Episode 1689 - Value vs. price: where's the magic?

Dr. Alan Fredendall // #LeadershipThursday // www.ptonice.com 

In today's episode of the PT on ICE Daily Show, ICE Chief Operating Officer Alan Fredendall discusses the relationship between value & price, how to arrive at a potential price, avoiding assuming the value that patients perceive from our services, and understanding that not all physical therapy is created equal.

Take a listen to the podcast episode or check out the full show notes on our blog at www.ptonice.com/blog.

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EPISODE TRANSCRIPTION

ALAN FREDENDALL
All right, good morning, PT on ICE Daily Show. Happy Thursday morning, hope your day is off to a great start. My name is Alan, currently have the pleasure of serving as our Chief Operating Officer here at ICE and a faculty member in our Fitness, Athlete, and Practice Management divisions. We're here, Leadership Thursday, talking all things clinic ownership, management, personal development here on Thursdays. Leadership Thursday also means it is Gut Check Thursday. Gut Check Thursday is back, the CrossFit Open is over. We have kind of a You're going to row 2,000 meters or 1,600 meters on the rower. That time domain is normally around the same time domain as a one mile run, about a seven to maybe 10 minute effort. But of course, we're going to make it a little bit more difficult. Every two minutes, but not the start of the workout, you're going to stop and do two rounds of three wall walks. six hang power cleans at 115.75 and then 12 ab mat sit-ups. The challenge there is when that clock beeps on the two minutes to get off, race through those wall walks unbroken, race through those hang power cleans unbroken, move through the sit-ups very fast, trying to get that work done in ideally a minute so that you have a minute or possibly even more to jump on that rower and chip away 200, 250, maybe 300 meters at a time. Extend that normal 7 to 10 minute 2k 1600 meter row out to maybe a 15 to 20 minute workout. Scale appropriately. Make sure your wall walk option you can do unbroken. Make sure your hang power clean option you can do unbroken. Make sure your sit-up option you can do unbroken. You don't want to have to stop and rest anywhere in there, or you're taking away from your time to do the real work of the workout, which is to move the distance on that rowing machine. So be careful you don't trap yourself where you're just doing wall walks, hang power cleans, and sit-ups, and you never actually get back to the rower. Scale that appropriately so that you have at least a minute, maybe a little bit more, each round back on the rower to chip away at that distance.

VALUE VS. PRICE
So today, sorry, Leadership Thursday, what are we talking about? We're talking about value and price. So we had an interesting conversation. The last cohort of our Brick by Brick Practice Management course just ended a couple of weeks ago. And one of the big themes of that course is folks deciding, especially those folks who may decide to be 100% cash-based, how do I know how to price my services? A lot of folks don't know where to start. A lot of folks look to maybe competitors in the area. They look to maybe national clinics that have different prices listed online to try to get an idea of what they should price their physical therapy visits at. And insurance providers are very similar of what is good payment for physical therapy quote-unquote good and so I want to talk today about Discussing what is value? Discussing what is price? Discussing how they can sometimes be the same but how usually especially if we're doing it, right? They are very different and some tips and tricks for you out there on to hopefully understand that the services we offer, at least as we teach them here at ICE, are probably much more valuable than what your competition is offering, and therefore worth a lot more when you're considering charging your rates, especially if you're going to be a cash-based physical therapist.

WHAT IS PRICE?
So understanding price is maybe the best and easiest way to start. If we talk about what is literally the definition of price, it is the arrival at the amount of money we'd like to make after we've accounted for the expenses of whatever it is we're selling. The physical cost, the expenses of making a thing to sell it, or the costs that go into what we might price a service for. So understanding that we're in the service industry, our expenses might not be as high as maybe a company that sells furniture or cars or something like that, but that our services do have a cost. We do need to pay ourselves or pay those individuals who work with us. And we also need to account, we do have some supply costs. We have to pay for power and heating and cooling and internet and needles and linen and all the sort of stuff that goes into keeping a physical therapy clinic running. And that comes at a cost. And so factoring in cost of expense, otherwise better understanding, especially on a patient by patient basis, What does it actually cost you to see that patient? So if you're already in practice, having an idea of what that number is, is really, really important because it lets us better come to an educated arrival on what our price could be. At the end of the day, though, we need to recognize that that is really just a guess. It is yes, assuming costs. Yes, it is assuming what we need to pay ourselves or pay someone else. and then having some sort of idea of ideal profit, but that it is a guess at what the perceived value of what we're offering is to our patients, to our customers for the sake of argument today. A calculation of ideal potential profit. How can we better understand the value that we're offering people?

