The dark art of setting fees
Are your fees modest, just right or too high? Simon Hocken explains how to set them and to make sure they are realistic
Fees in UK private dentistry seem (to me) to be pretty much the same as they were 15 years ago. I understand the reasons for this (recession, more competition, nervousness), but low or modest private fees will be really damaging your profits.
What do I mean by low or modest private fees? Fees set at something like £170-£210/hour or fees that produce an average daily gross per surgery of around £1,000/day. (Let’s be clear, there is nothing wrong with working with fees of £170-£210/hour as long as you have lots of patient-throughput. You can’t work slowly at this fee level!)
I have yet to see any believable or sensible rationalisation for the level of private dental fees, in reality they’re just made up! And, in most towns and cities (outside of west London) they’re all very similar. Sometimes dentists tell me this is what the market will stand. Really? How do they know? Is there any research to back this up?
The most likely explanation is that practices copy all the other practices in their area so as not to stand out. (I’ve actually seen practice managers average a selection of local practice fees in order to set their own!). However, stand out is what many private practices need desperately in a world of practices that can appear cloned. And having fees that are either the cheapest or the most expensive in your area creates some stand out (there’s no real point in getting lost in the middle).
Whether you want your fees to be the highest or the lowest in your catchment will depend on:
1. Your proposition. If you market your practice as ‘affordable’ (an EasyJet practice, low price, high quality) you have to charge EasyJet fees!
2. The needs of your target market. If you work in an area with low disposable incomes, you cannot offer dentistry at high fees. (There are reasons why some towns don’t have a Porsche garage!)
3. How you position your practice in comparison to your competitive set, whether you’re “affordable” or “bespoke” your fees have to reflect this.
And importantly, your fees will determine how long your appointments can be and how many patients you will need to see in a day. The cheaper the fees the more patient throughput you will need to achieve.
How to set your fees
If we were lawyers, we would simply set an hourly rate and start a clock every time we work with a client, then bill based on time multiplied by hourly rate. However, this is unlikely to work in dentistry as I have yet to meet a dentist who is prepared to charge their hourly rate for items such as: new patient consultations, check ups, reviews, emergency treatments etc… So, given that your patients expect to pay less than hourly rate for an examination, you had better compensate for this by having some fees that are charged at above hourly rate!
A good starting place is to understand how much it costs to open a single surgery in your practice. This is likely to be somewhere between £50 and £70 an hour before the costs of materials and lab work and – oh yes, the fees for the clinician. £1,000 gross per day is likely break down like this:
• £450 for overheads
• £100 for lab
• £70 for materials
• Leaving £380 to pay the clinician and make a profit.
If you don’t like the look of ‘£380 to pay the clinician and make a profit’ then you have to increase the average daily gross by increasing the patient throughput (work faster/shorter appointment times) or increase the fees.
Most fees are set on a spreadsheet which multiplies the time taken to do the work by the selected hourly rate with the addition of lab fees or some materials such as endodontic files or tooth whitening gels etc. However, if you just do this, you are missing a trick. In some cases (such as examinations) the fee needs to be lower than the maths suggest, however, in some cases, patients will pay more than the maths predicts. I strongly suggest that you set your fees to what your patients will say yes to (and just use the maths as a guide).
Here are some important fee setting dos and don’ts:
• When treatment planning, don’t charge for time, charge for an item of treatment. If the patient needs two of the same items the fee is simply doubled despite the reduction in time. (For a single half-hour filling at £95 book half an hour; for two fillings bill £190 and book 45 minutes)
• Don’t take the NHS way of charging for dentistry and simply swap the NHS fees for private fees. (I know England and Wales are running the UDA system but many practices are still using the remnants of an old NHS fee scale with private fees substituted.)
• Have more than one hourly rate. For example, have two hygiene hourly rates, one for active treatment and one for maintenance, and at least two dentist hourly rates, one for basic treatment and one for advanced treatments.
• Have a range of fees for some items to give patients choice. (Think of the number of 3 Series models BMW produces!) For example: premier crown £747; advanced crown £627; standard crown £507.
• Don’t have pennies on your fee scale, it looks mad and amateur! And unless you are on Harley Street, don’t finish your fee with a zero, instead try for a 3 or better still a 7.
• Don’t discount fees. If you are doing more than one of anything and you have to discount to close the treatment plan, offer a maximum of 7.5 per cent discount. If you are 35 per cent profitable as a practice a 7.5 per cent discount on a £627 crown means a profit reduction from £219 to £175, a 20 per cent reduction in profit!
• Don’t let your associates change the fees on your practice management software (Oasis lock their software I’m told).
From the patient’s perspective, they generally have little idea how much a crown will cost and whether they say yes or no to one will depend more on the quality of their relationship with the dentist than the actual fee. Your patients want to be sure that:
1. They are getting good value
2. Your fees are affordable (You have ways to make it easier for patients to afford their treatments).
3. They believe that it is the best solution for them
In terms of assessing the value of the item you really want your patient to have, (For example, a £747 premier crown), your patient is more likely to say yes if they know they can:
• Have an appointment at a time to suit them and they can park easily
• Enjoy the reception and patient lounge environment
• Be impressed with the efficiency, friendliness and knowledge of your reception team
• Know that you will be running on time
• And that the appointment will be painless and comfortable
• And that the solution they have chosen will look and feel great and last them for a very long time.
The implications of getting the fees wrong
Recently I was involved in a conversation between a principal and an associate where the associate wanted to lower the 30 minute (private) composite filling fee from £90 to £70, his rationale being that he would upsell many more private composite fillings to his NHS patients.
Fair enough you might think, surely selling more of them is good. Yes, but let’s have a look at the maths: Say he currently does three per day, five days per week, 46 weeks per year. That’s an annual gross of £62,100. If the fee gets cut to £70 and he does the same number, that’s an annual gross of £48,300, a reduction in gross per annum of £13,800.
Meaning this dentist would have to do another 197 fillings per year just to match his gross (that’s another one filling a day and another 30 minutes when he could be doing something else!). So he’d have to upsell another 197 fillings per year and then spend another 98 hours per year (or 13 days) doing them, just to stand still. Is he mad or is it just me?
Let’s interrogate his thinking. He’s unlikely to have much evidence to support his assertion that more folk would buy a private filling at £70 rather than £90. In his mind reducing the fee would have more patients saying yes but in my experience the £20 discount is unlikely to make any difference to patients saying yes to his offer.
The behaviour that will make a lot more difference to his treatment uptake is the way that he makes the offer to his patients. For example, instead of saying something like, ‘Mrs Jones, would you prefer a white filling in that tooth, it’s £90 (£70)?’
A more effective conversation would be something like, ‘Mrs Jones, you’ll be pleased to know that there’s a choice of restorations that I can fix your tooth with. I can make you a tooth-coloured inlay, which will be bonded to the tooth, looks like a natural tooth and helps make the tooth stronger. It’s a long-term restoration and the fee is £330. Or I can place a filling which matches the colour of your teeth. It doesn’t last quite so long and it’s harder to make it look like a natural tooth. However, it’s a lot more aesthetic than a silver and mercury filling and the fee for that is £90. Or I can replace your silver and mercury filling with another one. If you were my mum I would recommend the tooth-coloured filling. What would you like me to do?’
The moral of the story is simple. First, don’t cut your fees before doing the maths and, secondly, make sure that all your clinicians have great communication skills in offering their patients choices in their treatment.
For further information get in touch with Simon:
Mobile: 07770 430576
Email: [email protected]