“Refer a friend and get two free treatments.”
I saw that sentence on a noticeboard in a clinic I visited recently. The practice was trying to increase internal referrals, which I’d normally wholeheartedly encourage. Referred patients are almost always the best in terms of retention and compliance. They arrive prequalified with a foundation of prebuilt trust. But losing money on a new patient isn’t good business sense, regardless of where they come from.
Discounting the Value of Your Time
It’s easy to think that giving away consultations doesn’t cost you anything. In actual fact it does because it’s using time that could otherwise be used with paying patients. Or you may be missing out on revenue you would otherwise receive (like in this case). So don’t be too quick to offer free visits.
Consider some alternatives instead. Possibilities include free tubes of anti-inflammatory cream, heat packs, even pillows. Often they may have a bigger perceived value to your patient but may actually cost less as you’re buying them at wholesale prices.
Are You Making a Profit?
You need to know your numbers in your practice. In this practice, they charge about $60 a visit, so to give away two visits is costing them $120 in lost revenue to acquire a new patient. That’s a lot.
Let’s run some numbers. If this practice sees a patient for 10 visits on average and they charge an average fee of $60, then the lifetime value of a new patient is $600. If they run at a profit margin of 15% (get this number from your profit and loss statement), then they make $90 in profit per new patient that comes into the practice.
However, if they’re giving away two treatments at a total cost of $120, then they will lose $30 for every new patient they get through referrals. That’s not a sustainable business strategy.
Alternatively, if they do 20 visits on average, then their profit will be $180, so they will make $60 profit. The strategy is making a big dent in their profits, but they are still profitable.
Knowing Your Numbers
This is why it’s vital to know your numbers within your practice. At a minimum you should know your patient visit average (PVA), average visit value and lifetime value (LTV) of a patient for each practitioner within your practice. If you’re not familiar with them, we run through how to calculate them here.
Once you’ve done those, I’d also recommend you look at calculating PVA and LTV for each different new patient source. Because referred patients often stick around longer and are better to have in the practice, you may find that providing incentives to existing patients makes financial sense. But if you don’t work out your numbers, you’ll never know.
Making It Easier
Our iconpractice practice software automatically calculates these numbers for you, including PVA and LTV per new patient source. In addition our advanced patient retention features means it doesn’t just help you manage your practice, it helps you expand and grow. Book a demonstration here now.