Latest / The Word of Mouth Podcast / More Patients Won't Save Your Practice: The Numbers Behind Successful Marketing | WOM 025
Transcript
- Jeff: Welcome to the Word of Mouth Podcast, your weekly podcast covering the business of dentistry. I'm your host, Jeff, and today I'm joined by my co host Troy. Troy: Good to be with you, Jeff. Jeff: Awesome. So last week we talked about insurance and in-house plans and we got a lot of questions about insurance as kind of a marketing mechanism and what that looks like. We talked about that a little bit last week, but we wanted to cover it a little bit more in detail. So this week and next week we'll be covering kind of the numbers behind the marketing and patient acquisition that's goes into running and operating a dental clinic. Troy: That's right. It's an expense that's that's hidden oftentimes on the insurance side of things when we're talking about reimbursements as a as a a a marketing cost effectively. But as we talked a little bit more and and looked at some of the questions that we were getting, we thought maybe it'd be helpful to just talk about kind of some of the numbers that go into a practice generally and maybe split it a little bit. With this week a focus on some of the numbers that relate to marketing, and then next week we can talk a little bit about some of those in clinic numbers that that also impact the profitability of a of a dental practice. Jeff: Definitely. So where do we wanna start this week on the external marketing numbers? Troy: Yeah, and I I there's a few that we can go over and I guess maybe why i it becomes important is a lot of dentists are expressing this this sense of you know that they're being squosen. and they know that things aren't going the way they'd like. The practice maybe is trending downward in terms of the the net profit that it's producing. And they can certainly point to certain things. You know, labor expense is one that we hear from a lot of dentists about, is really creating some issues. but there are some numbers that as we've talked with with them, that they're maybe not as aware of how big an impact they have on their practice as it really does. So in terms of marketing, why don't we maybe start with what we're talking about in terms of the insurance as a marketing expense and and then we can tie in some other things from there, Jeff. How does how does that sound? Jeff: Great. So when it comes to insurance, the biggest thing to look at from a marketing expense that's one of those kind of hidden numbers is your cost of patient acquisition. And for insurance, that's not as apparent as it might be if you're running ads, for example. Because with insurance, your cost of patient acquisition or CAC is the common marketing term, customer acquisition cost, is tied to what the reimbursement you're receiving is. So you bill out to insurance X dollars, you receive back X dollars. That delta is the CAC for any insurance patient. Troy: Yeah, the so the write-off, that delta that you're talking about, that write-off becomes effectively the cost. Now, some dentists that we've talked with have viewed insurance as kind of an organic marketing, meaning they're not actually paying for it. and some have even suggested, hey, this is fantastic. We don't have to pay anything to get these patients. They look at who, you know, who's on the panel, who's on the insurance provider's panel, and They just give us a call and show up and it's fantastic. when we dig into the numbers a little bit and and show them, okay, here's what those write offs look like for you each month or each year. What what what is that paying for? Like what are you getting out of that that write-off, that delta? And you know, it may not be obvious at first, but becomes very obvious when posed with that question. What they're getting is somebody else providing them those c those patients. And so, you know, however you want to couch it, that really is just the marketing expense associated with those patients. Now you start digging in and saying, okay, what does that look like over the course of a year? What does that look like over the course of the lifetime of that patient if they are one that that stays with the practice for many years? you know, if that write-off is say $100 for each visit on average, well, suddenly you look over the course of five years and you know, that's if they're coming twice a year, that that ends up being an extraordinarily high. Customer acquisition cost or patient acquisition cost. And so you know, the goal in in terms of looking at the numbers is just making sure that you're getting the the full tapestry of of what your practice performance is and what the expenses are related to that performance, so that ultimately the goal is to optimize around those numbers. Jeff: Yeah, and you brought up another number, which I think is kind of the natural next next one to talk about, and that's a lifetime value. and for dental clinics it's patient lifetime value. And you're looking at what is the revenue generated from that patient over the life of their visits to the clinic. And for dental clinics, that number can be extraordinarily high. but you wanna kind of look at averages across and patient demographics. Are they insurance patients? Are they cash pay patients, are they referrals? Are they kind of coming in for a special? Depending on how they enter your clinic, the lifetime value can fluctuate really quite a bit just because of the large numbers and the length of time that the patients come into practice. But before I leave it to you, I just want to say that lifetime value is best viewed as a ratio to the customer acquisition c cost. So you oftentimes will see a CAC LTV ratio or LTV CAC ratio where you're comparing how much money is that patient bringing in versus what are they costing me. And again, long times, but insurance patients, the CAC continues to go up because