Price margins is a pricing strategy that can be used to calculate a business’ prices. Since all businesses aim to make a profit, setting prices is as important as finding the optimal mix of products and services to meet the needs of your target market. Margins refer to the balance from the selling price of a product and its variable cost. While this number can be indicated in dollars, it is usually referred to in percentages.
A benefit to physicians is that they usually do not have to figure out pricing for their services because insurance companies, hospitals, and Medicare have a substantial impact on the industry’s pricing structure. An instance where pricing strategies come into play would be when offering elective procedures like cosmetic treatments. Let’s take a look at the concepts of margins relating to Botox treatments. The medication is calculated in units and is usually priced per area.
Margins
A margin per product unit is usually determined through the distribution channel. The products typically go from the manufacturer to the retailer to the customer. For this example, we’ll stick to simple pricing based on a variable cost (the cost of the medication per unit), the desired margin, and the units per treatment.
The average vial of Botox is sold to physicians in 100 unit vials and typically costs $400 per bottle. This calculates out to $4.00 per Botox unit. The average selling price to a customer is $15 per unit. At these rates, there is a 73.33% markup per Botox unit. A typical treatment of injecting the crow’s feet around the eye will require, on average, 20 units of Botox. Now that we know there is an average industry margin of 73.33%, you can use the selling price equation to determine your treatment price of $299.96.
Let’s say your cosmetic treatment center is located in an upscale area, and the market rate for a Botox package treating the crow’s feet and the frown lines costs $750. To determine the margin on this pricing scale, you’d consider the number of units to treat both areas, which is 40 units and the $4.00 cost per unit. The margin for this package is 78.66%, which is above the industry average.
Next Steps
Take a closer look at your pricing scales. Are you using the right strategy to price your services competitively? Or have you considered if your margins are too high for the market standard? Take an inventory of your price list, as you might be leaving money on the table or pricing yourself out of customers. If you haven’t yet, read my last blog on the healthcare industry market share relating to the top U.S. hospitals.