For too long physiotherapists and owners have struggled in a world of marginal gains, particularly when it comes to pricing strategy.
The result is large swathes of therapists entering private practice, becoming disillusioned within their first 3 years and leaving not just the sector but the entire profession.
A few months back I raised this issue via data from a recent APA survey of physiotherapists looking to leave the profession. A whopping 33% cited salary; 29% work-life balance and 38% complained of feeling burned out.
This is not getting any better, as our government continues to prioritise GP access and multidisciplinary teams that work within these clinics.
For us as a profession to stand above this we need to prioritise more than just our clinical knowledge.
We need to become adept at a lot of the skills that our competitors are actually great at.
And one of the big ones is finance.
To survive in a world of high inflation, we need to be leveraging our prices to match the current economic climate.
And that means ripping off a few band aids come July 1.
Pricing strategy 1.01 (AKA price, price, baby!)
How we go about setting our prices tells our consumers a lot about how they should value our services.
The first mistake that almost everyone makes when they set off is this:
They look at the local market, they try and find the middle, and then they go up a fraction.
Here’s why this doesn’t work:
- We operate within a very inefficient market; clinics collectively undercharge
- We just shouldn’t be guided by others perceptions of equilibrium; no two services are really that much alike
- If you genuinely want to be the best clinic in your local area, perhaps your strategy should start by pricing accordingly.
There is a pretty big consequence to undercharging and it means:
You are NOT positioning yourself as the expert in the field that you actually are.
This idea behind pricing strategy and how it leads to perceived value is important.
If you undercharge, customers will anchor your services to the dollar figure you charge out; this anchoring affects everyone.
I learnt this the hard way when I opened my first clinic. I was worried that being in an outer-suburban area would make it difficult for people to afford the services. Here’s how naive I was at the time:
- We ran a $57 initial consult special (Oct 2018)
- We had 12 new patients per week from opening.
- But my retention was TERRIBLE.
- The worst client retention of my career in fact, and I couldn’t figure it out.
Four years later and we were charging more than double, $129 for an initial appt (40 mins), all EPCs were paying a gap and guess what?
The entire clinic was pumping!
Why?
We were finally attracting ideal clients AND we were presenting them with a realistic anchor point.
You see, anchoring works like this:
The initial piece of information the customer receives when making a decision becomes the “anchor”.
Any price then presented above this figure appears high and no longer represents good value to them, regardless of the service being delivered.
The facts are people will only value you as much as you value yourself.
This is a MAJOR concept that I was missing when I set out my initial pricing strategy – I was literally guessing at the time.
I tried to attract as many new clients as possible and leveraged down on my price to do so.
But even in the short term this ended up being a net negative strategy.
And the worst part:
I lost a lot of confidence because all of a sudden I began doubting my own abilities as well.
Too many [clinics] on the dance floor
There is also another issue which I think just has to be corrected over the coming years.
I’m sorry to say this but there are just too many clinics and quite frankly, a lot of them aren’t even worth owning.
Some recent data from Rate My Clinic showed that over 20% of physio clinics weren’t actually profitable after accounting for the owners wages (market rate), and over 50% were not earning enough to call themselves mature businesses (<10% EBITDA).
Although this was only a small sample, it speaks volumes to where things are at currently. There is only one possible direction things can go in.
There is far too much competition in the private therapy space and clinics are cannibalising each other over staff.
There is huge demand for services but there is a drastic shortage in supply.
Supply shortages… let’s talk toilet paper
During the first month of COVID demand for toilet paper surged, and people started selling at the margins. And they were very successful, for a short period of time.
I’m not condoning price gouging here – but it’s just an example of how a free market worked during a very short term supply shortage.
Economics 1.01 – When supply is low, prices should rise.
But we’ve been in a chronic supply shortage of therapists for over 3 years.
People will definitely be willing to pay more – appointments are hard to come by.
We ought to be putting our prices up and collectively this is something everyone should be doing at the end of this month.
Show me the money, Jerry
I like numbers. I spend a lot of my time thinking about numbers and I’m prepared to go out on a limb here with some big claims.
Here’s the first one:
The reality is that physio’s in private practice that charge out at less than $200 per hour are hurting the profession.
This isn’t per session, it’s per hour.
It means if you do 30 min follow ups, they should really be at least $100 a pop – regardless if you’re a senior or a new graduate.
This is a fair price to see a new grad in my humble opinion.
How can I be so adamant about this?
NDIS came along a few years ago and, in my opinion, they set the floor of the market.
Our clinic was flooded with work over the subsequent period; and although this isn’t likely going to be sustained long term, it does change things from a demand perspective.
Economics 1.01 – when demand rises – prices go up.
Thus…
I think the floor is $193.99 per hour, if you’re in Victoria and higher in places like WA.
To me, it makes NO SENSE to charge less than this due to opportunity cost.
Essentially the value you give up, when forced to choose between two options
ie. If you only have one free appointment who gets it? A private consult or an NDIS appt?
If you have even a moderate amount of demand, and you’re turning away NDIS work for private clients for less than this rate, you are nuts!
Back in my day…
When I started private practice in 2012 physio’s in Victoria charged about $60-70 (usually for 20 min appointments) this was somewhere between the time of private rooms and open treatments / co-treating.
Even here, we’re looking at $180-210 per hour, billables.
It was also around the time that contractor positions started to be phased out in lieu of employee agreements, inclusive of annual leave and superannuation.
Hard to make sense of this, staff quality of life became substantially better, but fees didn’t even rise with inflation.
How was this possible?
Well it was demand driven. And helped enormously by the Medicare levy, which encouraged more and more people to pick up private health insurance as their wages rose.
Ever since, private physio was in a boom market, much like the rest of the economy.
Surely 11 years later we’d be thinking about trying to raise the bar here a little.
- We improved quality with private treatment rooms
- We built much nicer clinic spaces, with much higher rents, fitout costs etc
- We have far more obligations towards staff than ever before
- A lot of us have even extended sessions to 30 mins
But somehow the pricing strategy didn’t come along with it?
FY24 pricing strategy
Even with just basic inflation at 2.3% (2012-2022) and taking the lower margin, this lands us at $225 per hour.
$60 x 1.023^10 = $75.32 $75 x 3 = $225
If we add in FY23 inflation at a conservative 6%, we get to 238.5 / hour
So all things being equal, it’s looking like $119 per 30 minutes and that’s purely just adding inflation to prices from over a decade ago.
I dare say, some businesses have pushed this up toward $300 per hour, and they’re more than likely the 29% of clinics that are hitting realistic profits that offset any existential threats.
These clinics will thrive as the market normalises and they will be able to offer better quality of care in the long term.
Why? Because they will retain their staff.
Regardless of whether they are grads or not, they will improve and the entire profession is far better placed as a result.
Why else though?
Because people who truly value the service are happy to pay.
And at the end of the day, these are the people we all want to be treating.
PS. Within this concept we still need to provide actual value. And I will make space to discuss this in a separate blog.
Final note on pricing strategy
Last but not least, Fairwork Australia have announced an increase for award workers of 5.75%.
This will no doubt trickle into the health award.
Last month I put together a very basic FY23 pay calculator just to give some proper reference points to anyone who’s interested.
Reality check: If you’re a private business, this money needs to come from somewhere and if you haven’t got any bottom line to give, it’s gonna have to come from the top.
Regardless of numbers, come July 1 I’d be raising my prices by at least 10%.
It’s time we started valuing ourselves.
