Lifetime Value of a Patient

“Know your numbers.”

This is one of those phrases that gets bandied about all the time by entrepreneurs, marketers, and your overwhelming father-in-law accountant. So much so, it’s nearly a commandment in business.

But for as much press as this phrase gets, it’s still surprising how many practice owners don’t have a firm grasp on their numbers. Specifically when it comes to knowing the value of their patients.

Answer This Simple Question

If I were to come up to you and ask you the following question, would have an accurate answer?

“How much is a patient worth to you?”

If there was any hesitation on your part, then it’s time to do some digging.

The Importance of Lifetime Patient Value

Here’s why this is important to know…

Clearly understanding the lifetime value of your patient empowers you with opportunities for new patient acquisition, improved retention, referrals, and more. It gives you the upper hand over the competition (since most don’t take the time to figure this out). And it provides you with more predictability in your practice by improving accuracy in forecasting.

How To Calculate Lifetime Patient Value

Coming up with the lifetime patient value is pretty straightforward. Here’s how to calculate it:

  1. Determine the average annual production per patient (ie. How much does the average patient pay each year)
  2. Multiply that by the # of years an average patient remains active in your practice
  3. Then subtract the costs (service, marketing, etc)
Worksheet that shows the formula to calculate lifetime value of a patient

**Download your copy of the Lifetime Value of a Patient Worksheet

Here’s an example from a practice in Arizona:

  1. Average production per patient: $876/year
  2. Average # of years a patient remains active: 3.5 years
  3. Average of associated costs: $525

Then plug those numbers into the equation:

$876 (prod. per year) x 3.5 (# of years) = $3,066

Then subtract the costs (-525) to get an average Lifetime Patient Value of $2,541.

Look at how this changes the way you see new patient acquisition. Armed with the right data, you can more easily understand if your marketing campaigns are worth the investment.

Would you be willing to invest $50, $150, $350 dollars to acquire a new patient that will ultimately bring you $2,541? Is that a trade you’d be comfortable making?

When you don’t know the lifetime value of a patient, then are left guessing if your new patient acquisition costs are too high. For those people, it’s typically based on how they feel (anecdotal evidence – do I feel busy?), which is dangerous because we are often betrayed by our emotions. (emotional eating anyone??)

Account for Referrals

You can also factor into this equation patient referrals, since word-of-mouth is always a big driver for dental practices. Simply identify the average number of patient referrals you receive each year and then divide that by the number of patients you have. Then add that into your overall equation.

For example, let’s say that you typically average 15 new patient referrals each month. That comes to 180 patient referrals over the course of a year. At your practice, you have 1800 patients. So you divide 180 by 1800 to get 0.1. This means that you receive one new patient referral for every 10 patients.

Now you can include that into your overall equation as well by multiplying that number x your average lifetime patient value, and then adding that to your average lifetime patient value.

How Businesses Scale Using Lifetime Patient Value

As I mentioned before, having this type of data empowers you to be more aggressive in your patient acquisition campaigns. For example, instead of ‘feeling’ like paying $75 for a new patient is too much, you now know that you could spend 2, 3, even 5 times that and still come out on top in the end over time.

This is precisely how aggressive, growth-minded companies operate. They play the long-game.

Here’s a classic example: Icy Hot

Recognizing that those that used the product remained faithful product consumers, multiple times over, Icy Hot did a deal with hundreds of radio and TV stations. The agreement was that whenever those media stations had unused advertising time, they would pitch Icy Hot.

In exchange, Icy Hot would give them all the revenue from the first sale. (Actually it was more than that)

Why did they do this?

Because they knew that the bulk of the value of these customers came from the many repurchases after that initial sale. They realized that they could afford to give away the revenue from the initial sale because they would easily make it up on the back end. In other words, they employed a loss leader approach.

They used this strategy to acquire thousands upon thousands of new, loyal customers. Eventually they sold the company for $60 million to Searle & Co.

Next Steps

First thing to do is to determine the average lifetime value of your patients. Download your worksheet and punch in your numbers.

Next, review your practice goals and marketing campaigns. How can you accelerate your practice growth knowing your patient lifetime value? In what ways can you be more aggressive in attracting new patients?

Want An Outsider’s Perspective?

Want an extra set of eyes, a brainstorm session, or a long list of not-that-funny dad jokes?

Schedule a quick, 20-minute Discovery Call. I might even wear my favorite monocle.