Pricing your massage therapy services
Creating and capturing value
I've been deliberating for some time over whether to raise my professional service fees. My practice is located in a small city where an automaker – the major industry in this town – laid off thousands of workers years ago. Tourism and other industries have suffered, and I suspect many shopkeepers and service providers have wrestled with their pricing decisions for fear of customer reprisal. It causes me to reflect on how I, and my colleagues, set pricing.
How do we set our pricing? Is pricing based on the type of massage or sector served (rehabilitation, spa, integrated wellness, in-chair massage), time-length of session, inputs of labour or added elements like hydro/electric therapies or special hand-tools? Are some outcomes (pain reduction, better mobility) more valuable than others (reduced anxiety, relaxation, better sleep quality)?
What role does wealth of the local economy, reliance on generous employee benefit plans, competition with peers or other services promising similar benefit play? What are our own beliefs about the value of our work, our relationship and experiences with money, and what we believe patrons are willing to pay?
Pricing is how the practitioner "captures" the value they offer to the marketplace. "Price transmits the most important signal to the customer...what the (practitioner) believes the product is worth," states Ronald J. Baker, author of Pricing on Purpose: Creating and Capturing Value.
Baker, a trained accountant who studied economics, states we've got it wrong when considering pricing theory. Pricing, he says, should be based on the value of outcomes (not time) and knowledge transferred (not inputs). "People are not price-sensitive, but value-sensitive," he asserts. The marketplace determines value and will invest its dollars accordingly. "Value is realized when the customer voluntarily, willingly pays for your product/service."
Pricing is one of the four "Ps" of the marketing mix which include product, place and promotion. Practitioners must determine their own particular mix before announcing themselves to the marketplace to ensure their best opportunity for practice success.
It's the job of the business, Baker affirms, to fully capture the value of its product/service in its pricing while increasing the health, wealth and prosperity of its customers. Customers exchange dollars for utility, for value. The mechanism to capture that value is pricing.
How much consideration do massage therapists put into their pricing? According to the Registered Massage Therapists Association of Ontario's 2013 Earnings Survey, most RMTs report setting their fees based on the RMTAO fee schedule guideline, or based upon the going rate of colleagues. The 2010 RMTAO fee guideline recommended $82/hour (plus HST), while $76/hour was the average rate reported in the 2013 earnings survey. Incidentally, respondents to the survey indicated 56 per cent of respondents were not earning what they expected to be. Could ineffective pricing be part of the problem?
How critically do RMTs consider their pricing? Baker states most businesses use a cost-plus pricing strategy, i.e. they design the product, calculate the cost of production/delivery, top up for a profit margin and then offer to the customer. Price is an afterthought.
Baker emphasizes cost-plus pricing theory is left over from a Marxist era where time labored equates to value. Not true in a knowledge-based economy, he argues, where customers are looking for experienced, knowledge-driven companies to provide effective and efficient solutions to their problems. These customers are willing to pay more for better outcomes.
Baker suggests a business begins by considering what the marketplace needs, determine the value the customer places on getting their needs met, setting the price based on value and knowledge transfer (not time or inputs), attending to costs of production and delivery, and only then deliver the product/service. In inverting the order from the cost-plus model, pricing is set based on value, not a percentage above costs. The company is forced to be effective in only incurring costs that add value for the customer.
In The Invisible Touch, Harry Beckwith outlines how purchasing a service is different than buying a product. "If you aren't satisfied with the product, you can take it back. Buying a service comes with a higher risk. While a product can be touched, tasted, smelled, seen or heard, a service is felt...it delivers an experience."
Beckwith echoes the idea of charging for value. "Hourly fees clearly incentivize delays, attenuate deliveries and encourage make work... they penalize the expert who can solve the problem quickly." Beckwith counsels, "Charge by your worth (value), not by the hour."
Beckwith promotes that higher prices tempt a trial. "Price changes perceptions," Beckwith asserts. A higher price improves the experience by raising expectations. "We may appreciate a low price; it may represent all we can afford. But while we may welcome the savings and recognize the service's 'good value,' we do not appreciate its quality; we assume we could do better. If and when we can afford (to purchase the product/service we want), we do." He continues, "The higher your price, the higher your perceived quality."
Regarding discount shoppers, Beckwith cautions, "Discount customers shop for discounts... costs of acquiring these customers is higher than your profit margin... discount shoppers come and go, refer no one, are not good judges of quality, don't build lasting business and vividly and frequently communicate they don't believe in the value of your service." Discount shoppers "come for the price, and leave for someone else's price."
In following social media chat, I read volume discount programs – such as Groupon – have been applied by some practitioners hoping to fill appointment books. These practitioners report this tactic can work to draw attention to their practice, but it can attract the wrong type of customer. Beckwith encourages that when customers don't buy, price is rarely the reason. His formula: perceived value – price = actual value. People won't pay more than the perceived value... price is not the issue. Beckwith encourages the reader to clearly and strongly communicate the unique value of the service, "Don't charge less... sell better." Beckwith recommends strategies of tier-pricing and building options into your pricing.
