Marketing 2.0: Determining the cost per lead and the lifetime value of patients

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"Half the money I spend on advertising is wasted; the trouble is I don't know which half," John Wanamaker, early marketing pioneer.

Marketing your practice is an effective method of attracting new patients and retaining existing patients. It is important to find metrics and methods for measuring the effectiveness of your marketing efforts.

It is necessary to have metrics for gauging the effectiveness of your marketing efforts. Two helpful metrics for monitoring your marketing are the cost per lead (CPL) and the lifetime value of a patient (LTV).

Calculating the cost per lead (CPL)

The cost per lead (CPL) is how much it costs to attract the attention of a potential new patient to your practice. When you know your CPL, you can decide where to put your marketing dollars to maximize the value of your efforts. Understanding your CPL allows you to maximize the effectiveness of your marketing budget.

Deep six: The "gut" mentality

In the past, strategies to attract new patients were based on gut instinct when it came to understanding the results of marketing efforts. It was easy to track how much you spent, but measuring the effectiveness—as in which patients come to your practice directly from your marketing—was merely adding up the new patients entering the practice each month.

Now you can accurately track the patient CPL using market trackers. Market trackers such as LinchpinSEO.com and Hubspot.com can show if a patient is from an online ad, an email, a postcard, a newsletter, or even a billboard. These trackers can record the patient entering the practice and follow them to the end of their patient journey. Using these CPL trackers, you can know the exact patient value your marketing campaign brought in—without depending on your gut.

These trackers have calculated that the cost per lead ranges from $36 to $286, with an average of $162 per lead. These broad ranges give an idea of your practice's CPL.

CPL calculation

To find your patient CPL, it's a simple math equation:

CPL = dollars spent on marketing/number of patients who enter or contact the practice from the marketing effort

For example, if your practice sponsors a seminar and you spend $500 on a mailing list for potential patients and 50 prospective patients call for more information or, better yet, make an appointment, then your CPL is $10.

Of course, only some people who called the office made an appointment. Ten of the fifty people who called the office made an appointment to see the doctor. In this case, this patient acquisition cost (PAC) is $50. ($500\10 = $50)

Why CPL matters

Measuring your CPL provides you with valuable information. For example, if you have hired a marketing team to help grow your practice, ask them about their experience in healthcare and their CPL and PAC. You want to hire a marketing team that provides these metrics to justify your marketing expenses and to monitor their progress.

Even if your practice is doing a great job generating leads, taking the time to calculate your CPL gives you worthwhile insight into how your marketing works. Your CPL is valuable for understanding the effectiveness of your marketing strategies. It's a great indicator of what's working and what's not, helping you choose how to focus your future efforts. If you're ignoring your CPL, you're essentially taking a blind guess as to how effective your marketing is and likely sinking money into inefficient methods or ignoring the ones performing best.

Calculating the CPL of non-digital marketing, such as a direct mail campaign, takes more work, but it's still manageable. For example, a dermatologist spends $1,500 on a direct mail campaign advertising Botox injections. Through tracking the results — by training your staff to ask how patients found you or asking potential patients to bring the mailer in for a free consultation — you see that 40 people call for more information or ask for a free consultation to find out if they're a good candidate for the procedure. Dividing 1,500 by 40, you'd find that the CPL for the campaign was $37.50. You can follow a similar process to calculate the CPL for blogging and other web content, dividing your writing costs by how many leads you found via your blog.

Measuring your CPL has one other significant benefit: comparing your marketing results with industry benchmarks to learn how your results compare to those of other practices.

Remember that your CPL is just one metric to help track your success — it doesn't tell the whole story. Some leads may be more valuable, so a higher-than-average CPL might be worth marketing more expensive procedures. At the same time, some marketing methods might have a higher CPL but be more efficient at turning leads into paying patients.

Calculating the Lifetime Value of a Patient (LTV)

The calculation for LTV consists of multiplying the average value of an appointment by the average number of appointments per year by the estimated number of years a patient is likely to remain in your practice. This equation below should help you make the calculation. LTV = V x N x Y

Bottom Line: The time has arrived for those practices who desire to market and promote their practices to move from trial and error to using technology to monitor the success of marketing campaigns. Get started by measuring your CPL and the LTV of your patients. Now, you can remove a blind guess as to how effective your marketing is and likely sink money into inefficient methods or ignore the marketing efforts that are performing best. Let me conclude that these marketing metrics are only part of your efforts to attract new patients. Additionally, monitoring your online reputation and patient satisfaction scores improves the patient experience, builds long-term loyalty, and enhances your overall reputation. If you have any comments or suggestions regarding this concept, please let me hear from you.

Neil Baum, MD, a Professor of Clinical Urology at Tulane University in New Orleans, LA. Dr. Baum is the author of several books, including the best-selling book, Marketing Your Medical Practice-Ethically, Effectively, and Economically, which has sold over 225,000 copies and has been translated into Spanish.