Just like all other businesses, your dental practice needs to generate new patients constantly than it is losing to make sure that it survives in the long run. The problem with acquisition-based growth, however, is that you need to continue spending money to have an influx of new patients. You can only grow as much as you spend on acquiring new patients. So, how can you make sure that your dental business is going to make money and grow long-term without having the need to shell out a fortune to drive new patients?
One of the most effective ways is to focus on retaining your existing patients and increasing their lifetime value – and that’s exactly what we’ll be discussing in this article. From its definition and calculation to the different ways you can maximize it, get ready to learn everything there is to learn about patient lifetime value!
Patient lifetime value or PLV refers to the total revenue you can earn from a patient while they remain under your care.
It is a metric you can use to predict the financial viability of your dental practice, allowing you to determine whether your business has real margins and if it’s going to be profitable.
Patient lifetime value is the way your dental practice can grow organically and sustainably. It’s basically a long-term approach that focuses on the sales a dental practice can generate on each patient throughout their relationship with them, and not just on short-term sales.
PLV is crucial because:
Having a high PLV means patients are satisfied with your services, which explains why they keep coming back. It’s also an indicator of your patients’ loyalty, which automatically translates to recurring revenues and better margins.
Instead of trying to get new patients all the time, it’s also important to focus on retaining your existing ones and optimizing them for PLV. According to Invesp, acquiring a new patient can cost you five times more than retaining an existing one, but increasing your customer acquisition rates by 5% can result in a 25% to 95% increase in profits. This goes to show that PLV is a more cost-effective approach that leads to bigger profitability.
The reason is pretty simple: You no longer need to pay to acquire an existing customer. You only need to nurture your relationship with them to make sure that the next time they need to undergo dental cleaning, tooth extraction, or get new dentures, you’d be the first practice to enter their minds. Keep in mind, however, that every time you spend to get a new customer, you’re getting a smaller margin from each transaction in return.
Would you believe that the profitability of selling to an existing patient is 60% to 70%, but the probability of getting a new patient to avail services from you is only 5% to 20%? This means you’re 40% more likely to succeed upselling to an existing patient than you are to convert a prospect. Plus, repeat customers tend to spend an average of 31% more than first-time customers, according to Neil Patel, one of the major players in the digital marketing world.
For example, when a loyal patient comes to your office for a dental cleaning and you recommend that they also undergo teeth whitening, there’s a huge chance that they’ll take your advice just because they trust you, even if that means having to spend more.
When you know that a certain customer profile will spend $1,000 on your business while they’re under your care, then you can better refine your targeting to reach the right type of audience.
PLV allows you to prioritize targeting patients who will likely spend more over time than those who wouldn’t, and develop a better customer-acquisition strategy to attract the right kind of patients for your practice.
Having a bigger margin allows you to reinvest more into growing and expanding your business. With the security of recurring revenue, investing in the latest dental equipment and opening more branches have become more achievable.
The lifetime value of each patient will be different. There are several factors you need to consider, such as the number of years they’ll stay under your care, the type of procedures they’ll need, the complexity of each case, and many more. With all these variables coming into play, determining the exact value for each patient can be difficult, especially since there’s no way of predicting the number of years a patient will continue to receive care under your practice. Thus, you can only rely on estimates. Then again, there are certain formulas you can use to compute the estimated lifetime value of your patients.
Lifetime Value = Average Transaction Value per Visit x Average Number of Visits per Year x Average Patient Retention in Years
OR
Lifetime Value= Value of an Average Patient Value per Year x 7 Years
Now, let’s apply the formulas to an example in your dental practice:
Let’s assume that a patient will likely stay under your care for the next ten years and their average transaction value per visit is $250. Since dental cleanings need to be performed every six months, we can presume that patients will visit your dental clinic twice a year.
