ROI & Marketing
Tracking the return on investment for marketing practices.
By Steve Stalzer, PT, MBA
Effective marketing reaches individuals who need therapy and provides them with a positive impression of your staff’s skills, services, and abilities.
As clinic owners, we are only successful when potential clients are aware of our services as well as our competitive advantages.
The challenge for most owners lies in how to gain confidence that our marketing initiatives will be fruitful. Most owners would happily spend $40 if they knew that it would result in an additional $800–$1,200 of revenue and $100–$200 of profit. Tracking your return on investment (ROI) for marketing initiatives is essential to gaining this confidence and growing your practice.
Too often, businesses make significant investments in marketing without the infrastructure to assess the results of those efforts. Before treating a patient, you identify objective measures that are used to assess progress and adjust treatment in the patient’s plan of care. In the same way, objective measures are needed to determine the effectiveness of marketing strategies that drive growth.
Putting simple systems in place to calculate marketing ROI and compare various marketing initiatives will generate growth and profitability.
Establishing baseline metrics is the first step toward effective marketing. This step is essential to understanding current referral patterns and vital to tracking future efforts. Start by identifying your top five to six referral channels by asking patients, “How did you find out about our therapy team?” Note that you are not simply recording the physician who signed a therapy script but answering the question of why the patient chose your practice over a competitor. Top sources typically include physicians, past patients or past patient referrals, internet search, advertising, and community outreach/events.
Limit your list to no more than six channels and make sure you have an efficient method for recording this information. If your EMR does not allow you to record this information, consider building a simple Excel sheet with a dropdown list. Training front office staff on proper recording is essential for accuracy and consistency.
Use the same top referral channels to track your marketing spending. Work with your bookkeeper to set up marketing subaccounts that match your top referral channels. Using the list of sources already mentioned, this would include a subaccount for marketing efforts targeted to physicians, past patients, internet searches, advertising, and community outreach/events. You may need to manually add expenses that are recorded elsewhere such as labor or mileage. Track your marketing spending as closely as possible, but don’t worry about 100 percent accuracy. In the end, you are looking to make smarter business decisions, and you don’t need complete accuracy to achieve that goal.
Once you have at least three months’ worth of data, calculate your average new patient or customer acquisition cost (CAC). This is simply calculated by dividing your total marketing spending by the total number of new patients seen during that time. Let’s say you spent $12,000 in total marketing and saw 300 new patients over the past three months. Dividing $12,000 by 300 gives you an average CAC of $40.
Let’s look at a “textbook ROI” example. To assess your marketing ROI, start by looking at your average customer revenue. Let’s assume you average $80 in collected revenue per visit, and each patient averages 11 visits before discharge. This results in an average customer revenue of $880. Next, calculate your average customer profit. Multiply your average customer revenue by your average profit as a percentage of revenue. Using an average customer revenue of $880 and a 15 percent profit margin gives you $132 in average customer profit.
The final step in determining ROI is to divide your average customer profit ($132) by your average customer acquisition cost ($40), then multiply that number by 100 ($132/$40 = 3.3 x 100 = 330 percent). A new clinic that is not yet profitable will have a negative average customer profit and therefore a negative ROI. In this case, you may consider simply establishing a marketing budget by multiplying your new patient target by your CAC (100 new patients x $40 = $4,000). (See Table 1 below.)
|Total Marketing Spending (marketing plus labor and mileage)||$12,000|
|New Customers Acquired (total new patients)||300|
|Average Customer Acquisition Cost||$40|
|Average Customer Profit||$132|
|ROI: customer profit/customer acquisition cost or ($132/$40) x 100||330%|
Now that you have an overall CAC and ROI, you can do the same analysis for each referral channel. Simply create a spreadsheet that breaks down new patients and spending by the channels you previously established. To perform a general analysis, use your average customer profit divided by the specific CAC for that channel. Your spreadsheet will look like this (see Table 2 below):
|Total||Physician||Past Patients||Internet Search||Advertising|
|Total Marketing Spending||$12,000||$4,000||$2,000||$2,000||$4,000|
|New Customers Acquired||300||120||100||40||400|
|Average Customer Profit||$132||$132||$132||$132||$132|
Assessing New Initiatives
With this information, you are now able to assess the ROI for new initiatives in comparison to your baseline data. In many cases, your baseline referral data includes the results from past efforts such as years of building personal physician relations. Choosing which future initiatives to invest in requires more than simply spending more on the channel with the highest ROI. Owners are wise to consider referral diversity goals, environmental trends, and current referral trends to determine which channels warrant additional investment and which may warrant a reduction in spending.
With a simple tracking system in place, you can assess the results of marketing campaigns with objective data and gain confidence that your marketing is indeed an investment rather than an expense. You will be able to make strategic decisions that align your growth goals and your marketing budget rather than simply throwing money at the next “Marketing Secrets” postcard or email you receive. Once you have a proper tracking system in place, you can easily add a pivot table to break down ROI by individual clinic or service lines such as orthopedics, hand therapy, and women’s health.
Steve Stalzer, PT, MBA, is a PPS member and practice consultant with 8150 advisors. He has more than 20 years of experience in strategic growth, operational efficiency, and succession planning. Steve can be reached at firstname.lastname@example.org.