Hi Chris –
I'm not a fan of throwing marketing money around as a percentage of revenue. I look at analytics. Understanding your Patient Acquisition Cost (PAC) is crucial for the growth of an OBL. This single number can guide you through your marketing efforts and help you reduce expenses by eliminating ineffective marketing campaigns. Many practices I meet with have no idea what their PAC metric is. Most practices fail to consider the PAC metric. Instead, they scramble to acquire more and more patients, oblivious to the amount of money being paid out to reel them in. When you repeatedly spend money on marketing, regardless of whether it is on print ads, digital marketing, direct mail, or community education seminars, and you have no idea what your PAC is, it's bad for your business.
It is not surprising then that a practice that doesn't take the time to figure their PAC and Revenue Per Patient (RPP), is unwilling to spend money on marketing because they look at this as an expense, not something that generates revenue. In many business models, both within and outside of healthcare, many experts believe that failure to determine customer acquisition cost and revenue per customer and its impact on business, is a major reason why businesses fail. PAC and RPP is also an important metric for determining where and how to distribute your marketing dollars to maximize your return.
Calculating Your PAC Determining your patient acquisition cost is quite simple if your staff is trained to identify exactly where each and every patient found out about your practice and is committed to accurate documentation within your EMR. It all boils down to following these steps:
- Track your expenses for every marketing campaign initiated to create patient appointments.
- For each marketing campaign, categorize and track the number of patient appointments you acquired in the same timeline for which you tracked the expense.
- Divide your expenses per marketing campaign by the number of acquired patient appointments and you have the PAC for this specific marketing campaign.
- Now track the revenue generated (payor and patient payments) by each marketing campaign and you can identify the RPP.
Calculating Your PAC. Let's say you spend $15,000 in 4 months on a digital marketing campaign (SEO, Social Media, Paid Search) and you gain you gain 32 new patients. Your PAC for your digital marketing campaign is $468.75. ($15,000 / 32 = $468.75.) Repeat this process for all of your marketing initiatives.
Calculating Your RPP. In the PAC example above, you spent $468.75 to acquire a new patient. Now we track all (32) patients through treatment and payment. If the (32) patients generated $110,000 in revenue, your RPP would be $3,437.50. ($110,000 / 32 = $3,437.50).
The relationship between the two metrics is easy to see. You spent $15,000 to gain $110,000 in revenue and your profit exceeds your cost for acquiring the new patient. In marketing, you always want your PAC to be less than your RPP. We generally look for a minimum of a 5:1 ROI for every dollar spent. The above example would generate a 14:1 ROI.
Decision Time. There's magic in the numbers. By examining the average PAC and RPP for each marketing initiative, you can decide the best places to put your marketing dollars to work. When you identify a marketing initiative in which you have an ROI greater than 5:1, it's time to invest more money in that initiative, but only if your practice has the capacity to support a growing patient base.
If you find that some marketing initiatives have a PAC that is higher than your RPP, you might want to do some due diligence. It might possibly be that patient appointments were not properly assigned to the correct marketing initiative or revenues were not tracked to the conclusion of treatment.
Marketing's job is only to make the phone ring - evaluate the phone skills of your front desk staff. The way phone calls to your practice are handled can decide whether callers schedule appointments! Are all callers treated with exceptional warmth and care? The way your staff members handle these calls determines whether prospects become new patients. The tone of all phone calls can set the stage for the entire patient experience.
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David Schmiege
MD Management
Westmont IL
(630) 455-4528
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Original Message:
Sent: 01-19-2023 09:59
From: Chris Snyder
Subject: OBL patient facing marketing
For OBL marketing, what % of your net revenue are you spending on marketing, including staff?
Also, what ROI are you seeing on your direct to patient marketing campaigns? ( Billboards, radio, print ad, tv, etc.)
Thank you
Christopher H. Snyder
Chief Operating Officer
Radiologic Associates of Fredericksburg
Virginia Medical Imaging
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Chris Snyder
Chief Operating Officer
Radiologic Associates of Fredericksburg
Fredericksburg VA
(540) 361-1000
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