It’s easy to get stuck on the treadmill of increase new patients, increase case acceptance, increase services per patient, that we can forget there are other ways to optimize our profits. If you want to see more money in the bank account, then let’s discuss the power of leveraging profit margins to increase profitability.
When I opened my first practice, I was willing to do anything to get patients in the door; from countless hours of health screens to giving deep discounts on our services. In only sixty short days, we went from a few patients to a bustling office. But being busy IS NOT the same as being profitable (my bank account at the time was proof of that). The idea of working your tail off and NOT making any money is frightening, but it’s the fact you face when your profit margins aren’t high enough and it can be debilitatingly frustrating.
The answer is increasing your profitability. Start by realizing increased new patients isn’t necessarily increased profit. Focusing on new patients is focusing on collections, which is only half of the equation equaling profitability. Optimizing profits is part increasing collections, part decreasing costs.
Increased Collections + Decreased Costs = Increased Profitability
If you leverage your profit margins correctly, you can feed your bank account the greens it needs to grow big and strong. Increasing your profit margins has several viable paths, but we’re going to discuss three paths you can take to instantly start making your practice more profitable.
First, let me illustrate the significance of profit margins over collections:
Imagine that you and I are the best of friends and one day I come to you and say, “Hey, take one of my companies.” I mean, what are friends for, right? Well, would you rather own the practice raking in $1M or $5M in revenue?
Most would probably respond, “Five million! What a dumb question,” verbatim, possibly. But hold your horses. What if I told you that the $5M practice had a profit margin of 7% and the $1M practice had a profit margin of 50%. Wow, that changes things, right? The difference in profit margins is a difference of $350,000 versus $500,000 in profits.
All of a sudden, the $5M practice isn’t as appealing as the $1M practice, wouldn’t you say? That’s because revenue, or collections, doesn’t define profitability, it’s about profit margins. If you want to make your practice more profitable, you have to understand that collecting more money isn’t the same as increasing profits. Let’s look at three ways to leverage the power of your profit margins and increase your profitability.
Want the easiest route to increased profits? Raise your prices. About a month ago, I did this in my practice. I looked back to see when we last increased our prices and was quite shocked. You won’t believe this, but it had been fifteen years! Can you think of anything nowadays that you can buy for the same price you could of bought it for fifteen years ago!? As you can imagine, the very next day, I started the process of determining how much to raise my prices. Finding the sweet spot is a combination of understanding your market’s price elasticity as well as your customers.
To effectively raise your prices, you need to consider your market’s price elasticity and the value of your product. Where do your current prices fall in comparison to your market? How will your patients respond to a price change? How can you make sure your patients see the highest level of value in your product or service?
The first thing you should do is take steps to illustrate the value your product or service provides before you raise the price. Making the sale at a higher price can only happen if the person sees the value. The purchase has to feel like a fair exchange, or else the sale isn’t going to happen. Nowadays, people aren’t as price conscious as you would think. Money is simply a measure of how much they value something and if they see the value in your product or service, the value will be worth the price to them.
Here’s a story that illustrates this point:
When a giant ship engine failed, the ship’s owners frantically searched for an expert to repair the ship. They found an expert in a nearby town and brought him on to repair the engine. The expert looked around and tried his hand at fixing the engine, but after a couple of hours, concluded that he couldn’t fix it.
When the ship’s owners received a thousand dollar invoice for his services, they exclaimed, “What!? He didn’t do anything!” And they demanded a lower price for his services. The next week they brought on another expert, and after an hour of work, he concluded that he couldn’t figure out how to fix the engine. When his bill for $500 came in, the ship’s owners were outraged and negotiated the price.
They brought on expert after expert, but none of them could figure out how to fix the engine. Eventually, they found an old man who had been fixing ships since he was young. He carried a large bag of tools with him, and when he arrived, he immediately went to work. He inspected the engine very carefully, top to bottom. Two of the ship’s owners were there, watching this man, hoping he would know what to do. After looking things over, the old man reached into his bag and pulled out a small hammer. He gently tapped something.
