It doesn't work for dentists to plug along in their daily practice and hope they're making a profit. There are actual measurements dentists can use to make sure their practice is profitable. Find out what they are here.
With everyone hoping that the rest of 2016 will be a better year than last year—even if 2015 was great for you—it’s important that you base your success on the right factors. If you want to get a clear idea of how well your practice is doing, there are seven key factors you should be tracking. These should help you see how you’re doing and help you identify the best opportunities to make big leaps in profit.1. Number of new patients each month
The first thing you need to measure is the number of new patients you bring in every month. This is crucial because you always need to be feeding the funnel with new patients. Your patient base is one of your most valuable assets, and the key to your success is a steady flow of patients coming in your door, and then staying and building a relationship with your practice.
One of the major benefits of bringing in new patents is that the people who are new to your patient base will be more responsive to your offers. If someone has been with your practice for 10 years and you’ve never sent them a patient newsletter or asked for a referral, even though they’ve been a good patient who comes in every six months, they’re not likely to respond to your new offers.
On the other hand, someone who joined your practice more recently, after you started sending out newsletters, has always been asked for referrals and is more likely to respond. So, the new blood in your practice is very important. It’s important to put a lot of effort into marketing to existing patients, but you need to keep getting new blood into your practice.
The first key to measure is how many new patients are you are bringing in a month, and what’s your goal?
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2. Cost of acquiring a new patient
The second thing you need to know is what it costs you to acquire a new patient. This is also called cost of acquisition. Acquiring a client/patient is usually viewed as an expense, but you need to shift your thinking to see each new patient as an asset.
A lot of people look for the cheapest way to acquire new patients. This is not the best area to be cheap. The way you dominate a market is to be able to spend more than your competition on acquiring patients. It might cost $50 or $150 for a new patient. But if that patient is worth $500 in the first six months or $1,500 in the first year, what is that person worth to you?
If you count how many referrals someone sends you and how much they spend with you on their own or their family’s dental care, they could easily be worth between $3,000 and $5,500 in a three- to five-year period.
Sometimes the value is higher and other times it’s lower. But where else in the world can you spend $50 to $150 on acquiring an asset that can bring you $500 to $1,500 in less than a year?
That’s a seven to 10 times return on investment within a 12-month period. You can’t get that anywhere else. So, when you’re in growth mode, you should be investing as much as you can in growing your existing practice. Once you know the cost of acquisition, you understand how much money you’ll need to get to your new patient goal.
When you start bumping up the referrals, the cost of acquisition gets cut in half. To start measuring your cost of acquisition, simply total your marketing expenses over the last month or three months. Then divide that figure by the number of new patients.
If you brought in 50 new patients and spent $1,000, that’s 1,000 divided by 50, or just $20 per new patient. If that’s your cost of acquisition, you can be a lot more aggressive on a referral rewards program, or sending out offers to your existing patient base. You could be a lot more aggressive with some other strategies because $20 per new patient is low. I would suggest you’re either not marketing aggressively enough or you’ve got a great referral program going on.
Besides looking at the average cost of acquiring a patient, you should look at the cost of acquisition by source. You need to know if it costs more via direct mail or the internet, so you need to know the cost for each method.
3. Referral ratio
Many doctors say they get a lot of referrals, but they often don’t know exactly how many. If you’ve got 1,000 active patients and you’re getting five referrals a month, you’re looking at 60 referrals a year from an active patient base of 1,000.
That’s a 6% referral ratio. That’s not very good, but it can easily be improved. Here are some quick ideas that you can apply immediately to improve the referral ratio.
- Have a ‘Care to Share’ program in your office.
- Send out a patient newsletter each month.
- Hold at least one patient appreciation event a year.
Start by measuring your referral ratio. If you’re at 6% now, set a goal with the team to get to 15% or 20%. You’ll notice that new patient flow and cost of acquisition are affected positively by what you do with the referral ratio.
4. Conversion ratio
Your conversion ratio is the proportion of patients who accept treatment. If it’s 50%, for example, this suggests your new patient experience is not working properly. Your system should identify the problem for the patient, and agitate the problem. Then your team should adequately educate the patient so that you can wrap up the presentation and see how the patient wants to proceed.
If case presentation is done properly, 80% to 90% of patients should be accepting some kind of treatment. When cases are presented using the terms “mandatory,” “elective,” or “cosmetic,” patients can start moving forward without needing to have the whole $5,000 case up front.
5. Sale-to-cash cycle
The next key factor you need to track is your “sale to cash cycle.” When you’re doing a lot of marketing, you might be hitting your acquisition goals, but the problem is that your overall cost of acquisition is going way up. Even if it’s only $50 to acquire a patient, if you double the amount of new patients, you could be spending an extra $6,000 a month acquiring new patients.
So you need to know your referral ratio and your conversion ratio. But you also need to know your sale-to-cash cycle. This is the time it takes between that person coming in as a new patient and you having positive cash flow in the bank.
If you’re spending $12,000 in marketing and it takes 60 days to get that money in your bank account, you go negative $12,000. If you do that two months in a row, you’re negative $24,000. What happens if it’s a 90-day cycle? What if it’s one of those cycles where you have a really bad conversion ratio and low case acceptance?
You’re left hoping that in six months you have enough money in the bank. So you need to look at how much money you’re putting in the bank after six months with every new patient who walks through your door.
Here’s a worthwhile exercise. In July of every year, pull up all the clients you received in January. Have someone open every person’s file and find out how much treatment was planned and how much cash was actually paid. Then create it as an Excel sheet with name, cash, and treatment plan. You can do the same in January for new patients from July. This tells you how much money is in the bank based on what was planned. Many business owners inflate these numbers unless they actually hold themselves accountable.
6. Percentage of patients keeping six-month appointment
Another important metric is the number of patients keeping their six-month (or 12-month) appointments. This is important as it will show you the reality of how patients are responding to you. It’s about accountability. It measures how well you’re doing at the front desk and how you’re doing at getting patients back in.
7. Daily production
Last but not least, you should be tracking how much each area of your practice is producing per month and per day. You should do this for hygiene. This can be a great leverage point for your practice. If this is working well, it opens up a lot of opportunities. You should also be tracking how much you’re producing per hour and how much each doctor and associate is producing per hour. It’s important for you to understand what your time is worth. When you know what your hygienists and associates are producing, you can figure out what you need to do to bump up their numbers.
This gives you the seven key metrics you should be tracking in 2016. The key to all these metrics is that just making 5% or 10% improvements in a few of them leads to monumental overall growth in your practice. By knowing exactly what to measure and how to improve the results, you could make this your best year yet.
If you’d like to learn more about how to attract more highly qualified patients with money, click here for a proven game-plan.
