The Importance of Tracking Your Marketing Results.
When you are the practice owner it is easy to get lost in the day to day running of the practice and treating patients. As you do so you can lose track of what, if any, marketing you are doing and what results it is giving you.
One of the problems with marketing is that as healthcare practitioners, we are not usually trained in this vital part of running a practice. Indeed there often persists this erroneous impression that just being good at what you do is enough and that the patients will follow.
The truth is often quite the opposite, as many practitioners who are pretty mediocre at what they do, but good at marketing, succeed. While those who are excellent practitioners can fail because people are not aware of the services they provide.
An extension of this can be that it can be almost seen as a sign of failure to market your practice. There exists this perception that good practitioners don’t need to market, word of mouth will do it all for them. While that may have been the case in the past, in many metropolitan areas the concentration of practitioners has become so high that without an effective marketing plan you will fail to survive, let alone grow.
There is also this strange and rather bizarre attitude that marketing is somehow grubby or manipulative. Like all tools, it can be used to negative ends. But used ethically you can use it to raise people’s awareness of the services that you offer, and more importantly, the benefits that you can bring to them and the suffering that you can ease.
Getting Cost Effective Practice Marketing.
In this post I am not going to be teaching you about how to market your practice. We will probably cover that in another series. Instead we are going to focus on making sure that you track the returns on the marketing you do, so that you can ditch the stuff that isn’t working and direct your resources to those that do.
Why is this important? Because when you run your own practice you will be bombarded with people marketing their marketing. You need to be able to sort and screen to find what suits your goals. The person selling you their marketing package does not necessarily have your best interests in mind.
You will also be surprised to find that the most expense marketing is not necessarily the best. Sometimes you can achieve a lot more with less. Unless you measure though, you’ll never know.
What we are going to cover.
In this post we are going to cover the most important metrics you should be tracking in your practice, and then we are going to look at how you can apply them to your marketing to determine what is giving you the best return on your investment. I have covered some of these metrics in an earlier post, where I discuss patient visit average, average visit value and total patient value in greater depth. You may want to review that.
Before we start we need to define a few terms. If you are new to business you may not be familiar with these, but if you have been in business for a while they should be fairly familiar.
- Income or Revenue: The income or revenue of a business is the amount of money that the practice has earned over a given period of time. Also referred to as turnover.
- Expenses: For the purposes of this post we will define expenses as your business expenses, i.e. what it costs you to run your business. Strictly in accounting terms, this is not correct, but it will suffice for our purposes.
- Profit: The money that is left after you subtract your expenses from your income. This is after subtracting any sales tax component but before other taxes.
These are pretty much common sense, but they may take some time to get used to in the beginning. Don’t worry too much about it at this stage. We will be revisiting them as we go through.
Setting up your tracking.
In order to calculate the effectiveness of your marketing you need to set up some way of tracking the responses. At very least, you need to ask every new patient how they came to hear about you. For advertising campaigns this may involve asking people to quote a reference code when they book.
In your practice management system (assuming you are using a computer system – hopefully it is ours), you should set up a separate referral source for each of your marketing campaigns. That way when your new patients come into the practice you can allocate them correctly.
Your raw practice statistics.
You need to decide what period of time you are going to measure. I would suggest a three month period, particularly if you are new in practice. Larger practices with more visits could measure over a month. We will work with a three month period here.
- To start analysing you need some simple numbers. They are:
- The total number of patients over the measurement period
- The total number of new patients over the measurement period
- Your practice revenue in the previous year
- Your practice expenses, either:
- The previous year’s expenses divided by 4 to get the three month figure, or
- The actual expenses from your accounts for the period you are measuring.
- The total number of patient visits and the total number of new patients per referral source over the measurement period
Your practice management system should be able to give you most of these figures pretty easily. If not, consider moving to our Icon Practice system. You will normally get the expenses value from your accounts system.
If you are not mathematically inclined, this part can be very dry. Bear with me as I define how to calculate each of these metrics, and then I will explain how to apply them to improve the effectiveness of your practice’s marketing. The first is:
Practice Profit (PP).
The practice profit is the percentage profit margin that the practice has on the services that it provides. To calculate it, subtract the expenses from the income for the given period, then divide by the income, then multiply by 100.
PP = (Income – Expenses)/Income x 100
This figure is important as it lets you know how efficient your practice is. A small profit margin in your practice is a cause for concern, and can indicate the need to reduce your expenses, as well as increase revenue.
