Professional studies - pricing

Question 1

What are the 4 Ps of marketing?

Answer 1

Product
Place
Price
Promotion

Question 2

What must the businesses turnover be for the business to be VAT registered?

Answer 2

Above £85,000

Question 3

What is VAT? What does it cover?

Answer 3

Tax for HMRC
Covers products (widgets) and services

Question 4

What is the assumed rate of VAT?

Answer 4

20%
cost x 1.2 = VAT inclusive
VAT exclusive = VAT inclusive price/1.2

Question 5

What is the name for a generic product in regard to VAT?

Answer 5

Widget

Question 6

How will a practice buy and sell widgets?

Answer 6

Buy widget from supplier at VAT inclusive price
Claim VAT at end of accounting cycle
Charge client VAT when buying widget

Question 7

What are products?

Answer 7

Tangible items which the practice selects and buys in for resale to clients
Eg. medicines, food, toys, vaccinations

Question 8

What are services?

Answer 8

Personally delivered by vets and nurses

eg. consults, dentals, x-rays

Question 9

How is price setting usually done?

Answer 9

Add mark-up to wholesaler price

Question 10

Why is price setting important to the vet?

Answer 10

May need to justify/explain costs to client

Essential for vets to be able to understand and cost services accurately

Question 11

What must practice pricing be?

Answer 11

Cover all practice costs
Fair and ethical
Suitable profit
Enable future practice growth

Question 12

What do veterinary bills get spent on by the vet practice?

Answer 12

VAT
Salaries of vets, vet nurses, receptionists and support staff
Building, lighting, heating etc
Cost of drugs/ stock items

Question 13

What is the true cost of medicines?

Answer 13

Cost of meds used during the year plus:
Direct staff costs
Equipment costs
Consumable costs
Damaged/wasted stock
Practice overheads

Question 14

How do you work out the mark-up?

Answer 14

(Selling – Cost)/ Cost x 100

A percentage of the cost price added to the cost price to give the selling price

Question 15

How do you work out the profit margin?

Answer 15

(Profit/ Selling) x 100

The profit expressed as a percentage of the selling price

Question 16

What is the sales price equal to?

Answer 16

= wholesaler price + delivery charge + direct labour + direct materials + direct equipment costs + overheads + profit

Question 17

What are shopped items?

Answer 17

When owners shop around for specific items in order to compare prices - competition between companies

Question 18

What does the principal of shopped items give rise to?

Answer 18

Loyalty schemes

Question 19

What is the professional fee equal to?

Answer 19

= Direct Labour + Materials + Equipment costs + Overheads + Profit
Labour is the largest component

Question 20

What are the two ways of calculating fees for services?

Answer 20

Cost based methods

Profit centres

Question 21

How do you work out the labour cost per hour?

Answer 21

Annual vet or nurse cost / number of chargeable hours per year

Question 22

What are the average chargeable hours of a vet?

Answer 22

50%

Question 23

What are direct material costs?

Answer 23

The consumables used in the provision of the service eg. sedation, syringes

Question 24

What are direct equipment costs?

Answer 24

From the fixed asset register - annual maintenance, insurance, consumables, depreciation

Question 25

What are overheads?

Answer 25

Do not include payroll but include all non-labour costs (Fixed/variable)

Question 26

What are the total FTE hours for vets, vet nurses, vet assistant?

Answer 26

Vet - 1 Vet assistant - 0.9 Vet nurse - 0.5

Question 27

What are profit centres as a way of calculating fees?

Answer 27

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

Question 28

What are some examples of profit centres?

Answer 28

``` Surgical suite Anaesthesia Consulting X-ray Procedures Dentistry Lab ```

Question 29

What are the main profit centre costs?

Answer 29

Direct labour Direct materials - cost of consumables used Direct equipment costs

Question 30

What are the 3 common pricing strategies?

Answer 30

Cost pricing Value pricing Competitor pricing

Question 31

What is value pricing?

Answer 31

Bases price on what the market is prepared to pay

Question 32

What is competitor pricing?

Answer 32

Bases price on what the competitors are charging for shopped items

Question 33

What are some issues with veterinary pricing?

Answer 33

Vet services are complex No national benchmarks Continuous competition with other practices Individual work rates differ

Question 34

What is the break even analysis?

Answer 34

Tool to determine at what point a product/service/company will be profitable Anything you sell beyond the break-even point will add profit

Question 35

What are the benefits of break even analysis?

Answer 35

``` Smarter pricing Cover fixed/variable costs Catch missing expenses Set revenue targets Smarter business decisions Limit financial strain ```

Question 36

What are the drawbacks of break even analysis?

Answer 36

Unable to predict demand Ignores time and competitors Dependent on reliable data

Question 37

What are the 4 common scenarios when the break even analysis is helpful?

Answer 37

Starting a new business Creating/providing a new service/product Adding a new sales channel Changing the business model

Question 38

What is the break even analysis formula?

Answer 38

Break-even point = fixed costs/(average price - variable costs) Basically fixed costs divided by net profit per unit sold

Question 39

What are the 3 steps for break even analysis?

Answer 39

Collect costs Plug data into formula Make adjustments