Instantly, the engine lurched into life. He carefully put his hammer away. The engine was fixed! A week later, the owners received a bill from the old man. Included with their check to him was a note expressing their gratitude for his services.
The old man’s itemized bill read:
Tapping with a hammer.......$2.00
Knowing where to tap........$9,998.00
In the story, the ship’s owners saw the highest level of value in the old man’s services. Each expert put forth effort, but the old man was the only one who knew where to put forth effort and that made all the difference. His knowledge was more valuable than any instrument that he could have used or amount of time that he could have spent dinking around the ship’s engine. Their perception of value made the old man’s services a fair exchange.
Perception is reality. Remember, in order for the patient to accept the care recommendations, he/she has to see the value. If you want to create more value, intensify their perception of your product or service.
Here are a few ways you can improve perception of your care:
Nowadays, people want any reason to brag to their friends. Your patients are no different; they want to brag about you and tell their friends how they discovered you. All you need to do is give them a reason.
Think about it. Doesn’t it feel good when a business exceeds your expectations? It makes you feel like you made a great choice. Instantly, your perception of the business is replaced with this new, better perception. A great experience adds value.
“People don’t buy what you do; they buy why you do it.” — Simon Sinek
If you want to add value to your product or service, give your patients an experience, take them on a journey. At the end of your case presentation, the patient should be begging for your service/product. The last thing on his/her mind should be your price compared to others. Instead, the patient should be thinking, “How can I make this work?”
A phenomenal way to provide an experience for your patients is to share your company’s WHY. Sharing your company WHY with your team has powerful benefits that the patient will feel the second he/she walks through the door. Sharing your company WHY with your patients involves them in the journey and makes them feel a part of something worth being a part of, and that’s one hell of an experience!
Commonly, we underestimate ourselves in business, especially when we’re just starting out. Think about the hours of education, the countless exam questions, the boards you had to pass and credentialing you had to get, the student loans, the business loans, and the risk you have to take with overhead. Don’t undervalue yourself and the value you bring to your marketplace. The more value you see in yourself and your product/services, the better you can communicate that value to your patients.
“When your self-worth goes up, your net worth goes up with it.” — Mark Victor Hansen
The best way to understand your value is to compare your company to your competitors. What will it “cost” your patients long term if they go somewhere else? What is unique about what your company brings to the market? If you’re not currently better than your competitors then you need to seriously consider what it will take to get there.
The whole concept of this article is the power of leveraging your profit margins. By only focusing on increasing your prices, you’re only focusing on collections, not your profit margins. While you’re adding value to increase collections, you need to make sure that the value added is not exceeded by its cost. Do this and you’ll accelerate your business towards the blue over night.
Here’s a good way to check that you’re adding more value than it costs to provide:
One way to add value and increase collections, without necessarily adding additional costs, is upselling. This is difficult for many doctors, because we want to be ethical and only provide what the patient needs, and thus, upselling is commonly overlooked and underused. But don’t think of it as offering something the patient doesn’t need. Think of it as offering the patient an opportunity to receive the service or product for a better deal. People love to be offered additional products or services with a convenience discount and we love to increase our profits; it’s a win-win.
Adding value with additional services doesn’t have to be the universal, “Do you also want ____ with that?” In your practice, if you offered a patient an additional product or service “packaged” with his/her purchased product or service at a special price, and the patient purchased the additional product or service, you upsell the patient. The profit margins for the upsell would be higher since the acquisition costs were most likely covered by the purchase of the initial product or service. Obviously, not everyone will buy, but it’s not costing you additional for the sale for those who do. This is why up selling, cross-selling and add-ons, are phenomenal ways to increase your profits.
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If you truly want to leverage your profit margins, not only do you need to increase prices while ensuring the cost of adding value doesn’t exceed the value, but as previously disclosed, the other half of the equation is decreasing current costs. It’s time to eliminate waste!