every visit has that write-off, but their lifetime value also goes up. So you just want to make sure that that ratio is in line with what is effective for your practice. Troy: For sure. And and you kind of hit on a really important part w as you're comparing those or as you're analy analyzing those, you want to be segmenting your your patients, at least as you're putting together a marketing strategy, you want to be seg segmenting your patients based on the anticipated lifetime value. And and what I mean by that is that there's going to be certain channels and or certain patient profiles, demographic, socioeconomic, whatever it might be, that have from a probability standpoint, have a higher foreseeable lifetime value. And for those patients, you can justify a higher CAC. Now, you know, and not to pick on insurance patients, but if you're looking at insurance patients, that they Tend to not have the same longevity because they do tend to often move if insurance coverages change, a job change, what you know, if there's anything that happens as it relates to that insurance consideration, that can affect a movement between practices. And so for that type of patient, if we're just comparing, you know, a non-insurance patient who fits the the The profile of one who's gonna stick around and accept treatment cases, versus an insurance patient who may not stick around and who has a high write-off because of the plan that they're on, you can see that that the practices can really get upside down by misprioritizing where to spend their money, who they're targeting. And by not measuring it by those segments to see what is really effective in terms of dropping to bottom line and what is, you know, what is putting people in the seats, but doing so in a way that that leads to to, you know, very little dropping to the bottom line of the practice. Jeff: Yeah, and we talked a little bit last week about this. So please go check out that episode for more of this kind of topic. But we see a lot of times with insurance patients as well that they opt for less treatment because it's more of what their plan covers. And so a lot of times dentists will diagnose and prescribe a treatment, and the patient will say, Well, does my insurance cover that? If the answer is no. Okay, what are the options, what are the alternatives to get it done in a way that's covered and is possibly cheaper, or cheaper because that's kind of the framework that they're working from when they have insurance. Troy: Yeah, and and a another important element, I I I will say average lifetime value, some people might be looking at that and thinking, well that sounds great, but how do I really know? And and there's some truth to that. It is not that is not the the full the full picture. another really important consideration is you know the the the patient acquisition cost relative to to actual cash collected at you know appointment one or over the course of the anticipated year so annual patient value and sometimes tightening up those windows also can provide some interesting insights into practice marketing priorities. I'll just a quick example of a a general dentist that offers orthodontics that we're working with he really wanted to build that that practice and recognized the cash benefit of of orthodontic patients. Now, obviously he wants to continue to use them over time, but running a promotional campaign as it relates to the orthodontia or where an awareness campaign as it r relates to orthodontics created a very significant increase in in the amount he received. Time zero. And yes, some of those patients may not continue with him. So the average lifetime value may not extend beyond that initial production infusion, but that doesn't mean it was the wrong thing to do. And so again, these numbers, th there's not a a one size fits all for any, even for any practice, but it's really a function of saying, okay. As we looked at that that campaign that we ran from them, a huge ROI on it, even though it was just a current ROI, the average lifetime value of that campaign it it it will diminish over time because he doesn't have the many of those patients are going to be a one-off patient. so looking at that kind of the longitudinally. There are different decisions that can be made based on different numbers, none of which are right or wrong. They just are telling a different story, painting a different picture, providing different opportunities, but also illustrating different risks. Jeff: Yeah. I would say for marketing channels like insurance or even referrals, a L T V CAC ratio is a great way to look at it because there is more of that longitudinal expectation. but for individual campaigns, especially not in sort of the general dentistry, which we have a hard time justifying a lot, and we've talked about that in past episodes with the way Google ads is trending. But for marketing campaigns, the number that we look at that's very similar but slightly different is return on ad spend. And so for those kind of marketing channels, you're spending the dollar once, you're getting the person in the door. You're not needing to s continue to spend like you are with an insurance patient where that marketing acquisition cost is a little bit baked in. And you may get insurance patients from your ad dollars and that's Certainly a consideration, but if you're looking at an orthodontics campaign, you're looking at return on ad spend rather than a LTV CAC ratio. Because the ROAS might be if you put in a hundred dollars and get a single patient back and they're five thousand dollars cash collected, then that's a fifty to one and that's awesome. And whether or not they have Troy: Mm-hmm. Jeff: longitudinal lifetime value, a fifty to one ROI or ROAS is an unbelievable result. and so looking at that number for your marketing campaigns, whether it's implants, all on X, orthodontic, sedation, sleep, whatever