What exactly is the economic value of a patient in your practice?
In business that’s called the LTV – lifetime value.
Let’s take the example of a small, independently-owned, private practice in a suburban area in which we have the following data available through analysis:
- average new patient spend (first year) – £1,750
- average annual spend on preventative maintenance – £250
- average intermittent spend on functional repair – £500 every 5 years
- average commercial life expectancy of a patient – 20 years
So LTV = £1,750 + (£250 x 20) + (£500 x 4) = £8,750.
The numbers will vary from one practice to another based on:
- types of treatment delivered (more value in implant and restorative treatment)
- the way you run your long term care systems (dentist-led or therapist-led)
- average patient age (the sweet spot is likely to be 50-70)
- prices (of course)
- location (city centre = higher patient turnover)
An additional factor that can be added to the equation is:
- how many referrals an average patient sends in per year
In the absence of accurate data collection, this can be a very difficult assessment – and yet it is obviously a very important factor, given the advantages of referred business over direct marketing.
There are a number of reasons why calculating LTV can benefit your business:
- to compare LTV with the average acquisition cost of a new patient (is your marketing ROI worth it?)
- to allow you to focus more energy on those who invest and refer (see yesterday’s post on Principal Trusted Advisors)
- to communicate to your team the LTV of each patient who appears at the Front Desk – a timely reminder of the importance of daily customer service
- to correctly evaluate the potential value of every potential new patient who may be arriving for a new consultation or working their way through your new business pipeline
The positive differentiation in independently-owned business is that we treat each person as an individual and take the time to listen, respond and get to know our patients/clients.
The ethics in our business are established when we deliver solutions that are appropriate and affordable.
The economics of our business must be constantly monitored to ensure that we are profitable enough to sustain our overheads, variable costs and desired lifestyle.
Understanding the LTV of every patient is a key element of business economics.
Choosing to increase that LTV over time through effective marketing and post-graduate training are a smart way to grow your business.
Fewer patients (who regularly refer) with a higher LTV – what a nice target to aim at.