various services, then you need to know your baseline service usage and measure the gains attributed to discounts.

If discounts are part of an advertising program to attract clients, the discount may be a promotional cost rather than a provision-of-service cost. Managers should discourage discounts as part of a marketing regimen unless there is a specific goal or logic to them.

Identify all the places discounts can occur, then establish policies to control them so that practice activity growth is in balance with profitability.

Discounts as part of policy

All fee and collection policies should be in writing; then make sure that staff is educated and trained on them, including the provisions for setting and using discounts. Here are examples:

  • All discounts, refunds or write-offs exceeding predetermined amounts must be approved by a doctor or the hospital manager.
  • Require a dated sign-off by the authority on every such discount, refund request or write-off, typically on the patient chart.
  • Predetermine the authorized representative and response for requests for free care for alleged ownerless animals.
  • If multiple pets are seen during a visit, are clinicians and receptionists billing correctly for any group discounts? While group discounts may be part of practice philosophy, arbitrary decisions by staff could cause problems on subsequent visits by that client and lead to loss of income. Make sure everyone knows how multiple pets will be handled, and that they follow the standard consistently.

If you bundle services and goods, and provide a discount for the sum total:

  • Periodically (at least once a year), unbundle the package to identify every service, decide the value of stand-alone services and re-price accordingly.
  • Question and debate whether the client would object if any of the bundled services were offered separately at a fair price.
  • Question and debate whether the bundle entices clients to purchase more than they would otherwise.

If you bundle multiple visits for a single discounted fee, such as for a new kitten or puppy wellness package:

  • Evaluate compliance of those who don't buy the package, and revenues generated without the discount as compared to those who do choose it.
  • Define exactly what is included in the bundle.
  • Periodically evaluate whether the bundled visits should exclude some service, or add others as "standards of care" change and then re-price.