you're trying to market out to the to get new patients in that higher value, that higher cash collected bracket, that's the number you're looking at is return on ad spend. Troy: Yeah. And and and ROAS you know, s we we've we're sometimes asked, well, what's the difference between ROAS and ROI? And as it relates to your ad spend, there isn't. it's just tying specifically to the the amount spent on the ads. so the maths the math is the same when we're looking at ad spend to to cash collected. it's just a a a more precise term is is return on ad spend. So The goal is to increase awareness a little bit about the fact that these mathematical equations tell you stories about the effectiveness of where you're spending your money in advertising and just where you're a direct where you're directing attention. we we try to to help dentists get out of the mindset. That it's all about number of new patients, you know, just as a flat number, that that's the one that matters. And instead talk about the quality of the patients, not only as it relates to to near-term production, but what does that longer-term outlook look like for the quality of the patients as it relates to the profitability of the practice? Because at the end of the day, top-line growth, number of patients. Growth, even new patients per month growth, none of those actually help a practice. In fact, oftentimes they hurt a practice, but they they don't help a practice unless they are producing growth to the net profit, the bottom line of the practice. And so we oftentimes see dentists making what ultimately is a bad business decision. chasing some of those top line numbers instead of really looking, digging into some of these other marketing numbers. And again, we'll talk next week about some of those in clinic numbers, but instead of diving into some of these these marketing numbers and really evaluating what is the impact on the profitability of the practice. Because profitability obviously it's what you get to take home as a practice owner, but it's also what drives the the value of the practice if you're looking to, you know, to p position for an exit at some point. So it it's what at the end of the day, it's the number that matters most. but all of these other marketing numbers help build strategies that are going to help build that profitability. Jeff: Yeah, I would say the number one problem we hear dentists express is I I just need more patience. And if that is your problem, we have a very easy solution. Just offer your services for free. That will get you a near Troy: Yeah. Jeff: infinite supply of patients. And so if that's obviously not the way you want to operate your clinic, then your problem isn't necessarily patience. And then typically the jump is to, well, I need more revenue. And At that point you say, well, operate twenty-four hours a day, seven days a week, focus on emergency. There's plenty of money in that, and there aren't a lot of clinics that are open in the middle of the night. But that's also not what dentists want to do. And that's okay. We don't expect that. But that drives us down to the real crux of the issue. And it's something that we've talked a lot about on the podcast. But dentists' salaries over the last ten years have are the only Only job, the only profession that has gone in healthcare that's gone down in salary, dollar for dollar. They made X ten years ago, I think it's sixteen percent less. They're making dollar for dollar compared to ten years ago. And what dentists really want isn't more patients or more dollars in their clinic. It's they want to take home. The kind of money that allows them the lifestyle that they they want. They don't want to have to work seven days a week. They want to work the schedule that they want and be able to have the lifestyle that they want. And in order to get that, it isn't just increase top line dollar top line dollars or just increase number of patients because all of those come with associated costs, whether it's insurance, whether it's personnel, whether it's marketing. Whether it's just administration and cost of goods sold, kind of the cost of supplies. And so what dentists need to understand with all of these numbers is that the ones that are important are the ones that lead to the solution to their problem, which is the lifestyle and the salary that that they want to take home. Troy: Yeah, nope, that's exactly right. It's take home pay if you own a practice. I mean it's not technically a salary, but you the what what you what is available for you to take home aligned with the lifestyle you want, that's the goal. And so to your point, Jeff, there's there we see a lot of decisions that are being made to try to drive a number that isn't actually the number that they really want to see grow. And it creates a lot of you know, a lot of dissatisfaction, a lot of frustration, and and and challenges that that practices bump into that were avoidable if they were just clear on the numbers and clear on what number really matters to them. So hopefully this has been helpful. Jeff: We hope that this has been helpful in terms of talking about marketing numbers. We are of course available to answer any questions. please you can get in contact with us you can visit our website or in the show notes there will be a link to book a call with us. We'd love to talk about. where your practice is and what opportunities kind of exist for your practice in your market with your goals in mind. it was a pleasure talking with you this week, Troy, about the external marketing numbers and factors that affect kind of what dentists' goals are for growing their practice. Look forward to next week when we can talk about the internal factors that affect growing your practice and building the lifestyle and take home pay that facilitates that lifestyle. So appreciate chatting with you always and look forward to seeing you next week.