Why vets need to stop selling products & take lessons from their accountant

I’ve been looking at a great forum for vets who are at a turning point in their careers. Should they stay in the profession, diversify or do something completely different? I found myself offering advice about limited company start up, having done it myself recently. In my previous role I was used to managing the macro business, supported by a finance team of full of accountants and administrators. When you are self-employed and starting from scratch you have to learn the micro side of the business such as registering the company, your own invoicing and bookkeeping, because the buck stops with you.

So in answering the forum question about the cost of registering a limited company, I used the bundle figure from my accountant of £300. I was rightly challenged about this, because registering a company online at www.gov.uk costs £12, so what was the rest for?

Time and effort.

On reflection the charge I paid was for the accountant’s time, advice, use of their address as my registered company address and filling in the paperwork for me. So that got me thinking about how my accountant charges me for their work and how ironic it was that a vet was asking about the cheapest way to register a company without having to pay a professional for their time. Does that ring any bells with you about how our customers behave?

So let’s draw some parallels and for good measure I’m going to compare accountants to lawyers. Having just sold and bought houses, I’m going to use conveyancing as a fixed price legal “product” to compare to the accountancy example. Dear reader, please do the vet extrapolation yourself and please get in touch if you don’t get the penny drop moment, because the parallels are clear.

My accountant:

  • Gave a free first meeting, as a business development opportunity for themselves, to meet me, get to know what I needed and make a proposal.
  • Gave me a written set of business terms at the first meeting, which I have to sign to become a client. The business terms spell out our relationship, their charging and the mutual expectations we have in our business relationship.
  • Has a fixed hourly rate for everything, which I pay as a multiple of 5 minute allocations. This is for telephone calls, letters, and meetings and for every other conceivable interaction.
  • Has a specific hourly rate for each of the disciplines in his practice, for example his partner rate is highest, a junior accountant is lower and administrators lower still. Therefore my monthly bill is a composite of his and his staff’s time, dependent on who did the work or the level of responsibility needed.
  • Estimates the time required to manage my financial affairs for the year, communicates this in advance and then we agree a monthly direct debit payment. I receive monthly updates about how well I’m tracking to the agreed budget.

My conveyance solicitor:

  • Was chosen on two criteria for our house move: first was locality and the second was price point, because conveyancing services are a loss leading, shop-able, legal product.
  • Provided me with terms of business up front, required me to sign them and provide the proof of identity documents required for the conveyance.
  • Was great, until I had problems with the survey and extra work was required. As this was unexpected, the value driven product had no scope for charges to ramp up. Therefore I ended up paying an hourly rate for the extra work.
  • What I didn’t know, until I got the bill, was that clerks and a junior solicitor did the conveyancing, but the more complex work was a partner. This was an unexpected and significantly higher charge.
  • Having started with a fixed price, value led product, which then required ad hoc work, I ended up paying significantly more than planned.
  • As a shop-able product and as a client who was moving away, the legal practice were not inclined to treat me as a valued client.
  • As a practice with a high proportion of conveyancing work, I did not have a great customer experience and their communication was mediocre at best.

In the vet world, costs and products fixate us. We find it challenging to charge for our time or to demonstrate value. I used to think was generational, lost in the mists of time and a different model of providing veterinary care in 1950. Yet we lament our ability to earn the same kind of salaries as other professional colleagues.

It’s not generational though, because there’s little evidence of the situation improving. That means it’s institutional. We’re effectively doing this to ourselves when we’re surrounded by examples of better ways to do it, in other professions and in veterinary models around the world.

What would our practice finances look like if we were legally required to sell drugs at cost + 10% plus VAT? That’s the situation in large parts of Europe and to me is eminently sensible and socially acceptable given the bad press about profiteering in pharmaceutical sales.

What would our practice finances look like if that first consultation with a new client was free, established the business relationship, T&Cs and then we charge properly for our time? It would mean the death knell for the depreciating sliding consultation scale. You can never charge Cons1 again once you’ve charged a client Cons3 or ConsFOC during a case. Imagine that paradigm shift.

If you’re feeling brave and you’d like to try something a little different, please get in touch for a free preliminary discussion. It’s one part of the quest for better practice finance that the VBC can help you with.

Three ways to veterinary business success

Once upon a time, you could be a successful vet just by being there. The geography was your friend and as estate agents say: Location, location, location. You found premises, usually a building with a historical link to animals, such as a farriers, a yard, or a big townhouse in the centre of town that was always the vet’s and you screwed your plate to the front door. Away you went. Since the turn of the century though, the number of vet sites has more than doubled in the UK1.