Baker echoes the idea of a customer segmentation strategy – set pricing based on user age, location, off-peak/low demand or peak/high-demand, quantity purchased, product design, bundling, or add-ins/upgrades. Examples of these strategies: Uber, Disney and gasoline stations charging more during high-demand times, movie theatres and airlines discounting tickets to attract sales in low demand times, cable companies offering discounts or preferred pricing if a client bundles services, spas offering upgrades onto standard massage services, and Apple, Volkswagen and Tesla charging higher pricing for unique product design.
Could a guarantee of satisfaction add customer confidence in your pricing? Irene Diamond, a business-success coach and workshop leader to massage practitioners in the U.S., recommends practitioners charge for results rather than time.
"A great way to change the paradigm and eliminate price resistance is by offering a guarantee of results," Diamond reports. "Most practitioners can't imagine guaranteeing their work, but it has the effect of generating three desired outcomes: 1) it requires the practitioner step up their game and deliver at the highest level; 2) it shifts the client's perspective – they no longer pay for time but instead they are buying an outcome, and; 3) the practitioner stands apart from competitors because full satisfaction guarantees are unusual in the massage therapy field."
Diamond cites a client who reported back, "I was recommending a program for $553.00. The client was hesitant to pay that much money. I mentioned to her that the program does come with a money-back guarantee. Her response was, 'When can we start?'"
"Can your business offer a premium level of service?" Baker prods. Baker's point is to suggest that, beyond providing a standard level of service for most of your customers, is there something a niche population of your practice would pay more for, and value?
Former CEO of General Electric Jack Welch posits anything a business can do to increase the success of its customers will see a financial return.
Belle Beth Cooper of Buffer says, "People don't buy products. They buy better visions of themselves." Carefully consider the value the public perceives in using your product/service. How can you increase that value, convey that value, capture that value through your pricing?
Some practitioners may object, "I couldn't increase my fees, I live in a small town... competition is too fierce... HST (or auto-insurance or WSIB) is capping what I can charge... I don't have enough experience...my existing clients/patients would leave..."
While pricing must be strategic, practitioners must be careful not to transfer their fears and unsubstantiated beliefs into their pricing.
Examine your local economy. Are veterinarians and dentists in your area lowballing their prices for fear of clients going elsewhere? Do you yourself only procure massage therapy or other services entirely based on the lowest price available? With so many examples given of companies that base their prices on value, the evidence suggests you can capture more value in your pricing than you may believe.
In his book, Earn What You Deserve, Jerrold Mundis, discusses the phenomenon of under-earning. Under-earners often accept work that does not pay them enough to live, or say "no" to opportunities to make money. Mundis suggests under-earners may experience some or many of the following characteristics: are usually in debt, are often in financial crisis, do a lot of unpaid work, often come from alcoholic or otherwise troubled families, have only a vague idea of what their expenses are, perceive the gross income and not the net, may think there is spiritual or political virtue in not having money, believe their occupation won't allow them to make more money. Practitioners in setting their prices would do well to honestly examine their beliefs and biases, accurately assess the value they bring to the marketplace, and capture that value in their pricing.
I suggest with every session you provide you're trading vitality for dollars. Are you getting a fair exchange? Does your pricing model provide you the income you need to cover business and then personal expenses, your personal interests, and savings for contingency or when you will no longer work? What would happen if your pricing model did?
Massage therapists who become practice brokers for other practitioners are woven into and especially vulnerable in this discussion of pricing. These essential leaders must ensure their businesses remain viable for all involved, and for themselves in taking the risk, putting out the capital, providing the equipment, marketing and operations, so others could practice. These leaders must not only consider the pricing of services provided through the business, but their brokerage fees based on the true value they provide to entry-level practitioners.
There's a role for the collective here. If massage therapists and their professional associations, educators and publishers in the field worked diligently together to raise the public profile and hence perceived value of massage therapy, we could perhaps see more funding and support for research and incorporation into more delivery-of-care models. All massage therapists might, in effect, enjoy a pay increase.
If you are ready to examine your pricing, here are some suggestions:
• Get clear on your product, place and promotion – ensure you're providing something of value the marketplace wants and can distinguish from other offers
• Manipulate price comparisons patrons are making of your offer. Differentiate how your offer is unique, of higher quality, more effective, convenient or valuable.
• Use marketing tactics to clearly define results/knowledge transfer people can expect.
• Avoid appearing like everybody else. When massage services become commoditized, whoever has the lowest price is the leader.
• Trial a price change. Poll your best patrons a simple question: "I believe my services are undervalued and I'm planning on calibrating a price that best reflects my value. Based on your experience, if I set my fees at $X, would you still buy?" If "no", ask the patron what value they would place on the services you provide to them. If you find their projections below your expectations, perhaps you need to do a better job of clearly conveying value, the inherent benefits of massage therapy and, in particular, receiving it from you.
George Gilder said, "New knowledge does not come without a leap of hypothesis, a projection of the intuitive sense." Perhaps our profession can lead with a new hypothesis on pricing, put to bed self-limiting beliefs and experiment with pricing. You may find you're putting more money in your pocket while capturing the value you provide to your patrons.
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Sat May 06, 2017
Ontario CSMTA Educaton Conference and AGM