THE SWOT ANALYSIS
I highly recommend, if you've never done it, even if you don't think that you would ever own your own practice or manage a practice or anything like that, I recommend that you do a little thought experiment called a SWOT analysis. S-W-O-T SWOT. Strengths, weaknesses, opportunities, and threats. This can be very in-depth, this can be very short, it's kind of an experiment that it's what you make of it, but sitting down and thinking what are the strengths of myself if I'm an individual practice owner, what are the strengths of my clinic if I have maybe one clinic with multiple providers, maybe multiple clinics with many providers, What are our strengths? What services can we offer? What are the strengths of the clinicians that I have on staff? What are the strengths of essentially the value of the product that we can offer? The inverse of that, what are the weaknesses? What are areas maybe of practice that we don't have somebody who could treat it? Maybe we don't have anybody who could work with pregnant and postpartum patients. Maybe we don't have somebody that's very keen on treating the vestibular system, treating folks maybe with falling or dizziness or balance issues. Maybe we don't have anybody who's comfortable working with older adults, youth athletes, so on and so forth. So understanding where are the weaknesses in your practice. And then O is the opportunities. What opportunities are there, not only in shoring up those weaknesses, but what opportunities exist outside of our clinic? Do we live in a town that's really big on running, right? Maybe we live out in Asheville, North Carolina, or we live in Johnson City, Tennessee, and we have a big mountain bike or trail running population. Are we able to target that population? If not, we know that's a weakness, yes, for a clinic, but also an opportunity to provide value to a new pool of potential patients. And then threats. Threats can be, yes, direct competition, but threats can also be external things. We can label things like inflation under threats. We can label higher than normal cost of commercial real estate under threats. But going through that SWOT analysis and saying, do I have any chinks in my armor? If yes, then I know the value of what I'm offering is probably a little bit lower than I'd like it to be. If I go through this analysis and I think, gosh, especially compared to the competition, I think we're doing really well. Then now you have an idea of actually I think what we offer here is more valuable than the competition. And that will overall let you better arrive at how to price your services.

TAKING A GUESS AT PRICE
And at the end of the day, when we're thinking about price, I love what our CEO here at ICE, Jeff Moore, says of thinking about what you need to charge per hour is really working in reverse. A question of what does it take to make a certain amount of money for a year, whatever that is for you or your clinicians or both, to treat five to eight patients per day, three to five days per week, 48 to 50 weeks per year, right? Having two to four weeks off for vacation, seeing maybe 30 to 40 patients one-on-one. What volume do you need to treat at and what do you need to charge as far as your price goes to achieve the amount of money that you would like to make each year? And now we need to understand, back to the threats portion of the SWOT analysis, that there are always going to be forces we can't control that are going to affect that, right? If we live in a really big city and with a really high cost of living, then we know we're either going to need to be happy taking less money home, or that we're going to need to charge maybe more than we're sure is going to be an appropriate price to offset some of those expenses. So at the end of the day, setting a price but not being so locked into it that it can't go up, ideally it won't go down, you won't continually lower your price over time, Ideally, your price will continue to increase as more folks find your services valuable, but at the end of the day, picking a price and starting there and then seeing how expenses, seeing how external threats, market forces, inflation, that sort of thing, change your price over time. And if you're doing it right, and this is maybe a personal belief, I don't have research to support this, but if you're doing it right, if people truly find your services valuable, you should find yourself slowly getting busier over time such that you can begin to charge more because you will end up in a position where you have more people that want to see you than you have time to see. And of course, that's where we can discuss growing beyond yourself into multiple clinicians, but that is a really good point to be at. It's not great to start with a full caseload and need to slowly decrease your price to try to hang on to it over time. It's a race to the bottom and that never ends well regardless of what industry that you're working in. So that's a conversation on price.

WHAT IS VALUE?
Talking about value, I love the quote by George Westinghouse. If you don't know the story of George Westinghouse, his company eventually defeated Thomas Edison in the race to electrify America, essentially in the late 1880s. He said, the value of something isn't what someone's willing to pay, but what it contributes, right? And that kind of says that the customer drives the bus on value. We can certainly set our price, But the folks who are buying our service, paying for physical therapy, buying our widgets, whatever, they ultimately dictate the value that they perceive from what we're offering and that that's going to be different from person to person. Some folks are going to find more or less value even if our price is flat and never changes. And we need to accept that just like we need to accept that price is never permanent. There's no business that's selling stuff for the same amount of money 50 years ago as they were today, for example, except maybe Costco with their $1.50 hot dog. But for most businesses, things tend to get more expensive over time to adjust for inflation and that sort of thing. So value is kind of in the eye of the beholder. A lot like price is not really a fixed thing for us on the other side of the equation.

