Marketing your practice is all about getting a return on your investment—and while calculating your cost per lead and cost per appointment are crucial for making smart marketing decisions, they only tell half the story (the investment half, to be exact). To truly know how well your marketing works, you’ll also need to calculate the return side—which means figuring out the lifetime value (also called LTV) of your patients.
Calculating LTV is crucial to running a successful practice because it gives you insight into how profitable your office actually is. If you’re spending $130 to attract a new appointment, but you’re primarily getting one-off consultations with a value of just $200 to $300 each, your practice is headed for trouble. In that scenario, nearly all your revenue goes to marketing, leaving very little left over to cover your overhead and (most importantly) pay yourself.
If on the other hand, that $130 attracts a long-term patient with a value of $20,000 or more, you’re probably looking at a financially healthy practice—and you’re definitely getting a strong return on investment from your marketing.
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Figuring out lifetime value has other benefits, too.
Tracking LTV over time may help you predict how your practice will do in the future. A declining LTV paired with a steady or rising marketing investment might signal that you have a growing issue with patient retention—one that you can address early before it threatens the financial health of your practice. Alternatively, a growing LTV with a steady marketing investment signals that your practice is growing more profitable and your marketing is working well, so you can feel confident sticking to your current strategy.
Looking at the LTV for different demographics also helps you find out which patients are most beneficial for the lifetime health of your office. That way, you can design your marketing campaigns to attract new patients likely to bring in more revenue in total, rather than spending your marketing dollars attracting patients unlikely to have a high LTV.
Calculating the lifetime value of your patients
The basic calculation for LTV is simple: multiply the average value of an appointment by the average appointments per year by the average number of years a patient visits your practice. The equation below should help you visualize this.
V = Average Value of Appointment
N = Average Number of Appointments Each Year
Y = Average Number of Years They Visit Your Practice
Lifetime Value = V x N x Y
Let’s say, for example, you run a dental practice, and your average patient makes 3 appointments a year, worth $150 each, and stays with your practice an average of 6 years. The average lifetime value of your patients would be 3 x $150 x 6, or $2,700.
If you run a practice that develops years- or even decades-long relationships with your patients—like a general practitioner or pediatrician—may want to divide your patients into segments to more precisely estimate their LTV. If you’re a pediatrician, for example, parents with a newborn might stay with your practice for 15 to 18 years—and if they book an average of two $200 appointments annually, the LTV for that child could be up to $7,200. Patients 10 years of age or older, on the other hand, might have a lifetime value of just $2,000 before transferring care to another physician.
Other medical professionals might segment the LTV of their patients depending on the services they book. If you’re an orthodontist, for instance, the bulk of the LTV from a patient may come from a single high-value service, and the $6,000 a patient spends on Invisalign might represent their entire LTV. Comparing LTV and marketing costs over a few common procedures may give you better insight into the financial health of your practice than segmenting patients by age.
Keeping your lifetime value high with patient retention
Unless the bulk of your appointments involve one-time, high-value treatments—in which case maintaining your referral network and advertising strategy is key for optimizing LTV—patient retention is the key to keeping LTV high. Creating a warm office atmosphere, welcoming patient feedback and sending out helpful appointment reminders all help your patients stay on top of their health and feel comfortable at your office. And small investments in relationship building—from sending off a cheery end-of-year card to your long-term patients to creating a quarterly email newsletter packed with relevant wellness advice—keep your office top of mind, so your patients will stay with you for long-term care.