There is a common belief that pricing can be a silver bullet to enhance the profitability of dental labs. However, price is merely one tool among others, such as budgeting and cost management, used to optimize revenue and profit margin. It's insufficient to increase prices only in response to a need for improved profitability, as this approach may render the lab uncompetitive for certain products and miss out on profit opportunities. Such an approach often results in a reduction in the ability to attract and retain clients, leading to decreased sales and an inability to boost profitability.
"I've seen price optimization add another 15 points to a product's profitability while, at the same time, increasing its competitiveness in the marketplace."
Using a price optimization strategy involves several critical considerations:
Unique Products: Offering restorations or services with fewer competitors can lead to increased demand and decreased supply.
Unique Competitive Advantages: Identifying specific product types or skills that make your lab the preferred choice.
Geography: Being a local resource for some products may be valuable to some dentists, while less significant for others.
Capacity: Ideally, you should not exceed 80% of your maximum capacity. If over 80%, consider raising prices; if under, use pricing to attract price-sensitive customers.
Cost Considerations: Understand your costs for different customer types and set competitive pricing that maximizes profit opportunity.
"Remembering that nobody pays too much, or too little, for too long, is a helpful way to think about the importance of optimized pricing, whether for dental labs or any business."
In my labs, I’ve differentiated pricing into attributes such as tiers, practice type and size, and geography, to name a few. For example:
Turnaround Times: Ranging from 10-day to same-day turnaround times.
Tier Level: Including highly differentiated levels such as Essential, Premium, Premium Plus, and Boutique.
Geography: National and Local.
The above does not even include practice size or type and already gives me 80 different prices for just that one product. The creation and management of these prices are made easy through the use of Excel and other programs. Further pricing possibilities arise from including discounts for online case entry and auto-payment, creating great, marketable tag lines like "available as low as $59, as fast as same day."
By implementing price optimization, we've often found the average selling price for restorations to be 15% higher than retail prices. As costs don't rise with an increase in average price sold, this can translate to 15 additional points of bottom-line profitability.
Unique pricing strategies employed over my two decades of owning labs include:
Pharma / "what the market will bear."
Equipment utilization targets.
21-day moving average volume.
Equipment fractional ownership.
Pre-selling anticipated excess capacity.
Payment terms, type and features.
Understanding your lab's capabilities and market, alongside active cost management, can forge a price optimization strategy that dramatically enhances bottom-line profit and cash flow. This strategy also contributes to improving marketability and sales, offering a nuanced approach rather than relying on pricing alone.
Contact 8&9 Consulting today to learn how to put price optimization to work for your dental laboratory.