DO NOT ASSUME PATIENT'S VALUES
In most businesses, and I think especially in physical therapy, we do way too much assuming about how our customers, our patients, our clients, what have you, perceive the value of our services. We see a lot in brick by brick. We see a lot on social media. We see a lot of conversations. that I'm worried about charging too much. I'm worried that my patients won't find value with the price that I'm charging. We are assuming way too much about how much money people have to spend, but also again, that value is this fluctuating thing. and that folks place different levels of value on different products and services in their life in ways that are, yes, in line with the price, but sometimes that are not in line with the price, right? A good example is cell phones. Almost every human being on the planet has a cell phone. In the United States, 94% of all Americans have at least one cell phone that connects to high-speed internet. In particular, they have a smartphone. What does that tell us? At least as Americans, we highly value having a smartphone, right? We're willing to pay $1,000 to $2,000 out of pocket to initially buy it. We're willing to spend $100 or $200 a month on the subscription so that that cell phone has access to the cellular network and can text and email and look at apps and all that sort of stuff. So there's a high value on something like a cell phone. What we're really talking about in the conversation between price and value is that we need to show folks the value of physical therapy such that they don't even consider the price of what it is. Of yes, of course, if we try to charge $1,000 a visit, we're probably not gonna get too many takers, but also we shouldn't feel like we need to undercut our competition and perform visits for $50 or take insurance payments for $40 because we're uncomfortable asking for too much money. Again, do not assume what your patient values. If they find your services valuable, trust me, they will find a way to pay for what you're charging, just like they find a way to pay for their cell phone and all the other stuff in their life that they truly find value at, even if they think, gosh, that's high. If their perceived value is high enough, they will find a way to pay for it. I think of myself as an example, across the week, most days I work about 16 hours, most weeks I work seven days a week, and most months I work most weeks. On average, I make about $28 an hour across everything that I do. An incorrect assumption is that an hour of my time then is therefore worth exactly $28. And that is a misunderstanding between the relationship between price and value. There are hours of my time that you cannot pay me a million dollars to take that hour away from me, right? You cannot offer me $28 to not exercise an hour a day. You cannot offer me $28 to skip the mornings that I have with my son where I get to get him out of bed and get him ready for school or the days where I get to pick him up and bring him home and play with him and put him to bed. That has a value on it that really has no price that can be associated with it and I hold on to those hours very, very much. Likewise, when I myself am injured and need physical therapy, I place a high value on the physical therapy that I obtain because I find that it helps me a lot, right? The manual therapy helps me a lot. The guided home exercise program helps me a lot. I tore my meniscus two weeks ago tomorrow, just finished a workout. I'm back to lunging. I'm back to light impact. I'm back to light squatting in just two weeks. An injury that might put some folks out for three, six months might cause them to seek surgery. I'm already modifying around it and slowly getting back to full activity, probably realistically within a month. That has an extreme level of value that I would argue is more than the cost of what I pay for the physical therapy with the price that it holds. So do not assume what folks value, how much they value things, or that relationship between value and price. Because it's not always exactly equal, even though in our heads we tend to think value equals price, that is simply not the case.

