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
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.
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.