Editor’s Caveat: Hearing Economics strives for a broad economic view, rarely getting down to nuts and bolts of running a practice–you’ll find those in our Hearing Health section. However. today’s post is the first in a series that reveals my dirty, or nutty, little secrets for cost cutting. They’re not clever and they’re not real secrets, but they are little — most only work (if they work at all) in tiny practices under duress. In my case, our 1.5-person, part-time practice is in a locale hit hard by rapid changes in hearing healthcare. We think about reducing marginal costs all the time and the more we think, the more our thoughts move out of the box. The resulting ideas may give you a chuckle, but all are serious and either already implemented or in process.
Recent posts have outlined the less-than-desirable but realistic position of small providers in the hearing healthcare market. The Economic view is recapped in the last half of this post, but the bottom line is that small providers have to be clever, careful, and consistent about cost in order to stay competitive in the present market.
Little Idea #1: Cut Out the Alarm Company
Security systems are costly, but the big costs lie in their monthly service contracts and add-on fees. The alarm system concept is that clandestine entry triggers motion sensors of various types, which send silent alerts to the alarm company and (sometimes) the police, depending on how they’re set up. There’s also a loud alarm upon entry that’s supposed to scare the intruder away. That only works for amateur burglars, who will flee right after the giant rock they threw through the door triggers the alarm. Clandestine is a sometimes thing. All sorts of things, including you, can trip the system, sending a false alarm to the company which in turns sends you a hefty extra charge.
Other communities may have better response times, but Tucson police take at least 30 minutes to arrive on the scene. Professional thieves know this. They have plenty of time for breaking, entering, theft, and departure. Security systems are an expensive way for owners to meet with police in order to file police reports of burglary or vandalism.
Low cost solution: Spend $150 + 9.99/month to purchase a web camera and recording device that send signals directly to your smart phone, allowing real-time, 24/7 monitoring. No more middle man. You or your contact will get to the office faster than the police — maybe even in time to catch the intruders (be careful!). In any event, you’ll have video so you’ll know what they look like, how many there were, and what they took. The insurance company will appreciate that. It’s more than you get with an expensive security system.
Economic Reminder of Why I’m Obsessed With Security Systems
Because small practices are Price Takers, they sell hearing tests at the Price set by Medicare and hearing aids/services at the Market Price, give or take a little. In one case, Government determines Price, in the other case Consumer Demand and manufacturer product prices set Market Price. Everybody gets a say in pricing except independent hearing healthcare retailers. The only say they get is in their Costs.
For every sale there is a “marginal” cost (MC) of selling, over and above fixed costs. It’s worth noting that theft is a Cost, so a Security System theoretically could pay for itself by preventing a single break-in. The arguments above suggest that the Security System doesn’t save anything, including time, whereas there is at least a chance the web cam system could save something if you were watching your phone. It is also worth a reminder that the real cost of theft is likely to come from within rather than from random burglars. Temptations to steal are likely to go down if employees know you are monitoring the office by phone and video.
Back to increasing marginal costs with increases in Quantity sold. As Quantity sold increases, MC goes up, but Price stays put or goes down. Eventually, it costs firms more to sell than not to sell. Price wars illustrate this — firms that advertise on Price have to keep lowering their prices to stay competitive.{{1}}[[1]]Don’t do this unless you’re so rich that you can outlast everybody else and become a Monopolist.[[1]] Eventually, they disappear from the market because their selling price goes below their costs of doing business. Manufacturers enter the picture when independents can’t pay their supplier bills, taking over all or some aspects of the practice to whip it into shape. Such “forward integration”is one way independents lose autonomy and become employed by manufacturers. The biggest and best example is Siemens’ takeover of spendthrift HearUSA, but it happens to little guys too.
There are some good reasons to throw in the towel and integrate with big manufacturers. However, not everyone is comfortable losing control of their practices. If you are one of those folks, you have to take your Economics medicine, which says that you need to sell product right up to the point where your (increasing) marginal cost (MC) equals the additional revenue (marginal revenue, MR) you get for making the sale. In other words, till you make zero money by making the sale and you lose money if you sell more. Up to that point, you are making positive profits (MR – MC > $0).{{2}}[[2]]It probably seems strange, but that is the Quantity where you are maximizing profit.Try Instructables if you don’t believe me, or if you really want to understand this all-important concept.[[2]]
The two Economic take homes are:
- Sell up to the Quantity where you make no profit.
- Reduce Costs so that MR – MC stays positive as long as possible.
And that’s why this post is alarmingly obsessed with security systems. Stay turned for more obsessions. Feel free to send in your own ideas and obsessions — at this point, no idea is too strange to be considered and perhaps championed on this site.
