How Much Can You Afford To Pay For New Clients?

How Much Can You Afford To Pay For New Clients?

By |2018-07-26T04:09:46+00:00July 16th, 2018|

Are you making money from your marketing efforts?

Many healthcare practice owners know they need to invest time and money into marketing their business, but how do you know which of these marketing channels are working?

Before we get into measuring ROI for each channel, you need to have a think about how much you’re prepared to pay to land yourself a new client. Life Time Value or LTV is a metric that we frequently refer back to when working on a marketing strategy for a new practice. This is the amount of revenue you expect to receive during the lifetime of a client or patient at your practice. There’s no simple or accurate way to calculate this, so there’ll be some guesswork and common sense, but you get the idea.

How To Calculate Lifetime Value of a Client

There are many ways to calculate your LTV and if you really want to go into this then there’s plenty online resources out there to help you with that. The most basic way I generally look at it is (Average retention rate) X (Average appointment value) = LTV. You may find that your Practice Management Software will give you your average retention rate or I’d also suggest looking into Cliniq Apps which will make it easier for you.

For example, you might run a psychology practice in Central Sydney and not see any bulk billed clients. So you know that you’ll always charge between $150-$180 depending on who the client sees. So let’s just say the average appointment is worth $160 to your business.

Then, you look at the average retention rate of your clients over a 3 or 6 month period. From experience, the average psychology practice has a retention rate of 5 appointments.

So, I’d simply say $160 X 5 = $800. Easy right?

How Much Can You Afford to Spend to Find That New Client?

Now that you know what a new client is worth to you on average, how much are you prepared to pay to acquire that client?  Everyone is different, some practices employ contractors, some have full time staff, some have their own clinic, some rent space, everyone’s margins are different so I can’t even begin to give examples here. What I will say though, from a business perspective, somewhere between 10-20% of your LTV would be a good start.

Keeping with our psychology example, if I were running my own practice, I know that the average client is worth $800 to me, and I’m ok with paying 10% to acquire that customer, this is also known as the cost of acquisition, so the goal would be to have it cost no more than $80 to get a new client on board.

At this point you can make it as complicated as you like, some practice owners would be happy to look at the amount of money they spend on marketing in total, i.e website, AdWords, SEO etc then divide that by the number of new bookings they received during the month.

Here is an example;

Mark runs a psychology clinic in Sydney and he works with us spending money on AdWords.

Last month he spent a total of $2993 on marketing, that same month he had 32 new clients book with his practice.

As a psychology practice, the LTV of a new client is $800, so we could say that through his marketing activities last month, he generated approx $25,600 of new business. This means he’s spending approximately $88 to find a new client or 11% of the LTV.

Lifetime value of a healthcare practice client and how to calculate it

Conclusion

You can be much more accurate with calculating your CPA per channel, here at Studio 56 we measure all the phone calls that come into the business and where they came from, this allows our clients to dig much deeper and calculate ROI for each specific channel. If you would like more information about tracking new enquiries, check out this article here.