This explains why the new generation of vets is dislocated from the older generation of vets. A lot of retiring vets are property tycoons, not veterinary tycoons and in the current property market, that’s not a viable route to financial success for young vets.

Note: For the purposes of clarity and to twist your thinking a little, I’m going to only refer to clients as consumers in the rest of the blog.

Well, aside from a few rural locations where geography is the limiting factor, that’s not how vet businesses thrive today. Various studies have shown that there are lots of factors affecting how consumers pick their clinic2,3.

Here are the key ones:

  • Recommendation – word of mouth mainly, but increasingly online reviews.
  • Local to them – why would they want to travel when the world is now delivered to them?
  • Relationship with the vet. We work in a service industry after all.

Interestingly clinical skills, competence and price aren’t usually in the top 5 reasons and critically; the consumer is not vet loyal. Consumers may frequent several local vets, for different reasons or with different animals. They almost certainly buy a chunk of the animal care products, food and medicines online.

So how do you become a successful veterinary business when the density of clinics is getting greater, access to veterinary care is simpler and communication is getting easier?

There are three routes any business can take to win consumers; you just need to decide which works best for you.

 1. Be a low-cost provider

In a highly charged financial environment, post recession, pre-BREXIT and with the internet now creating open book pricing comparisons, a low price offering will always win a group of consumers. It can be done well; just have look at the success of the not-for-profit practice Animal Trust.

However it’s a challenging financial model for clinics to adhere to and remain profitable. If your service to product sales ratio is worse than 80:20, then you have a big risk. You’ll be too reliant on margin generated from sales and it opens you to risks of pricing fluctuations and on-line competition. If you have the time to manage your pricing daily, the supplier relationships to ensure negotiated pricing wins and a relentless focus on cost management for the service elements, then great; crack on.

2. Have a differentiated proposition

This is the holy grail for most retailers and product manufacturers. Invent a new widget, gadget or service. In the supply of veterinary services as we know it, having a differentiated proposition can be very difficult though. The public has preconceptions of what going to the vet means and it can be difficult to surprise and delight a consumer. The proposition could change with telemedicine and as yet unknown services, so if you are an innovator, go for it!

It’s possible to offer a unique service to the consumer, but not at the level that most vets think. The thinking goes something like this: Wouldn’t it be great if we had ultrasound or CT or a new dental machine? That means we could offer service X, Y or Z and we’d be the only clinic around here with those facilities.

That’s flawed thinking though, because owners don’t think in terms of the medical facilities you have. Remember the reasons consumers choose a practice? Clinical skills and competence aren’t high up the list. Consumers are much more oriented to the way you care for them and their animals. Don’t forget, most of the time we’re talking about family members not animals.

You could offer a differentiated proposition in terms of how consumers pay for veterinary services, for example, a pet club direct debit scheme, payment plans or credit terms. That’s great for your cash flow and in theory great for the consumer too because you can bundle services and products very economically. But again, it’s flawed thinking because price isn’t in the top factors defining the choice of vet.

3. Deliver exceptional service

So if price and differentiation are difficult or not high in the vet consumer’s mindset, then the only way to be successful has to be in the delivery of exceptional service.

That makes sense doesn’t it? If we think as consumers and all else were equal, we shop where we get the best service, we eat in the restaurants with the most engaging waiting staff and we buy from those online stores with the best user experience and delivery services.

And so it must be for vets as well. All the clinical skills and medical facilities count for nothing unless we recognise the special relationship between people and their pets and we can create a special relationship between that consumer and ourselves. How can you surprise and delight a consumer? If you can achieve this, then word of mouth will become your biggest driver of new consumers, in person or online.

To steal a phrase from a colleague’s practice, they won’t care how much you know, until they know how much you care.

Here at the VBC we can help you review your current offering. We’ll be challenging but at the same time nurturing, because you’ll need to make some big decisions. Working as partners in marketing, social media and business development, we’ll help you build, develop and implement your business plan. Any of the three routes to success can work and at the end of the day, it’s your plan.

Get in touch to arrange an initial confidential chat.

  1. http://www.rcvs.org.uk/publications/
  2. http://www.onswitch.co.uk/uploads/docs/france%20vet%2013.pdf
  3. http://www.cm-research.com

Are Vets sleep-walking into an insurance catastrophe?

I was having lunch with a friend the other day and we got talking about the financial performance of practices and the increasing reliance on pet insurance to pay the bills. Yes, I know, I need to get out more, but it got me thinking and we had to agree to disagree on whether the cost of veterinary care is sustainable from an insurance point of view.