Lifetime Value of a Patient = $250 x 2 x10 = $ 5,000
Average Value of a Patient = Annual Revenue/ Active Patients
Lifetime Value of a Patient = Average Value of a Patient x 7 years
Now, let’s apply the formulas to an example in your dental practice:
Given the assumption that your practice generates about $600,000 in annual revenue with 1,500 active patients:
Average value of a patient= $600,000/ 1,500 active patients = $400
Lifetime Value of a Patient= $400 x 7 years = $ 2,800
Whenever your patient makes a referral, you need to add the value of those referrals to the lifetime value of the patient who made those referrals.
We can use the example above.
Let’s say your patient was able to make seven referrals throughout her stay under your dental practice.
The lifetime value of a patient you gained through marketing activities= $2,800
Lifetime value of seven additional patients acquired through referrals= 7x $2,800 = $19, 600
Total lifetime value of one patient-generated from marketing activities plus the seven referrals = $2,800 + $19,600 = $22,400
Now that you know how to compute the lifetime value of a dental patient in your practice, you can identify better how much you should invest to acquire a new patient while maintaining your target return on investment. Generally speaking, a ratio of 5:1 is already considered as a good marketing ROI. However, your target ratio should depend on your cost structure.
For this example, let’s say your target ROI ratio is 5:1:
$2,800/ 5 = $ 560 (1 patient lifetime value)
$22,400/5 = $ 4,480 (1 patient plus 7 referrals worth of lifetime value)
If you have an ROI goal of 5:1, then you need to spend around $560 to $ 4,480 to win a new patient.
By providing your patients excellent customer service and a seamless experience across all touchpoints, you can maximize the lifetime value of your dental patients using these tips:
Targeting allows you to effectively reach and capture the right patients for your practice by providing personalized experiences and messaging in the form of content, ads, and other marketing efforts. It also allows you to improve your offerings to better cater to the needs of your target patients.
If your practice specializes in dental implants and your goal is to acquire more patients who are candidates to undergo the procedure, then you must refine your targeting to reach the appropriate audience.
No matter how much you invest in acquiring a new patient, but you can’t provide the quality service they expect from you, then your patients will switch to a competitor. What’s more, a dissatisfied patient can also spread negative words about you and your dental practice, affecting your ability to attract new patients.
By focusing on providing quality service to your patients and giving them what they want, you can ensure that your patients are happy, satisfied, and will keep coming back to your practice.
According to Edelman, 71% of people tend to lose trust in a brand that puts profit first over people during these difficult times. You’ll want to be more empathetic towards your target and existing patients, whether you’re reaching out to them or as they’re sitting on your dental chair.
For instance, you can show on your website how you’re protecting your patients and staff from the virus. Provide information (include pictures or videos, if possible) on how you sanitize your facility, sterilize your dental equipment, and follow the safety measures yourself.
During a consultation, if a patient needs to undergo a complex procedure, it’s imperative that you state your recommendation while providing your patient an alternative in case they’re unable to pay for it upfront. You can either suggest a similar treatment that’s more affordable or a payment option that allows your patient to pay less than the original price.
Today, people are constantly bombarded with ads, marketing, and so much information that a company finds it hard to stand out among the rest despite having the best products or services. So, what else does it take to get ahead of the competition? Having a solid relationship with your audience.
Building a lasting bond with your patients is the key to cutting through all the marketing noise, resonating with them, gaining their trust, and growing a successful dental practice in this modern age. This is why providing excellent customer service even after a transaction, and keeping in touch through social media and email is extremely important.
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Everyone starts a business hoping that it’s going to be profitable and a legacy they can pass down to their kids and the generations that follow.
Striking a balance between acquiring new patients and retaining existing ones by maximizing the lifetime value of a dental patient is essential to growing a sustainable and profitable business long-term.
At Digital Resource, we can help your dental practice gain new patients, retain existing ones, grow your customer base, and achieve your target ROI through effective digital marketing. Contact us today to know how we can make this possible for you!