One of Bob Burg’s Five Laws of Stratospheric Success from his book The Go-River, which fits oh-so-well with decreasing unprofitable expenses, is his Law of Compensation:
“Your income is determined by how many people you serve and how well you serve them.” — Bob Berg
Now that you have an itemized list of your services and products on hand from #2, might as well look at how you can reduce the cost of each.
With the intensity of a lion devouring his dinner, analyze how you can reduce the cost of each line item. You have to look at supplies, time, shelf duration of a product, shipping, and any other cost you can reduce. If you can deliver the SAME value while reducing the cost of providing it, you’ll instantly put more dollars in the bank!
This is the 80/20 Rule—most doctors make 80% of their income from 20% of their patient populations. Think of a few patients that you wish you had never met—they seem interested at first, but their buying cycle is drug out and when they finally buy, the process was so slow with so many concerns that it created turmoil in your office flows. Did you ever think that it’s okay NOT to “accept” every patient that comes in through your doors?
Instead, take some time and determine who the patients are that spend the most money with your business and give you the least amount of hassle. What do they have in common? How did they find your business? How can you attract more of them?
When you know the type of patients that you want to target, it helps you to really dial in your marketing. Now you can focus on your message and fine-tune it to attract the patients you love to treat. The power behind attracting the patients you love to treat is encapsulated by “mo’ money, less problems.” Not only is your cost per patient decreasing by dialing in your marketing, your conversion ratios naturally go up and your buying cycles go down, because these patients are specifically attracted to what you specialize in. When your office is full of the patients you love to treat, practice becomes fun again and you remember WHY you became a doctor in the first place.
Educating your patients through “pre-appointment” emails and/or videos is an absolute must-do. By doing this, the patient comes into your office wanting what you have before you even begin the sales cycle.
Imagine making a reservation to a nice restaurant and before you get there, you have an email confirmation with their menu and a short video message. In the video, they explain that their food comes from local farmers within a 100-mile radius and not only does it taste better, it’s rich in nutrients. Their vegetables are organic, without GMOs, and are picked at the peak of ripeness. Their animal proteins were raised without hormones or antibiotics. Their menu revolves with the seasons in order to correlate their recipes with local ingredients. Lastly, they share with you a little about the owner and their mission to change the dining experience from consuming calories to a moment that your taste buds will forever remember. When you walk into the restaurant and check in with the maitre'd, they recognize the name and immediately seat you at your table. This is an experience, not just a “dinner appointment.”
Would you be excited to tell your friends about this restaurant? Would you haggle over their prices?
This is the type of experience that you want to create for your patients and it starts with educating them.
Negotiating is the lowest hanging fruit of increasing profits. It’s usually the least attempted, because of the fear of failure, but reducing costs with your suppliers is a great way to increase profits. But fear of failure can be powerful. This is why group practice becomes appealing to so many. It helps the doctor avoid facing the discomfort of negotiation.
But you CAN negotiate! What’s the worse that can happen? If they say no, you’re not out anything, but if they say yes, it can change a lot! If need be, role play with your office manager for a few minutes and then go work those suppliers!
Sometimes there are things we do for our patients that don’t bring much value. Either we’ve fallen into bad habits or we’re clinging to old research. Have your team challenge you and explain why you are offering all that you are. If you can’t justify it, throw it out with the trash. Get lean and mean. Eliminate waste!
This is a lot to think about, but if you put this information into action, you can master the power of leveraging your profit margins. Don’t be overzealous though, I would encourage you to try one tactic at a time. In addition, to ensure the success of each step, I would encourage you to monitor the vitals of your practice; your department KPIs. If the upstream metrics to these KPIs dip, you can be assured that the dip in the KPI will not be far behind. Quickly adjust and try the next thing. When you figure out how to make adjustments in your business and measure their effects quickly, you will become a black belt at expanding your profits!
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