Orthodontists and family doctors typically see only a small number of patients each day, but yet make sizable incomes by charging well for their services. Chiropractors tend to do the exact opposite. They charge less for their time than other medical professionals, work longer hours to make a reasonable income and quickly burn out, unable to manage the hours that they need to put in With this type of business model, chiropractors often end up making not much more than $50,000 a year.
Chiropractors follow a flawed business model
In the 80s, film maker Kodak faced a challenge to its business model when Japanese film makers undercut them. At that point, Kodak commissioned a study to look into what would happen if it were to lower prices of its own.
The findings of this study showed that in the film business, even small cuts to the retail prices of products were likely to end up in so much profit lost, manufacturers would need to raise sales volumes by impossible amounts to make up. With the film business offering a 25% profit margin, Kodak found that a 10% cut in the retail prices of their products usually meant a 65% drop in profits. They would then need to raise sales by 67% simply to generate the same level of income.
The film business and the chiropractic business have something in common
Both chiropractors and film manufacturers work on the same profit margin levels: about 25%. The lessons of Kodak’s study, then, can be easily applied to the chiropractic business. In chiropractic practice, too, a 10% drop in service pricing usually leads to a scenario where the practice needs to raise its patient turnover rate by 65% to make the same level of income.
What chiropractors need to understand about pricing
Chiropractic practices usually require a great deal of financial investment for the equipment needed. They tend to need to advertise heavily to bring patients in, as well. In other words, they labor under burdensome overheads. Dropping prices are only a good way to lose money, then. The same Kodak study also found that raising prices by as little as 5% meant that a business would need to generate 15% less business to make the same level of income.
Chiropractors running their own businesses don’t need to feel guilty about raising their prices. Their raised prices do not imply greed. They simply mean that a chiropractor does need to raise prices in order to reduce workload to more manageable levels. With manageable workloads, chiropractors should be able to devote more attention to learning how to get new chiropractic patients and to care for them. .
All it takes is a small fee increase
The Kodak study finds that price raises by as little as 20% tend to mean that a chiropractic practice makes the same level of income with nearly half as much work. Prices raised by 20% do not usually affect patients much. Most chiropractors have little idea how small tweaks to their pricing plans could completely change their lives.
The Kodak study is a basic business school lesson. Unfortunately, most chiropractors have no training of such business basics. They tend to manage their product pricing in a seat-of-the-pants style that’s completely detrimental to their interests. Many studies have proven that consumers are usually willing to pay up to 25% more for in return for quality service. It’s a lesson that chiropractors should take to heart.
Bonnie Stephens has a mind for business but a heart for medicine. As a chiropractor, she often blogs about her experience running her practice, from patient care to conferences to managing the office.