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Customer Lifetime Value: How to Calculate It for High LTV Medical Practices & Why It Matters

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Customer Lifetime Value: How to Calculate It for High LTV Medical Practices & Why It Matters

Remember our last post on calculating customer lifetime value (aka CLV)? Well, if you don’t, you should check it out.

But, that one focused on providing our readers who work with low lifetime value businesses with the formula they need. One that forecasts the net profit their company can expect to generate from a customer’s purchases over the course of their relationship with them.

What businesses fall into the low lifetime value category, you ask? Think hair salons, restaurants, gyms, and other similar businesses that have the opportunity to bring in a flood of people through their doors. But, those people have less value as they won’t be investing a large chunk of money in the future or coming back often.

So, maybe you’re wondering: What about me? I work with high lifetime value businesses—like a chiropractic practice, dental practice, plastic surgery practice, and so on. And, I want to know how to figure out the customer lifetime value for them.

why customer lifetime value matters to medical practices

We hear you loud and clear! And, that’s why we’re coming back to you with today’s post. Yeah, you guessed it. It’s all for you and your client.

Get ready for a breakdown of the formula you need, helping you get the numbers you’ve been looking for in order to:

  • Determine the ROI of your marketing efforts.
  • Make calculated decisions about where to put the most effort & moola to generate the greatest success.

Okay, let’s get right to it…

What’s Customer Lifetime Value (CLV) again?

why customer lifetime value matters to medical practices

You’ll see it abbreviated as LTV or LCV or CLTV. But, no matter what people call it, CLV is:

A prediction of the average value a business can expect to gain from their entire relationship with all customers.

So, you can probably gather that the length of time you’re able to retain your customer is very, very important.

Clear as mud? Don’t worry. We’ll straighten things out in a few seconds. First up, let’s break apart the CLV equation you came here for.

Here’s how to calculate it for your high LTV biz.

One thing is for sure: you’ll want to avoid putting the words “customer lifetime value” into your next Google search. Reason being, there are many different variations as to how you can calculate it. Just look at this image.

why customer lifetime value matters to medical practices

If that makes you break out into a cold sweat, I’m sorry. I just had to share because we’ve dug deep to pull together a no nonsense calculation that’ll get the job done. And, one more thing to note:

Accurate CLVs should ONLY be calculated for well-established high lifetime value practices that have been in business for AT LEAST 3-5 years. 

Got it? Okay, let’s do this!

To figure out your average CLV, you can easily multiply the average annual customer purchase value by the average length of a customer relationship with the practice.

Here’s what the formula looks like for those visual learners out there:

why customer lifetime value matters to medical practices

Now, I’m sure you have many, many questions popping up in your mind. And, that’s okay. Together, we’re going to walk through an example, featuring a fictitious dental practice: Pearly Whites Dentistry.

Before diving into any calculations, there are a few steps we need to tackle to help us figure out the first part of the equation: the average annual customer purchase value.

  • Export patient data from Pearly Whites Dentistry’s database.
  • Work out the gross patient revenue. 
  • Then, divide that value by the TOTAL number of patients per year.

In this case, we’ll use the following revenue for a general dentist practice—$1,200,000—for the gross patient revenue for Pearly Whites Dentistry. And, we’ll use the ideal number of patients—1,500—for the total number of patients at Pearly Whites Dentistry. Reason being, that's the maximum number of patients to run a practice successfully

Thus, based on step 3, we’ll take $1,200,000 divided by 1,500 = $800, Pearly Whites Dentistry’s average annual customer purchase value. The first part of your two-part CLV formula.

To continue on with the calculation, we’ll take $800 (the average annual customer purchase value) and multiply it by the average length of a patient relationship with the practice.

Of course, you’ll need to look at your patient data to determine the correct number for your practice. But, for this example, we’ll use 10 years. According to Futuredontics, 10 years seems to be the universal duration of a patient relationship.  

$800 x 10 years = $8,000, Pearly Whites Dentistry’s customer lifetime value.

why customer lifetime value matters to medical practices

Of course, you always want your CLV to be as high as possible. And, you can increase it by getting secondary referrals from your current patients. It really is your golden ticket to success! But, if, and only if, your practice has a systematic approach to identifying the source of every new patient to single out referral-generating sources (like word of mouth).

And, if you're looking for a way to calculate the CLV for your chiropractic practice, we didn't forget about you! Here's a simple formula we pulled from to help you get the job done:

why customer lifetime value matters to medical practices

Take this as an example:

The average treatment costs $100.

And, the average number of treatment sessions over a year is 12. $100 x 12 = $1,200.

Then, the average retention time of a patient is 3 years. So, finally, $1,200 x 3 = $3,600.

Therefore, the value of a new patient who joined the practice as a result of a marketing campaign is $3,600. So, say you spent $400 on said marketing campaign, you'd be seeing a strong ROI! Remember, the value isn't about what you can get out of the first few visits. Instead, it's what you can get out of the lifetime of the relationship with your patient.

Make sense? Great. Now, one of your main goals should be sticking out like a sore thumb: get your customers hooked on your business, making them come back time and time again to juice up your CLV. 

So… is CLV something I should really care about?

why customer lifetime value matters to medical practices

I’m glad you asked. As I’ve shared before, the process you go through to acquire new patients is much more pricey than nurturing relationships with your current customer base.

Thus, to answer your question, CLV is something you should really care about because it helps your practice with:

– Budgeting—allows you to determine the maximum allowable acquisition cost for new patients. Using those numbers, you can develop a thoughtful marketing and advertising budget that is related to the profitability of your business, helping you spend your hard-earned dollars wisely.

– Marketing and advertising messaging—offers you the opportunity to generate CLVs based on various buyer personas within your business. As a result, you’re able to segment customers according to your calculations, delivering specific groups different messaging they need and will respond to.

It also helps with your targeting efforts. Your CLV calculations show you how much you spent on acquiring a new patient. If it was worth it, you can dive deeper on their demographics, helping you hone in on your ideal customer profile that delivers the highest profit. Check out this blog post we put together on how you can ensure you target the right people to get 5 new patients into your client's dental practice THIS WEEK. 

– ROI—provides an accurate measurement of any and all marketing campaign performance, generating a real ROI from your patient acquisition efforts. Generally, the traditional ROI formula isn’t good enough as it measures revenue based on the first transaction alone.

– Retention efforts—helps you focus on keeping loyal patients in your practice, while putting the spotlight on the timeline for when people tend to take their money elsewhere. As a result, you’ll know the segment of patients you need to win back, the strategies to implement, and the steps to make them interested again.

Now, let me ask you a question: do you care about calculating your CLV now? I thought so.

Get to calculating!

You’ve got the CLV equation in your back pocket to help high lifetime value clients on your roster hone in on the total net profit they make from any given patient. And, it’s time to get to calculating it to pinpoint the marketing opportunities, and even referral strategies, that bring in some serious business.

Plus, if you’re looking to stay ahead of the game with your Facebook ad agency, we’ve got just the thing. It’s called AdLab—an ever-evolving course on Facebook ad strategy, guiding the most seasoned pros to success for years to come.

why customer lifetime value matters to medical practices

Are you already measuring the CLV for your client’s high LTV business? If so, in what ways have you found it helpful when it comes to furthering your success? Let us know in the comments section below. We’d love to hear from you.  

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