Marketing Monday: Monthly payment down, profits up

         Despite the occasional positive economic news out there, the world economy still is not flourishing.  Growth in the US is still slow and uneven.  Europe is getting its house in order.  Growth in China and India have generally slowed.  And if you are located in a place with a thriving economy, your practice growth is still potentially limited by competition.
  

So what can a practice do to achieve material long term growth in profit without investing funds in a potentially expensive and uncertain marketing campaign on electronic media?  Reduce your monthly fee and watch profits grow.

Now, the initial response to this comment might be “Wait, What?  If I cut my fee from $4,000 for a case to $3,000, my potential profit goes down by $1,000.  If I treat this patient over 20 months, my monthly average income goes from $200 per month to $150.  Thus, my profit goes down.  Now multiply that by the total number of patients that start per month and your fee reduction solution sends my profit into a nosedive.  Nice advice, genius.”

And, yes this is an excellent point.  However, what this argument misses is the change in volume by reducing your fee.  Let’s say that you are charging amount x and starting 10 cases per month.  If you reduce that fee by 25%, say, you might increase your volume to 15 cases per month.  This increase in volume not only offsets the decrease in monthly income per patient, but usually also results in an increase.  We’ll get into the whys in a minute.

Let's set some defintions here before getting further into the subject matter.  Your "fee" is the total amount charged for treatment.  This is the total amount you expect to collect for this service, regardless of the time period over which you collect it.  The "payment plan" is the way in which you collect that fee.  Your payment plan may involve a 25% down payment with equal monthly payments or nothing down with quarterly payments or whatever you choose.

Now, please note that we are NOT suggesting a reduction in your total fee.    If you charge $4,000 total for a case, continue to charge that.  What we are suggesting is that you reduce the monthly charge to the patient because this is what matters to them.  With any major financial commitment, families across the world ask if they can fit that purchase into their monthly budget.  The focus isn’t on the $4,000 fee, but on the $200 per month or $150 per month or whatever you are charging monthly.  

Questions?  If you’ve read this far, you’ve got them.  Let me try to provide answers to some of the most common ones:

How does a reduction in the monthly payment result in an increase in volume?

First the non-scientific response.  Whenever you lower your price, you open up your services to a larger and larger portion of the population.  Look at a prominent example: Home Depot (you thought I was going to say Wal-Mart didn’t you?).  They advertise and offer the lowest prices on the leading products – including a price match guarantee – and, as a result, the volume of people visiting a Home Depot is substantially higher than other stores.  That is where their profit comes from.  As a result, Home Depot is one of the largest entities in the United States and the world.  

Now, to the more scientific response.  In the early 1990’s, the University of Florida completed a study which concluded that about 20% of children received orthodontic treatment, but as many as 50% could benefit from it.  One of the prime barriers to starting treatment for that additional 30% proved to be the cost of treatment.  By lowering your monthly fee, you are grabbing that substantial, underserved portion of the population.  This study applied to the United States, but no matter what your country, I think you can safely assume that the percentage of people receiving treatment is substantially less than those who could benefit from it.

How do I know this works?  At least one entire company’s marketing --Orthodontic Centers of America/OCA-- was built on this premise.  Hundreds of offices and a listing on the NYSE cannot be entirely wrong, can it?

  

How am I supposed to lower my monthly payment while keeping the same total fee?

Here is where an alteration in standard thinking is required.  You need to separate the term of treatment from the term of payment.  So, let’s say that you treat a patient for 20 months and your standard fee is $4,000.  That is an average monthly payment of $200 per month.  Now, let’s say that to attract more patients, you want to get that payment down to $125 per month.  To get there, the number of payment months needs to be 32 ($4,000 fee/$125 per month).  So, the patient is treated over 20 months, but pays over 32 – one year longer than the total treatment.

Standard belief has been that you have to charge the patient only over the term of treatment because when treatment is complete (e.g. the braces come off), so is the patient’s intention of paying.  In practice, this is not the case.  In the United States in the mid 2000’s, we did an experiment with a number of offices which showed that the delinquency rate on payments was not different that the delinquency rate in a standard office.  In a test done in Spain recently, 100% of patients made their payments.  

As further evidence, look at the marketing for a nationally advertising dental entity, Aspen Dental.  The payment term is the payment term.  The treatment term is completely separate from that.

If you do simple math, lowering the monthly payment from $200 per month to $125 per month per your example above AND you increase volume by 50% (a strong number indeed) from 10 contracts per month to 15 contracts per month, the total amount I initially collect still goes down.  If I charge a down payment, the difference is exacerbated.  How do you resolve that?

Yes, the amount you collect in the first month will drop from $2,000 ($200 per month times 10 contracts) to $1,875 ($125 per month times 15 contracts).  But, we, and you as a good long-term thinking doctor, don’t stress such a short-term view.  By increasing volume and not changing your total fee, you’ve gone from $40,000 of contracts in a month to $60,000 of contracts in a month.  Over 32 months (per the example above), you’ll collect $20,000 more.  To me, that is a preferable scenario.

Now, assume that over a period of time, you are signing $60,000 of new contracts compared to the total of $40,000.  That means that you will collect $20,000 PER MONTH more than you would under the old pricing scheme.  Per Month.  That’s almost a quarter million more per year just from a modest fee change.

How do I change my marketing to advertise this?

If you are happy with the marketing medium (TV, radio, print, etc.) that you are currently using, that doesn’t have to change at all.  What you want to change is the message to stress the monthly fee, the affordability and how easily the payments can be fit into a monthly budget.

We here at MyPracticeEngine are fully aware of how state regulations vary and that some require you to disclose the total fee.  However, you are not prevented from stressing certain important selling point about your practice.

Extra patients means more cost – more staff, more supplies, more everything.  So, if I’m getting less money in per patient, my profit drops substantially on a per patient basis.  (Lower revenue + increased costs) * more patients = practice failure.

This is not the case due to the substantial fixed cost nature of an orthodontic practice.  This is a detailed subject unto itself and we’ll have a post on it this week to discuss it in more detail.  For now, I’ll tell you that a substantial portion of the largest costs in your practice will be the same regardless of whether or not you see 5 patients in a day or 50 patients in a day.

Extra volume is nice and all, but I cannot possibly maintain the quality of treatment that my patients expect when I have to deal with all of these extra patients.

This is why you need to keep it locked into MyPracticeEngine.  This is another involved subject that we will certainly discuss further very soon.  I can tell you that a number of doctors that have experienced substantially increased volume initially felt like the number of patients would overwhelm them only to report later that the increased numbers were easily manageable.  Not only that, but these doctors also reported not feeling overwhelmed or overworked by the additional patient load.  Handling it is a function of proper scheduling and effective delegation.  With the attention to these areas (and we’ve spent a lot of time tweaking those over the years), you too can handle the volume without additional stress.

Have some additional questions?  Want further explanation on anything covered here?  Contact us.