Professional studies - pricing Flashcards
What are the 4 Ps of marketing?
Product
Place
Price
Promotion
What must the businesses turnover be for the business to be VAT registered?
Above £85,000
What is VAT? What does it cover?
Tax for HMRC Covers products (widgets) and services
What is the assumed rate of VAT?
20%
cost x 1.2 = VAT inclusive
VAT exclusive = VAT inclusive price/1.2
What is the name for a generic product in regard to VAT?
Widget
How will a practice buy and sell widgets?
Buy widget from supplier at VAT inclusive price
Claim VAT at end of accounting cycle
Charge client VAT when buying widget
What are products?
Tangible items which the practice selects and buys in for resale to clients
Eg. medicines, food, toys, vaccinations
What are services?
Personally delivered by vets and nurses
eg. consults, dentals, x-rays
How is price setting usually done?
Add mark-up to wholesaler price
Why is price setting important to the vet?
May need to justify/explain costs to client
Essential for vets to be able to understand and cost services accurately
What must practice pricing be?
Cover all practice costs
Fair and ethical
Suitable profit
Enable future practice growth
What do veterinary bills get spent on by the vet practice?
VAT
Salaries of vets, vet nurses, receptionists and support staff
Building, lighting, heating etc
Cost of drugs/ stock items
What is the true cost of medicines?
Cost of meds used during the year plus: Direct staff costs Equipment costs Consumable costs Damaged/wasted stock Practice overheads
How do you work out the mark-up?
(Selling – Cost)/ Cost x 100
A percentage of the cost price added to the cost price to give the selling price
How do you work out the profit margin?
(Profit/ Selling) x 100
The profit expressed as a percentage of the selling price
What is the sales price equal to?
= wholesaler price + delivery charge + direct labour + direct materials + direct equipment costs + overheads + profit
What are shopped items?
When owners shop around for specific items in order to compare prices - competition between companies
What does the principal of shopped items give rise to?
Loyalty schemes
What is the professional fee equal to?
= Direct Labour + Materials + Equipment costs + Overheads + Profit
Labour is the largest component
What are the two ways of calculating fees for services?
Cost based methods
Profit centres
How do you work out the labour cost per hour?
Annual vet or nurse cost / number of chargeable hours per year
What are the average chargeable hours of a vet?
50%
What are direct material costs?
The consumables used in the provision of the service eg. sedation, syringes
What are direct equipment costs?
From the fixed asset register - annual maintenance, insurance, consumables, depreciation
What are overheads?
Do not include payroll but include all non-labour costs (Fixed/variable)
What are the total FTE hours for vets, vet nurses, vet assistant?
Vet - 1
Vet assistant - 0.9
Vet nurse - 0.5
What are profit centres as a way of calculating fees?
Where the practice is split into different areas and the total running costs of each area are calculated
Must know how many procedures are carried out in each centre during the year
What are some examples of profit centres?
Surgical suite Anaesthesia Consulting X-ray Procedures Dentistry Lab
What are the main profit centre costs?
Direct labour
Direct materials - cost of consumables used
Direct equipment costs
What are the 3 common pricing strategies?
Cost pricing
Value pricing
Competitor pricing
What is value pricing?
Bases price on what the market is prepared to pay
What is competitor pricing?
Bases price on what the competitors are charging for shopped items
What are some issues with veterinary pricing?
Vet services are complex
No national benchmarks
Continuous competition with other practices
Individual work rates differ
What is the break even analysis?
Tool to determine at what point a product/service/company will be profitable
Anything you sell beyond the break-even point will add profit
What are the benefits of break even analysis?
Smarter pricing Cover fixed/variable costs Catch missing expenses Set revenue targets Smarter business decisions Limit financial strain
What are the drawbacks of break even analysis?
Unable to predict demand
Ignores time and competitors
Dependent on reliable data
What are the 4 common scenarios when the break even analysis is helpful?
Starting a new business
Creating/providing a new service/product
Adding a new sales channel
Changing the business model
What is the break even analysis formula?
Break-even point = fixed costs/(average price - variable costs)
Basically fixed costs divided by net profit per unit sold
What are the 3 steps for break even analysis?
Collect costs
Plug data into formula
Make adjustments