Patient Visit Average (PVA).
Your PVA is basically how many visits on average a new patient attends for at your practice. The actual figure will vary widely as some people may only come for one visit, and some may come for dozens. The PVA gives you a way to average this out. It is calculated by dividing the total number of visits (including new patient visits) over the period by the total number of new patient visits.
PVA = Total visits/Total new patients
The higher the PVA, the higher your patient retention. This generally indicates how well your patients are following your recommendations, and can be a reflection on your ability to communicate to and educate your patients.
Average Visit Value (AVV).
The AVV is the average amount that the practice brings in in revenue per visit. You can either calculate this from just treatment fees or you can include stock, depending on whether you can or want to separate this figure out. To find the AVV just divide the total revenue over the period with the total number of visits.
AVV = Total revenue/ Total visits
An AVV that is quite a bit lower than your standard consultation fees can indicate you are giving too many discounts or free consultations. An AVV that includes stock and is higher may indicate you are doing to good job of selling stock to your patients.
Average Visit Profit (AVP).
The AVP is the average profit that the practice makes on each visit, i.e. the AVV after expenses. To calculate it subtract the expenses from the income for the given period, then divide by the income, then multiply by the AVV.
AVP = (Income – Expenses)/Income x AVV
Total Patient Value (TPV).
The TPV calculates the total revenue that one new patient, on average, will bring into your practice. It is calculated by multiplying the PVA with the AVV.
TPV = PVA x AVV
This figure and the next (TPP) is important because in essence it tells you how much you can afford to spend on getting a patient into your practice. In theory, as long as you make some sort of profit then a patient is worth pursuing. However, as healthcare practices are often limited in their ability to scale the business, you need to factor in as appropriate amount for your time. There is no point being busy while making very little money. Bear that in mind when working out how much you can spend on your marketing.
Total Patient Profit (TPP).
The TPP calculates the total revenue that one new patient, on average, will bring into your practice. It is calculated by multiplying the PVA with the AVP.
TPP = PVA x AVP
Cost per Patient Acquisition (CPA).
The CPA is found by measuring the number of new patients that each referral source brings in, then dividing that number into the total cost for that marketing for that period. You will need to get the advertising costs for each referral source from your practice accounts.
CPA = Marketing Cost per Referral Source/ Number of new patients per Referral Source
Using these metrics in your practice.
Now we can start to look at the effectiveness of your marketing. Start by just looking at the number of new patients that each referral source has delivered to your practice over the given period. Some sources may deliver more patients. Generally, at this level the more new patients, the more effective the marketing source.
Bear in mind however that some marketing costs more than others. Therefore, look at the Cost per Patient Acquisition for the referral source. A referral source that costs a lot to bring in a new patient may not be the best for your practice. After all, if you can get a patient in for less it means that you will make more profit for the same amount of work.
You should then calculate the PVA per referral source. This gives an indicator of the quality of the referral source. A higher PVA may indicate that the patients from this source are better at following your recommendations. Therefore they may be a more satisfying group of patients to treat, they will usually get better results as well as being better financially for the practice.
So if a referral source has a high CPA (i.e. is expensive to bring into the practice), but has a high PVA (sticks around longer), then this referral source may be worth sticking with or pursuing further. Even better would be a low CPA and high PVA, meaning the patients are cheap to get in the practice, but they complete their course of care.
Once you have the PVA for that referral source, you can also calculate the Total Patient Value and Total Patient Profit for that referral source. This part can bring up some surprises, particularly TPP. You should subtract the CPA from the TPP.
A positive number will indicate that you still made a profit on the patient coming into your practice, however if this number is negative, it actually cost you money overall to bring that patient into the practice! This may not strictly be true as unless you removed it earlier there is a marketing component in the expenses, which is a doubling up of expenses to a degree. Regardless however, losing money on your patient transactions is not good business, and if you keep that up you will not be in business for long. Either dropping that particular marketing or changing it to make it profitable would be a good idea, asap!
This post has aimed to give you an overview of the main practice statistics that you should be tracking, and how to apply them to measure the effectiveness of your marketing. Using the simple formulas provided you can quickly determine whether to ditch, keep or boost a particular marketing strategy.
Our iconpractice management system can provide you most of these figures on one simple report, making analysing your marketing quick and easy. Click here for more information and to start your 14-day free trial.