Cost in very simple terms can be defined as the amount which has to be paid to obtain something. It can be considered as the summation of monetary value of time and effort invested, materials and resources consumed, risks incurred and opportunities foregone to obtain something. But then what is price? Many people fail to appreciate the subtle distinction between cost and price. Price is also the monetary value to obtain some product or some service. Whereas cost is the term used from producers’ perspective, price is the term which is based on consumers` perspective. And the relationship between cost and price can be expressed as
Price = cost + x (where x can be profit or loss depending on various economic factors)
Now, I will elaborate on the idea of costing in physiotherapy. Many of us are doing a wonderful job of treating patients but my belief is that we hardly think about the costs that go into offering the treatment to our patients. Even if we do so, because of lack of familiarity with respect to costing we end up using market based pricing models. I don’t deny the pragmatism of market based pricing without having to undergo the hassles of costing exercise. But, the financial control that can be obtained from a costing exercise remains unparalled. Just to give an example, suppose in a given month your clinic doesn’t generate expected revenues, how will you control the cost? At the same time there are pitfalls of following market based pricing blindly. Suppose you have one of the branches of a large corporate multi-center physiotherapy clinic and you are a one-center physiotherapy clinic. Both are primarily targeting the market of OPD patients requiring musculoskeletal physiotherapy. The large chain has got different set of strategic advantages. They can offset the losses from one Centre by the profits obtained from other centers.Hence if the larger center ends up pricing their service lower, if you are a market player you will also have to lower your price. But there is a certain limit beyond which lowering the prices would be counterproductive. Knowledge of costing will certainly help in deciding the lower boundary of our prices in order to sustain the practice.
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