Considering the Lifetime Value of a Patient

When engaging in any type of marketing or advertising for your medical practice, it’s important to consider the lifetime value of each patient. Without knowing how much each of your patients is worth, you’ll be unable to determine the ROI of your marketing initiatives. Let’s dive in.

What’s the lifetime value of a patient?

The lifetime value of a patient (LTV) is an estimate of the total revenue a patient will generate. It’s based on the cost per visit (C), the number of visits per year (N), and the years a patient stays with your practice (T).  Multiplying these factors gives the LTV:

LTV = C x N x T

How do you calculate a patient’s lifetime value for your specialty?

To calculate the LTV for your specialty, you might need to make a few assumptions about cost, frequency, and length of care. You can do the calculation using averages from your own patient data, or just ballpark the numbers.

Here’s an example: Take a dermatologist, who sees their patients an average of two times per year at a cost of $150 per visit.  Let’s also say that they generally have a good relationship with patients, and have a retention time of ten years. The LTV for a patient of this dermatologist would be $150*2*10, or $3000.

For a different medical specialty, like bariatric surgery, where most of the cost is concentrated in a single procedure, you can take a simpler approach to LTV.  As long as the price and frequency of recurring visits are low, the LTV of a patient is close to the price of the procedure. This is even more accurate when a patient is only seeking a single treatment. Orthodontists might use a similar calculation for a patient getting braces or Invisalign, assigning the LTV a value somewhere around $5000.

Why is a patient’s lifetime value important?

It’s impossible to grow your medical practice without finding new patients. Before you start marketing with Pay-Per-Click ads or renovating your website with search engine optimization in mind, it’s important to know how much a new patient is worth to your medical practice. Once you know the lifetime value of your patients, you can decide how much you should be spending to attract new ones. A good way to measure the real value of new patients is by calculating the return on investment (ROI).

How can you use patient lifetime value to find your marketing ROI?

When using LTV to estimate your return on investment, remember that the cost of patient acquisition isn’t the only cost involved.  Because LTV is calculated in terms of revenue, not profit, a good marketing plan needs to account for this difference. Private medical practices usually have variable gross profit margins in the range of 35-40% (we’re assuming that roughly 60-65% of costs are fixed costs like rent, equipment, etc.), so including this in the calculations will give a better sense of the value generated per patient. The return on investment can be calculated as the net profit (NP) divided by the cost of patient acquisition (CPA).

ROI = 100% x NP / CPA

We’ll use an estimated variable gross profit margin (M) of 35% for this example, and account for the CPA in the net profit:

NP = LTV x M – CPA 

With the combination of SEO, PPC ads, and reputation management that we do here at Phase 5 Analytics, the cost of finding a new patient can be low, near $50.  Using the same example dermatologist from before, an LTV of $3000 would give a net profit of $1000 per patient and an ROI of 2000%.

Try the LTV and ROI calculations for your practice! You might be surprised how much you could benefit by making some room in your marketing budget.