Understanding Patients & Profit Margins Keys For Your Practice's Success

**Original article published in August 2011. Updated and re-published in December 2020.

As a doctor running a medical or aesthetic practice you have many things to keep track of (or at least be aware of), employees, payroll, marketing, scheduling and much more.

One of the biggest things that I see overlooked is an in-depth understanding of which services are most popular and which services are most profitable. Sure, you can probably figure out pretty quickly what service most people are coming in for most frequently, but have you crunched the numbers?

Know your margins…

For starters, you need to know the profit margin on every single one of your services. For medical spas, dermatologists, and plastic surgeons, I realize that some of your injectables and fillers are subject to market variance, but you should still have a very good idea of their cost and your margin. The same goes for breast implants. Lasers are a bit trickier because you have to factor in BOTH the cost of the device itself as well as any consumable, but still, with some simple math you can figure out your margin. If you’re a cosmetic dentist you need to be aware of the cost of all supplies, including veneers, bridges, teeth whitening gel, etc.

*2020 Update: You need to know the fixed costs of the injectable, consumable, implant, and hospital fee, for example, for every procedure. You also need to know your seat cost. In other words, how much are you paying the person to perform the procedure in 15 minutes, 30 minutes, or 1 hour?

You can quickly see that injecting 20 units of Botox over a 30 min period where your margin on the injectable alone is only $20 for those 20 units and you’re paying your NP or another qualified staff member $30/hr, you’ve actual lost money, not even factoring the marketing (aquisition cost)! 

Keep in mind that in this example, we’re talking about a treatment with a very small profit margin, which is why it is widely known as a “loss leader.” That’s not necessarily a bad thing, as long as you are willing to lose money on the front-end transaction in order to convert that new patient into a lifetime patient, where their value could be $10l, $20k or more! That’s the how you truly calculate ROI, you factor in the backend revenue generated from a new patient!

It’s not enough to simply know your profit margins. You need to tailor your marketing strategy around these services. In other words, you need to more frequently promote and offer deals for these services. Here are a few different outlets to do this:

  • blogs
  • email marketing
  • Facebook & Twitter
  • Groupon or Living Social

*2020 Update: A lot has changed in 9 years so I’d alter that list above quite a bit! I still think blogs are critical, as is email marketing, and social media (although I’d add in Instagram to that mix). I wouldn’t focus on Groupon (who now owns Living Social) unless you are willing to heavily discount your services. 

Facebook is still one of the best places to promote a deal; however, back in 2011 you could get a ton of organic exposure by posting these deals. Now, it’s likely that very few of your fans will see these posts. It’s not all bad though, there are paid ads that you can leverage to gain exposure among those who already know you (boosted posts) and those who do not (targeted ads). I highly recommend both.

Google Ads is another place to promote specials. I wouldn’t launch a campaign to run for a month just for the special as it takes time to build up momentum with Google Ads, particularly dialing in your bidding strategy to keep your average cost-per-click low.  However, if you’re running happens to have a new or updated special then you should at the very least work that offer into the Promotion extension and your lading page, and I would also consider updating your ad copy.

Last but not least, back in 2011 there text messaging was not as prevelant amog businesses to consumer, but it is huge now because of the very high open rates. You should consider text messaging to get the word out about promotions.

Alright, so you know your profit margin; what else should you be aware of?

1) Value of a new patient: You need to know what the average new patient is worth. First, you need to figure out how long the average patient sees you for, and then you need to figure out what the average person spends per visit.
If the average person comes to the practice 10 times and spends $250 a visit then they’re worth $2,500. Simple math, right? Now, based on your profit margins you can then figure out how much you’re willing to spend to bring in a new patient.

*2020 Update: First, make sure you’re dialed into your math, specifically your profit. It’s easy to calculate revenue per patient, but what about profit? As noted above, you have fixed and variable costs to consider, as well as employee salaries/wages.

