I got an email from a veteran marketer Ben Altadonna who had a great point that I feel compelled to share with you.
The email:
How much are you willing to spend to procure a new customer?
How much is an average customer worth in your office? – The more a customer is worth, the more you can afford to spend to “get one”.
Do you get a lot of referrals? – If, lets say, on average 1 out of 3 new customers refer a customer to you and an average new customer is worth $1,000. Knowing this, you can add $333 to the average value of each new customer who was not referred to you.
If your overhead, not counting your salary or “take home”, is around 50%, then add MORE new patients/clients to your practice, you should be willing to spend UP TO HALF of what each customer is worth. If you did this, your practice would grow faster and still have a 50% profit margin.
Do you know how much you are spending NOW to attract a new customer?
You can and should do this 2 ways;
One, to find out how much on average ALL the new monthly customers cost you to attract and Two, how much JUST the “non-referred in” customers cost you.
Example:
You collect an average of $20,000 a month and get an average of 15 new customers of which 10 are referred in and the other 5 come from other means.
And let’s say you spend a TOTAL of $1,200 in “in office” and “external” marketing, promoting, and customer communication.
$1,200 divided by 15 new customers = $80 (This is cheap and proves the value of referrals!)
Now take your total monthly collections and divide it by the # of new customers you average per month who were NOT referred in. (Don’t count the customers who were referred in.)
$1,200 divided by 5 = $240.
What does this tell you? If you want more new customers, you must be willing to spend up $240 to get a new “non-referred in” customer.
I hope this exercise added some reality to your practice and the marketing math of practice building.
Watching Your Back,
Ben Altadonna, D.C.
/END of email
This is such a great explanation of the fact that you need to look at your acquisition cost and lifetime value of each customer.
SO many Doctors still believe in being cheap on websites and internet marketing because companies before ours would just sell cheap crap for $50 to $100 per month.
I did a survey of Doctors that get my ebook and ask how important is internet marketing for their practice.
It is never a surprise that the answers are almost always the same!
Doctors that see least patients per week spend less the least per month and get least new patients per month and think the internet is only somewhat important.
WAKE UP! You have to spend money to make money.
HUSTLE, MARKET, SELL.
Find People to TELL THE YOUR STORY TOO.
Get them to PAY, STAY and REFER.
Stop whining about being broke
Too many Practice Owners refuse to sell, refuse to be a great entrepreneurs and refuse to get out of their comfort zone.
Today you can change!
Figure out your average cost to acquire a new patient. Try to improve that number working with a conversion optimization company (Like us!)
But then ho many times can you spend that amount and get a new patient? You will exhaust certain channels at a certain spend amount. For example with Google Adwords you reach a point where continuing to increase you budget only increases your cost to acquire and not the number of new patients. But then you can add other channels, Facebook, SEO, Direct Mail, etc.
I have yet to met any doctor that has exhausted all channels.
Just because we should spend money on internet marketing doesn’t mean we should spend that much per customer. Internet marketing is actually much cheaper per customer – unless you spend on internet marketing that is not efficient. Adwords are only about $1.25 per click. If 1 in 20 converts (which is low), that is only $25.00 for a new customer. Of course if everyone does this, the cost per click will go up! Getting a number one spot on the search engines is still rather easy in most areas. If you your an aggressive Local Business in your area that snatched up the #1 spot for +Local Business +city, you can always target the zip code. Plenty of people narrow their searches this way. And the king spot of cheap internet marketing is Google Places. Again, optimize it and get reviews from your customers. Do you collect email addresses? Then you know which ones already have Google accounts!
Most businesses should spend 10% of their annual profit on marketing if they want to grow their business. Doctors have a tendency to forget they are a business. If your practice has an annual profit of $100,000 you should spend $10,000 a year. Yet most doctors if you told them they should spend $10,000 a year on marketing would think you were nuts. But let’s look at it another way. If you spend $1,000 a month marketing and that brought you 5 new high quality customers a month, and each of those were worth $1500 to $2000, that would be an additional revenue of $7,500 to $10,000 a month. That would be a return of investment of about 7 to 10X. If your investment advisor called you up and said, I have an investment that will pay you a 7 to 10 times return would you take it? Finding investments that pay 7 to 10 times is very hard and most people only dream of that kind of return. Now the investment advisor says oh by the way that is monthly not yearly. Now you are ready to hock the house, go into the kids college fund to make this happen. That’s what marketing your practice is like. Except it’s an even better investment, because when you put the money into your practice you are investing in yourself so the outcome depends on you. What better kind of investment is there than the one you control?
Dr. Alan
Creator of the Cross Platform Widget
Matt, this is so important for Local Businesss to keep in mind. We can’t be thinking that new customers will just come to us for free. They have to be effectively marketed to, and that costs some money. DC’s must get a better mindset when it comes to marketing.
Thanks Matt & Ben. I will go through my statr right away and see what I have been spending to get a new customer.
@DrHaley – yes but that is if you do it all yourself which most Doctors don;t have the time or knowledge. But if you do then yes you can save some money for sure.
@DrAlan – another great way to view ROI
@DrSteve – yes and really work the referral aspect to keep your cost down!
@DrRussel – Watch the anchor text you use google is on the hunt don’t be too aggressive like JCPenny’s!
@Todd – great minds thing a like. I would love to have you, me, Ben, Dr Beck in a room or a single conference… Hmmm
@DrBeck – again – great minds thing a like. I would love to have you, me, Ben, Dr Beck in a room or a single conference… Hmmm
@DrAnderson – Life time care is the way to go for everyone. We just need to get the world to know it!
@Shoreview – You are welcome view those stats and optimize for maximum results!
Very good article and wake up call to most. We currently have a brand new practice and all of our new customers have come through the internet. We are not yet where we would like to be so I would imagine we need to spend more money on marketing. Thanks for the article.
Practice statistics are so important for doctors to know what their new customers are worth and therefore how much they can afford to spend to earn new customers.
A big factor is of course the more referrals you get, the less it will cost to obtain customers.
Hey Matt… funny… I emailed Ben in response to this email to let him know I also thought he did a great job of articulating some critical customer-acquisition info.
Great post Matt. I choose lifetime Local Business care for myself and family, so it’s easy for me to tell my customers that’s what they should expect. When I come from that point of view, the cost of acquiring a lifetime customer should increase.
The hardest part seems to be taking that first step of making that initial “investment” and not looking at it as an expense I guess.
Sometimes these numbers make my head spin. Ben did a nice job simplifying it. I’ve been approached by numerous paperad type of industries who are trying to get more internet ad sales because thats where the future is and their paper ads just don’t work anymore.
Cool info. Thanks,
Aaron
It always boggles my mind how Local Businesss skimp to save a few dollars, when they should be using their resources to seed for more. Money makes money but would advise to spend it wisely and track your ROI
OK, so where and on what is the best way to invest in our practices?
@Local Business El Dorado Hills With GotchaLocal of course! You should invest in multiple streams of new customers. Have as many that you can find that give you a positive return on investment. I don’t believe in one size fits all. So can’t give you an exact do this do that etc. But internet, events, maybe some print, possibly radio and networking groups with referrals being the number one best source of new customers. Everything else should be to get more customers to get more referrals.
Cheers,
Matt