His position: we can continue to build our veterinary businesses on the premise that it’s good to have more insured clients, that insurers will continue to offer great coverage and that it’s a reliable income source. Vets must offer more services to make the most of the insured client in their clinic.

My position: I’m worried the vet profession is offering ever higher standards of care with increased complexity and cost due to fancy kit and we are at significant financial risk of changing insurance models.

I think we’re at risk of sleep walking into a funding crisis if the pet insurance market changes.

The conventional wisdom for vet clinics is that we should increase the proportion of insured clients in our business. That gives peace of mind to owners, improves animal welfare by allowing us to practice optimum veterinary medicine and means we are fairly rewarded for our efforts. We’ve been able to develop our veterinary clinics, improve our services, apply new techniques and buy new kit. It’s been a reliable source of income.

The Pet Insurance industry has compiled a lot of data about what vets are doing and what vets are charging. They’ve actually got some of the most powerful data in veterinary medicine. We should bear that in mind, because the insurance industry has flagged some potential concerns, whilst at the same time promoting pet insurance.

Let’s look at some facts, based upon a 2016 Association of British Insurers press release1.

  • Pet Insurers paid out a record £657million in claims in 2015, up 9% on 2014.
  • That’s £1.8 million a day, almost all of it flowing into veterinary practices.
  • There were a record 911,000 pet insurance claims, also up 9% from 2014.
  • The average claim was £720; the average insurance premium was £241.

The numbers are huge and they pay a fair chunk of our wages. The average claim is three times the average premium. Is that sustainable for insurers?

In the same month, the ABI published an agenda for a roundtable discussion2, with some worrying agenda items:

  1. Rising pet insurance claims and premiums
    • Identifying the main factors behind the rises in premiums and increases in claims.
    • What actions can be taken forward to but insurers/industry/ABI to help address rising costs?
  2. Low up-take of pet insurance
    • What are the factors behind this and can the industry evidence these?
    • How can the industry better highlight the value of pet insurance to consumers? What are the issues the industry should focus on to do this? High vet fees; the levels of cover provided; other?

You start to hear tension in the system when you talk to clients, friends and colleagues. Overall insurance affordability, escalating premiums and policy limits are the topics you hear and it’s very easy to make a value judgment on keeping your pets insured. We all have stories of owners electing to stop insurance, running out of funding for a major problem or suffering the consequences of a poorly chosen policy. We also hear the reports of inappropriate charging, fraud and a “go the extra mile: they’re insured” mentality within the profession.

I might be talking out of school here, but consider what’s already happening

  • Approved referral centres for certain insurers.
  • Vertically integrated primary, secondary and tertiary care vet services within corporate groups.
  • NHS funding failing to keep up with the increasing costs of providing care.
  • Turbulent times in the American health insurance market, struggling to find an affordable solution.

Consider the human health insurance market. We have approved consultants, in approved hospitals with tariffs and allowances for approved procedures. Pre-approval is a fact of life. If you don’t get the right approvals from your insurers, they’re not going to pay. It’s an exercise in managing costs as well as healthcare.

Vets are at risk of sleep walking into this funding crisis. We don’t hold the cards. The insurers have the data to analyse this to the n-th degree and could tell us how it should be. They could specify procedure types and cost limitations for certain procedures. They could mandate certain referral pathways, but they haven’t yet.

But it’s not all bad is it? I think we can get upset about this or embrace it. Here are a few things to consider in your clinic and as ever, the Veterinary Business Consultancy can help you get your head around this. Drop us a line.

  • Promote the benefits of pet insurance. It’s still the right thing to do.
  • Closely understand the proportion of your income that is reliant on insurance policies. That’s your risk zone.
  • Refer early: you owe it to your clients to spend their insurance coverage wisely.
  • Consider carefully what services you should offer. Are you serving your clients well with what you offer? Are you the right person to offer these services?
  • Practice Evidence Based Medicine. If the data is lacking, challenge yourself. Why are we doing this thing, in this way?
  • Be nothing less than totally transparent with your charges

We’ve had the luxury of practicing veterinary medicine in a period of fantastic growth in what we can achieve. It’s been matched by increases in the cost of delivering that care.

Let us be mindful that we don’t snap the elastic that connects us to the insurance industry.

  1. Association of British Insurers press release 29/3/2016. http://www.abi.org.uk
  2. Agenda for the ABI Pet Insurance Roundtable, 16 March 2016. http://www.abi.org.uk