That collectively still only provides you with your gross profit as you need to then factor in your marketing and advertising investments in order to determine your net profit. This can be done as part of the acquisition cost of the new patient for their first visit so that each subsequent visit is much more profitable because it took no actual advertising dollar to get that patient back in the door and generating additional profit.

This is why it’s so often said that it’s so much cheaper to keep an existing patient than aquire a new one! It’s also why we have to recognize the difference between front-end revenue and backend revenue per patient. The money is made on the backend transaction, which is why their first interaction is so critical. You have to blow them away!

2) Number of new patients you’re bringing in each month: You need to know how many new patients are coming in each month not only so that you can set, and aim for, certain goals, but also so you can determine what your peak seasons and off-seasons are. As your practice ages, you can then compare a given month from last year to this year, so that you have a benchmark for judging success.

*2020 Update: Focus on how many patients for x or y procedure you’d like to see per week (and month) to keep yourself and/or your staff fully booked. If that means your nurse injector, for example, needs to see 10 more Botox patients a week to stay busy you need to figure out how many more Botox leads you need to generate those 10 patients, based on your conversion rates. Work your sales funnel.

For example, you, on average, get ahold of 80% of Botox leads and convert 50% of those into appointments and 75% of those patients show for their appointment and 90% of those prospects book treatments then with that example math you needed 100 leads to generate 27 new Botox patients. The last piece is: how much do you need to spend in order to generate 100 Botox leads? That’s the investment that you’ll take out of your overall profit. This means understanding not just your CPL (cost per lead) but also CPA (cost per acquisition).

Once you’ve got your conversion numbers down the rest is just simple math. You know the value, front-end and backend, of a new patient, and you’ve got the formula for ensuring you are generating new patients based on lead totals.

If you really do a deep dive into the numbers pertaining to your sales funnel you might not like what you see. You might realize that you are wasting leads or do not have a staff capable of adequately converting leads. Admitting you have a (sales) problem is step 1. From there, you need an action plan to address this issue, and TRBO can help!

3) Where new patients are coming from: This is crucial to know from the very beginning, so you need to train your staff to ask this to every new lead that comes in (and when I say “comes in” I mean they email or call the practice). Lead tracking is crucial if you’re doing any marketing at all. Fortunately for most internet-based leads, you can track them to their source using Google Analytics. It’s a little more difficult when you receive a phone call, but all the more reason to simply ask people how they found your practice.

*2020 Update: With dynamic call tracking you can track every single call (name/phone number) down to a specific source. You can even track calls from Google Ads, for example, down to the keyword the person used! If you don’t have this in palce talk to TRBO about call tracking with Phone Tag.

You want to esnure you can tie a name to a source/medium. This should be done for BOTH web form submissions and phone calls and it is especially important for all ad campaigns you’re running so you can clearly calculate ROI.

Many of the points made above are very obvious. However, you’d be surprised at how many medical and aesthetic practices neglect these little details. Make sure that whether you’re running a medical spa, cosmetic dentistry practice, plastic surgery center, or dermatology practice, you properly train your staff. Also, even if you’re not a numbers person, or involved in accounting or payroll in any way, you need to know your profit margins.

*2020 Update: Having a skilled accountant is very valuable, but having a skilled salesperson is just as valuable, if not more so. You might have an excellent receptionist or patient coordinator who patients love and is great on the phone, but does that mean they have sales skills that can help with prospects who know very little about your practice? No, and I’ve seen many aesthetic and medical practices make this mistake, which ends up costing them thousands (or more) because they cannot close even qualified leads. A great salesperson can compliment a team that is excellent at customer service.

Take the next step toward strategic practice growth…

If you’d like to learn more about strategically growing your medical or aesthetic practice, by working with a team dialed into lead generation AND your sales funnel to track true ROI then we’re your agency! To learn more, drop us a line here or call us directly at 877-673-7096 x2

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