Myth #1: There’s a standard price a distributor charges for each product
In truth, vendors charge different prices using a tier system
We created our ‘Myths of Veterinary Purchasing’ series to share the hard truths that the supply chain doesn’t like to talk about. If you’re a practice owner that cares about the financial health of your practice — or a purchaser that truly wants to do your job well — this series of posts is for you! We’re exploring several commonly-held misconceptions about veterinary purchasing, and shedding some light on how this all really works. We hope this information helps your practice purchase smarter and operate more profitably!
Myth: There’s a standard price each distributor charges for each product
We’ve all heard it before. Vendors have list price, and then our practice is receiving some sort of special pricing as a function of our size, loyalty, payment history, etc. that others aren’t receiving. Our vendors tell us not to compare pricing, because they’re already giving us the best price available. Time is money after all, so the smart thing to do is not waste valuable timing comparing or shopping around, since it will not benefit our practices.
The Hard Truth: Distributors charge different prices to each practice using system of tiers
In reality, there is no such thing as a standard price in veterinary supply. All veterinary distributors charge different prices to each and every veterinary practice using a system of pricing tiers. Your pricing tier is set by your representative, and determines pricing you receive when ordering both online and by phone. Each veterinary practice is going to see different prices when they log into a vendor website — even for the same exact products. What’s more, is that pricing for many products can vary by as much as 50% between clinics! For example, one practice might receive pricing at “Cost +10%” pricing, and another practice might receive Cost +35% pricing.
Less favorable pricing tiers typically result in higher sales commissions for your representative, so remember to be vigilant in your negotiations, and to balance pricing tier with service levels offered by each vendor. We love our vendor reps at our own clinic, but we also recognize that our incentives are never going to be truly aligned.
Since cost of inventory is usually 15% to 30% of revenue, how much you pay for products has a colossal impact on your ability to resell products, and to compete with other vet hospitals and online pharmacies.
The good news is that pricing tiers are negotiable. It’s not based on objective measures like volume or practice size, but is entirely subjective based on what your rep feels they need to obtain and keep your business. If a vendor you like is more expensive than other vendors too often, you can work with the vendor to get to a place where they can earn more of your business.
Be sure to tune in next week for Myth #2!