WHAT IS THE VALUE OF TIME WITH A HIGH-QUALITY HEALTHCARE PROVIDER?
I will challenge you before we sign off for today to really step back and ask yourself the question, especially if you're in this scenario right now where you're thinking, what should I charge for my services? Should I increase my price? What are people around me charging? What is the value of a high quality healthcare provider? who can keep you from otherwise consuming tens of thousands of dollars and hours and hours of your time otherwise in the healthcare system to usually ultimately not get any better than you were doing nothing on your own. I would argue the value there is really high. The value is high to the patient. The value is high to the healthcare system in general as well. And the question then becomes, what is ethical? What is too much? What is too cheap? What is an ethical amount of money to be paid? And the answer to that, unfortunately, that we don't want to hear is that it depends. Well, what does it depend on? It depends on the perceived value of the patient for our services. Sure, you can charge $500 for an hour of physical therapy, but that probably needs to come with a really high quality level of care. That's probably more concierge care, direct access to your provider at all times, evening visits, weekend visits, visits at the office, visits at the home, whatever. That's kind of a more high caliber level service versus what is the value of a visit of physical therapy that costs $33. Well, we might assume that's so cheap, it might not be really valuable, but at the end of the day, we don't know that either, do we? There are a lot of folks accepting insurances that pay almost nothing who are providing high quality care, or at least trying to, in a way that their patients perceive value. So don't assume what the value of our care is, and certainly never assume the value of the care a competitor is providing until you know what they are offering their patients. that we can say, wow, they're charging $500. The default assumption there might be it's really high quality of care. It must be. It's $500, right? The natural association in our brain is higher price equals higher value. but that is not always the case. There are a lot of people charging a lot of money cash for patients to walk in and lay in a circle on treatment tables and just get dry needles for an hour. And I would argue that's probably not really valuable care to the long-term health and fitness of that patient. Yet they are charging and receiving that money, which again kind of shows us the asymmetry between price and value. If those patients perceive value, they will find a way to pay that amount of money, and that is true for you as well. So at the end of the day, don't shortchange yourself. Don't set your prices just because it's what somebody else is charging. Don't set them lower. Don't set them a little bit higher. Step back and ask yourself, What is an ethical payment for an hour of my time given the value that at least I believe I'm providing to my patients? Set that price and then adjust fire as needed later on. We say here at ICE, ready, fire, aim, right? Set it up, lock in the price, see what happens. Your patients will determine your value. Do not assume it for them. Do not assume someone does not have the money or cannot find the money to come see you once a month for a cash-based physical therapy treatment. Again, if those patients truly find value, they will find a way to come pay you. So price versus value. They're not always related. Sometimes they are, but usually not. We often see an asymmetry where the value that folks perceive can often be significantly higher than the price they're paying. We hear that a lot in physical therapy. I would have paid double what I paid. This was such great service, you erased a decade of back pain, I'm back to playing with my grandkids, I'm back to walking without a walker, whatever. We hear all of those things in the clinic. We hear that folks are significantly happier with the value they receive from our services than the price they were charged, so keep that in the back of your mind. What price is sustainable? What price is sustainable for you to believe that you're making enough money to do the work that you're doing? And what price is sustainable for your patients? Demographics, socioeconomics, market forces, inflation, commercial real estate, all those things that are really out of our control do play a factor in our price. What price targets your ideal customer the best? Do you want to provide a high level of elite concierge service? If so, you can probably charge a little bit more as long as you're comfortable knowing that that patient is probably going to demand a lot more out of you than if you charged less. Again, keeping in mind at least your perceived value of what you're providing to somebody, what price is ethical? I guarantee you an ethical price is not the $43 flat rate payment from an insurance that's an HMO that requires a 30 minute authorization before you can treat that patient. I don't know what an ethical amount of money on average across the United States is for a physical therapy visit, but I know it's not that for sure. And then what is a fair market value for a similar service? Again, do not assume the value that your competitors are providing until you know exactly how they treat and the value that they at least are attempting to provide to their patients. It's easy to look on someone's website and see what they're charging and just make your price $5 more or $5 less, but that doesn't really understand the whole picture of the value they're providing, the value you're hoping to provide, and what the difference between those two services might be. I think of it a lot of getting a haircut, right? Yes, I can get a $10 haircut at Bo Rick's or Fantastic Sam's or whatever. My hair is not going to look the greatest. What is the price at a barbershop? It's a little bit more. What is the price at a high-end salon? It's a little bit more. And what am I getting along the way? Well, with those services, quality tends to go up and the value tends to go up, right? The haircut tends to be a little bit better. You tend to get a little bit more time with the person providing the service as you go up each tier. And that can be the case in business, but it's not always.

SUMMARY
So remember, Price isn't firm. It can change. You're the one responsible for changing it and do not assume the value of what you're providing. Let your patience dictate that. If you set a price and you have a full caseload and you have a two or three month waitlist, guess what? Your price is probably too cheap compared to the value that your patients are perceiving, and you're okay to bump that price up at the beginning of the year. So don't assume that. Don't assume people can't or won't find the money to come see you if you truly believe in the value of the product you're providing. If you want to learn more about this stuff, our next cohort of Brick by Brick starts April 2nd. We take you all the way through from having no idea how to run a business to finishing the course in eight weeks, having all of the legal documentation you need to formally start a business, to have a better idea if you're going to take insurance, take cash, take a mix of both, and to be able to open your doors potentially at the end of that eight-week class. So we'd love to have you. More information at PeteDenise.com. That's it for me. Have a wonderful Thursday. Enjoy Gut Check Thursday. I'm going to be out in Rochester, New York this weekend watching Lindsey Huey teach extremity management. So I'm going to be at that course. I'm looking forward to hanging out with you. And I imagine we'll probably hit Gut Check at lunch on Saturday or Sunday. So have a great Thursday. Have a great weekend. Bye, everybody.

OUTRO
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