Using the 80/20 principle when pricing vision correction

The 80/20 rule, also known as the Pareto principle, is a principle that suggests that you can attribute 80% of outcomes to 20% of causes. In the context of pricing, one can interpret this principle to mean that 80% of your customers will be willing to pay lower prices, while 20% of your customers will be willing to pay significantly higher prices.

The 80/20 rule

Also known as the Pareto principle, the 80/20 rule is named after Italian economist Vilfredo Pareto, who observed that about 80% of the land in Italy was owned by 20% of the population.

One can apply the Pareto principle to many different situations in nature. For example, about 20% of the individuals in a population of animals may be responsible for producing about 80% of the offspring. About 20% of the species in a forest ecosystem may be responsible for supporting most of the biological diversity. In a human population, about 20% of the people own about 80% of the wealth.

The Pareto principle is not a strict rule, but rather, a general observation that often holds. In many cases, the distribution may not be exactly 80/20, but it is usually close. The Pareto principle can help identify the most critical factors in a given situation and focus on them to achieve the most significant impact.

One way to use the 80/20 rule in pricing is to offer a range of prices for your treatments, with lower prices for the majority of patients (e.g. LASIK) and higher prices for a select group of patients willing to pay more for additional features or benefits (e.g. lens replacement or lenticule extraction).

But how much could you theoretically charge for a vision correction procedure if you could supply your patient with enough value to justify the price?

Let’s say that in a population of 10,000 eyes, 80% of buyers will pay for glasses and contact lenses while 20% of buyers will pay at least €2500/eye for surgical vision correction. The following chart shows the group of eyes that had surgery as a red rectangle.

The area under the curve to the left of the red rectangle represents the volume of people who might pay less than your price for vision correction. For example, a practice that does 2000 eyes at €2500/eye has an output of €5MM.

That suggests that you may want to offer a treatment that appeals to those patients yet still provides similar results but with less convenience (e.g. PRK). In contrast, the space within the curve above the red rectangle represents the volume of customers willing to pay more if you offered them more value. To maximise margins and revenue, we’ll further explore this area.

The green rectangle represents the volume of patients in the market who would be willing to pay double (i.e. €5000/eye) your price (€2500/eye). According to the 80/20 principle, the predicted response for a price of €5,000/eye is 894 eyes for a total sales output of €4.47 million.

Hypothetically, a practice could charge €5000/eye for lens procedures and make almost as much as the LASIK/PRK practice with less than half the patient volume. Or, you could use this chart to predict how many people would be willing to pay for lens replacement or lenticule extraction eye procedures.

As an illustration, let’s push the limits of this hypothesis and multiply the price for vision correction by ten and charge €25,000/eye.

According to the 80/20 principle, the predicted response for the price of €25,000/eye is 138 eyes for a total sales output of €3.45 million. That means that – hypothetically – you could treat 138 eyes and charge as high for as €25,000/eye, assuming you could provide sufficient value.

NOTE: The best way to answer that nagging question about practice growth or marketing or patient volume in the back of your mind is to book a free 15-minute compatibility call. Get some options and go away with a clear idea of what’s possible.

Source: The Economics of Airline Class, Wendover Productions. Here you can see how the sum of money spent by first class passengers exceeds the sum of all the economy fares. Furthermore, the figure illustrates the revenue/square metre of business class, which is the most high yield section of the plane.

Does this sound absurd? Well, look at how Singapore Airlines use the 80/20 principle. A round-trip economy flight from London to Singapore on an Airbus A380 costs €1245. A first-class ticket on the same flight, on the same day, costs €12,599.

There are 14 first-class seats on the A380 plane, which make up 2% of the available 647 seats. The remaining seat allocation comprises of 76 business class seats (12%) and 557 economy class seats (86%).

Why do 2% of passengers pay over ten times as much for a first-class ticket while 86% pay for economy tickets on a return flight from London to Singapore with Singapore Airlines?

There are several reasons why some customers are willing to pay ten times more for a first-class experience while others are only willing to pay for an economy-class experience. Some factors influencing a customer’s willingness to pay more for a higher-priced product or service include,

  1. Perceived value: Customers may be willing to pay more for a product or service if they believe it offers higher value or quality. For example, customers may be willing to pay more for a first-class plane ticket because they think it provides a more comfortable and enjoyable travel experience. As a refractive surgeon, you could treat a limited number of patients at any one time (e.g. one patient every 2 hours) with your whole team tending to their every want and need.
  2. Decreased Time: Customers may be willing to pay a premium price for a product or service if it saves them time or helps them to be more efficient. First-class passengers always board and deplane first. They don’t wait in queues and their luggage arrives first on the belt. In a medical practice, some patients may be willing to pay more for evening or weekend surgical appointments because it allows them to receive the benefits more quickly and not interfere with their work schedules.
  3. Convenience (Less effort): Some customers may be willing to pay more for a product or service that is more convenient for them. For example, a patient may be willing to pay more if you booked them a 5-star hotel room close to the practice, with luxury travel to and from the practice, for every visit included in the package.
  4. Perceived Status: Some customers may be willing to pay more for a product or service to signal their status or success. For example, a patient may be willing to pay more for medical services offered by a London, Harley Street practice, where a celebrity surgeon that appears on TV treats a relatively small number of high-net-worth individuals (including celebrities) and their families.

Ultimately, the willingness to pay a higher price for a service will vary from patient to patient and may be influenced by a combination of these and other factors.

This exercise does not suggest that you should charge ten times what you currently charge for vision correction. However, some of you could. The point is to show you that if you’re not offering services that provide as much as two, five or ten times the value that you currently offer your patients and charge commensurately, then you’re likely leaving some money on the table.

Remember that the 80/20 rule is a general principle and may not hold in all situations. It’s also important to carefully consider your target market and your products or services’ value to determine your practice’s most appropriate pricing strategy.

We’ve had successful experiences raising prices for refractive surgery practices while expanding and rebuilding their value propositions. If you think you’d be a good candidate for such an initiative, we recommend that you reach out to us to discuss what it takes.

About the author

Rod Solar
Founder & Scalable Business Advisor / fCMO

Rod Solar is a co-founder of LiveseySolar and a Scalable Business Advisor for its customers. Rod mentors and coaches eye surgery business CEOs/Founders and their leadership teams to triple their sales, double their profit, and achieve their “ideal exit”.

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Rod Solar

Founder & Scalable Business Advisor

Rod Solar is a co-founder of LiveseySolar and a Scalable Business Advisor / fCMO for our customers. Rod mentors and coaches CEOs/Founders and their leadership teams to double their sales, triple their profits, and achieve their “ideal exit”.

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LiveseySolar completely transformed the way we were approaching this… We’ve gone from having just the dream of having a practice to having a practice up and running with people making inquiries and booking for procedures… It’s extremely pleasing. We feel lucky we connected with LiveseySolar.

— Dr Matthew Russell, MBChB, FRANZCO, specialist ophthalmic surgeon and founder of VSON and OKKO

Laura Livesey

Founder & CEO

Laura Livesey is the co-founder & CEO of LiveseySolar. She has developed powerful refractive surgery marketing systems that increase patient volumes and profits for doctors, clinics, and hospitals, since 1997.

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Rod and Laura know as much about marketing surgery to patients as I know about performing it. They are an expert in the field of laser eye surgery marketing. They know this industry inside out. I believe that they could help many companies in a variety of areas including marketing materials, sales training and marketing support for doctors.

— Prof. Dan Reinstein, MD MA FRSC DABO, founder of the London Vision Clinic, UK