Chiropractic Coaching: The Six Principles of Pricing and Profitability

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Chiropractic Coaching: The Six Principles of Pricing and Profitability

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Chiropractic Coaching: The Six Principles of Pricing and Profitability

Hello, everybody, and welcome to Thrive in Five. I’m Dr. Dennis Perman, and I’ll be your chiropractic coach for today. This edition is called the six principles of pricing and profitability. So let’s see how to develop your optimal fee policy where you charge fairly and maximize your return. You may remember the story of the dumb guy who bought 500 watermelons for 500 bucks and put up a sign by the side of the road that said watermelons 1.

His friend asked him, how do you make any money? And the dumb guy responded, well, volume, of course. Principle number one. If you don’t have a profitable business model, it doesn’t matter how much volume you do. When I got out of chiropractic college in 1977, I planned that as soon as I got my license, I’d hang a shingle and open my doors.

I had the flame of life in my pisiforms, but I had no idea how to set up or run a business, much less a specialized business like a chiropractic practice. I rented a room in Dr. Harold Fox’s basement office in Jamaica, New York, across the street from Queens General Hospital. Harold was my HIO instructor at NYCC, and he was also my dad’s chiropractor, so he offered me a very fair rental of 225 a month, 125 to cover half the rent, and 100 a month towards his payment on his x ray machine.

My dad, Dr. Bill Perman, may he rest in peace, fronted me 1,500, with which I bought orange and beige earth toned tweed carpeting and curtains to match my orange Naugahyde imitation woodgrain pierced steel wagon table. I printed cards in stationery, bought an appointment book, set up a hist account pegboard system, paid my first month’s rent, got a petty cashbox for the couple hundred I had left, and I was good to go.

Tuesday, April 18th, 1978. These numbers sound puny compared to the expenses of today, but 45 years ago, that was all I could afford. I felt compelled to design a fee policy that was very fair for patients, even at my own expense, mistakenly thinking there was some honor in that, some reflection of higher character.

So, I charged 5 a visit. I was aiming to stay below the contemporaneous worker’s comp fee of 5.40, mistaking that for industry standard, and I was determined to make it work. If it cost me 2.25 a month to run and I collected 5 a visit, I needed to see 45 visits a month to meet my expenses. Principle number two, understand your overhead and know your break even point.

At 5 a visit, it was hard enough to get ahead, but I soon realized that I had a subset of patients that maybe shouldn’t be charged, or at least charged the same fee. Chiropractor’s moms, of which I had several, my own family, true hardship cases, people with sob stories, I could only absorb so much of other people’s issues.

Some had a legitimate reason, others didn’t, and I had to learn where that line was for me, with no experience and no one to guide me. I soon recognized, though, that my original projection was too light, and that the idea wasn’t just to meet expenses, it was also to have something to show for my efforts.

I’d been seeing about 15 patients a day in the clinic at NYCC just a few months before, so I knew I could do at least that. In three days a week, working around Dr. Fox’s schedule, I aimed for 15 visits a day or 45 visits a week. In other words, I wanted to hit my overhead in a week and have the other three weeks generate profit.

That seemed about right to me. You may aim higher or lower, but do figure this out for yourself and get some coaching on it to check and see if your pricing is helping or hurting your profitability. Principle number three, know your desired profit margin. Soon I needed an assistant to answer the phone, make appointments, take money and so on.

So I hired my old girlfriend, Margaret, which increased my overhead. And I had to adjust my goals to accommodate the additional costs. The worker’s comp fee went up to 6.60, and I realized I didn’t have to be bound by those guidelines anymore. I raised my fee from 5 to 10. No one had a problem with it, and it pretty much paid for my CA.

Principle number four. Project the costs of your expansion and adjust accordingly. Though I saw that I could gain competitive advantage by going to seminars, my dear brother, Dr. Steve Perman, had to drag me kicking and screaming to Marks and Management Services, which started a 40 year cascade of events and twists of fate that evolved into me being here now as your coach.

Thanks, Dr. Steve. You were right. While I started out with the flame of life in my pisiforms, it wasn’t until I started to embrace the business side of chiropractic that I really understood how to practice effectively. So, here’s a simple formula to help you decide what to charge. Let’s say, for example, your office costs you 12,000 a month, and you work about 30 hours a week, or 120 hours a month.

Your numbers may be more or less, but you can easily scale from this example. 12 grand a month divided over 120 hours a month means it costs 100 an hour to run. Knowing your cost per hour helps you assign a value to your time so you can choose the right fee. Thank you. I mean, if you charge 30 minute visit and it costs you 100 an hour to run, well, you’re the guy with the watermelons.

Instead, aim for at least three times what you spend, if not more. So, if it costs you 100 an hour to run, you need to generate at least 300 an hour on average for the hours you work. So, how could we get to 300 an hour? Well, you could see one patient in the hour and charge 300. Or you could adjust the patient every 2 minutes and charge 30 people per hour 10 bucks each.

But for most of us, something in between would work better. To get to 300 an hour, you could see 4 visits per hour and charge 75 for each 15 minute visit. Or you could see 6 per hour and charge 50 for a 10 minute visit. I call the multiple you collect on your hourly cost, your coefficient of profitability.

And I’m suggesting a coefficient of profitability of at least 3. Remember to scale this for your own practice. Your overhead might be 24,000, in which case it costs 200 an hour for a 120 hour month. Then to hit a coefficient of profitability of 3, you’d need to make 600 an hour. So, you could charge 100 for a 10 minute visit, 50 for a 5 minute visit, or 200 for a 20 minute visit.

Or, if it costs you 6,000 per month, your hourly cost would be 50, and you could scale according. To be clear, a coefficient of profitability of three is the base acceptable bottom, considering how much of what you earn goes in overhead and taxes. You may want to aim higher. Many of our members make four, five, ten or more times their cost.

That’s up to you, but at least approach this scientifically, not just emotionally. Figure out your coefficient of profitability, your collections per hour, divided by your cost per hour. And if you’re not collecting at least three times what you spend, you probably have financial stress. Adjusting your fee structure and moderating your expenses will bring these statistics into alignment and set you up for meaningful growth.

Principle number five. Compute your pricing based on overhead and desired coefficient of profitability. Over time, I earned enough so I could pay my expenses and taxes with no stress and started to accumulate wealth. This is not the reason we practice, but it is an outcome I most wholeheartedly recommend.

Learn about prosperity, about wealth, and about how the chiropractic entrepreneur fits into today’s marketplace and plan your financial future accordingly. As a practicing chiropractor, you’re in a good spot where you can provide an extraordinary service and generate a satisfying return. Do as much good as possible and enjoy the natural attraction of appropriate rewards.

Principle number six, earn more than you spend and save or invest the difference. Business principles like these are needed now more than ever to learn more about how to optimize your practice. Scan this QR code and we’ll take you to the six essentials website to give you more vital information like this.

Thanks for watching. I’m Dr. Dennis Perman from The Masters Circle Global where legends are made and legendary practices are built through chiropractic coaching.

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