How to Calculate the Lifetime Value of Dental Patients

How to Calculate the Lifetime Value of Dental Patients

The average lifetime value of your patients is a simple metric that can drastically improve your marketing efforts. Understanding how to track and calculate this vital metric can improve your ability to bring high-value patients into your practice. You’ll be able to make your marketing dollar stretch further and improve your dental marketing ROI.

What is patient lifetime value?

The lifetime value of a patient refers to the amount of money they’ll spend on you during their time as a patient of your dental practice. Outside of the dental industry, this same metric is called the customer lifetime value (CLV). As we’ll see, patient lifetime value is a key component in calculating how effective your marketing efforts are. By targeting a higher CLV with your marketing, you’ll be able to increase your ROI from those efforts.

What is the average lifetime value of a dental patient?

The lifetime value of an individual patient isn’t very helpful on its own. You may have a patient that stays with you forever, coming to you for all of their dental needs. Others may come in for a one-time visit and never come back. Furthermore, the amount of work each patient needs done varies drastically. On top of those factors, some patients make for good word-of-mouth advertising. These people bring in extra patients that make them worth more than simply the amount that they spend.

Marketing can be targeted to help you increase the lifetime value of a patient by seeking out those who are more likely to increase the metrics mentioned above. But you can’t guarantee that only the highest value patients will respond to your ads. Therefore, you must take the average lifetime value of all your patients to calculate how much ROI you can expect from your marketing efforts. As your external and internal marketing improves, you’ll go from bringing in one-time patients who are worth a few hundred dollars to recurring ones who are worth as much as $50,000 over the course of a decade.

How can dentists calculate the lifetime value of a patient?

Before you can calculate the lifetime value of a patient, you need to decide what value means. This may sound simple, but there are two ways of calculating how much a patient is worth: the amount they are charged per year and the amount of your actual collections per year. Which you choose is largely a matter of personal preference, though you should pick one and stick to it for consistency purposes.

Based on Average Annual Value

The average value of a patient in this sense is the total amount you’ve billed your patients over the past year divided by the total number of patients.

If every patient stayed for exactly one year and never referred anyone, we’d be done. But that isn’t the case. So, for our next variable, let’s add in the average length of time a patient stays with you. To calculate this, take the number of active patients you had for the year being calculated and subtract the number of new patients. This gives you the number of patients you retained from the previous year. Now, subtract that number from the previous year’s number of patients. This gives you the number of patients you lost. Finally, divide by the previous year’s number of patients to get the ratio of patients lost. The result of this calculation will be less than 1. To convert this into the average number of years a patient will stay with you, divide one by that result. For example, if your retention calculation comes out to 0.1, then your average patient lifetime is 1 / 0.1, or 10 years. The formula looks like this:

Retention rate = (Previous year’s active patient count - (active patient count - new patients)) / Previous year’s active patient count

Average lifetime = 1 / retention rate

Now, we have the average amount a patient is worth per year and the average number of years they stay with you. Multiply those two numbers to get a rudimentary patient lifetime value. Let’s make the calculation more accurate by taking into account the number of patients each existing patient refers.

Count the number of patients that have been referred to you by active patients, and divide this by your number of active patients to get the referral rate per active patient. Multiply that value by your average lifetime value for a patient to get the average referral value of a patient. The formula is below:

Referral rate = number of referrals by active patient / number of active patients

Average lifetime referral value = average lifetime value * referral rate

Now, you can add the average lifetime referral value to the rudimentary average lifetime value calculated above to get a patient’s actual average lifetime value. The full formula is below:

Average lifetime value = (average annual value * average lifetime) + average referral value

Based on Average Collections by Active Patient

If you choose to calculate the value of a patient by money collected instead of the amount billed, you can perform the exact same calculations above, but replace the billed amount with the collected amount.

How can dentists use the lifetime value of a patient?

This calculation may seem like a lot of work, but there are some very good reasons to go ahead and do it.

Marketing ROI Calculations

Patient acquisition cost is the amount you must spend on marketing to acquire a new patient. Lowering this cost is an important part of improving a marketing plan. But by comparing the cost of acquiring a patient with the value of that patient, you can get a better idea of how much ROI you’re getting from your marketing strategy.

Internal Marketing Evaluations

As you improve patient retention and referral rates or attract patients who need more expensive work done, your average LTV will rise. Your marketing ROI improves when your LTV rises. As such, tracking your LTV year over year is a good way of measuring the success of your marketing efforts at bringing in higher-value patients or retaining existing patients. If your LTV doesn’t improve over time, you’ll know that you need to focus extra effort on improving one or more of those metrics.

How can dentists increase the lifetime value of a patient?

In the case of a stagnant LTV, let’s look at what you can do to get those numbers up.

Referral Marketing

When you increase the number of referrals you get, you’re serving two primary purposes. First, you are improving your LTV by increasing one of the metrics used to calculate it. Second, you’re relying less on marketing spend to acquire patients and lowering your patient acquisition cost as a result. Both of these boost your marking ROI.

Great Patient Experience

Patients who have a lousy experience are less likely to come back. Since the number of years a patient stays with you dramatically increases your average LTV, providing quality service to improve retention is a major factor in improving your LTV. Furthermore, patients who have a great experience are more likely to refer someone else to you and further increase their LTV.

Target High-Value Patients

While you want patients who will come back regularly for checkups and cleanings, those are not the highest-value customers. Instead, you should focus your dental marketing budget on patients who need more extensive work done. You can do this through a combination of SEO on your website and paid ads that target patients in need of more complicated dental work. Here, the difference between patient acquisition costs and their lifetime value is an important variable. This value tells you how much more you can afford to spend to attract higher-value customers without losing money on your efforts.