How to Calculate Your Dental Patient Lifetime Value
If a patient has a positive experience at their recent appointment at your dental practice, they are more likely to book another appointment in the future. While many dentists like to focus on how many appointments they can get with patients, the most successful dentists think more about the overall lifetime value (LTV) of each dental patient to their practice.
The rate at which patients return to your dental practice is called the patient retention rate. This is an important metric to measure and track. But beyond patient retention, you likely need to know the worth of each patient to your business throughout their relationship with your practice.
That’s where dental patient lifetime value comes in.
Dental Patient Lifetime Value is a measure of the total worth of a patient to your dental practice. It is a dollar amount that suggests how much a patient will contribute over their entire lifetime as your patient, and it is one of the most important metrics you need to know as a dentist.
Why Dental Patient Lifetime Value is Important
The dentist-patient relationship is a multi-year relationship. In most cases, patients stick to one dentist for years—maybe decades. While it’s great when patients stick around, you need to know how much money you’re spending on retaining their business (i.e., cost of providing dental health care service and treatments) and if it matches the payments made.
No other metric can help you align your cost with income like dental patient lifetime value can.
Patient acquisition cost may be useful for understanding the investment needed to attract and win over new patients. But dental patient lifetime value reveals the cost and value of keeping them at your dental practice.
So, the question is, how much are your dental patients costing you?
This is called Cost to Serve.
What is Cost to Serve?
Cost to Serve is a measurement of the factors involved in providing dental health care services to your patients. It varies with each patient and across their lifetime as your patient. Some patients will pay for expensive treatments; others won’t. Some patients will have multiple appointments in a year; others will visit once a year.
When paired with your dental patient lifetime value, cost to serve allows you to estimate each patient’s profitability. With this information, you can ensure your practice is being well compensated for its services.
In addition to helping you understand and maximize your cost to serve, dental patient lifetime value can enable you to do the following:
- Boost Your Revenue
As we’ve just discussed, your dental patient lifetime value indicates how much you can expect to gain from each patient’s relationship with your practice. When you know what to expect from each patient, you can implement changes in your marketing, pricing, or service delivery so you can get the most out of your business.
If you observe that patients are paying less or booking fewer appointments than they ought to at this stage of their relationship with your practice, you can improve your patient engagement and retention efforts. For example, sharing updates through email is an excellent way to keep your practice on patients’ top of mind so they remember you when considering their next dental appointment. Over time, this could boost your revenue generation.
- Understand Patients Better
Leading indicators predict future outcomes and enable business owners to prepare for those outcomes. Dental patient lifetime value is a leading indicator; you can use this metric to estimate or determine where your dental practice is headed. It allows you to understand where your patients’ interests lie so you can meet them there.
- Save Time and Costs
Often, dentists discover a dental marketing strategy and stick to it for a long time without making any adjustments or considering other options along the way. Unfortunately, this course of action could be detrimental to the long-term success of your dental practice. Marketing strategies evolve, and, in many cases, they become redundant. So, your approach has to evolve too.
By knowing what your dental patient lifetime value is, you can focus on the areas of your business that need more attention. For example, instead of spending time and money on patient acquisition efforts, you might want to focus on patient retention and improving your patients’ overall experience with your practice.
How to Calculate Dental Patient Lifetime Value
Now that you understand what dental patient lifetime value is and why it’s essential to measure this metric, it’s time to calculate it.
To calculate dental patient lifetime value, you have to consider certain variables that could occur over a set period. Here are the variables to keep in mind:
- Total net production over period (TNP)
- Number of active patients in previous period (LP)
- Number of active patients over period (CP)
- Average net production per new patient appointment (ANP)
- Number of new patients over period (NP)
- Cost to Serve over period (CS)
- Total number of patient referrals over period (PR)
Once you’ve determined these figures, you will need to insert them into this formula:
Dental Patient Lifetime Value = Average Value of Patients throughout their relationship with your dental practice + Referral Rate of Active Patients throughout their relationship with your dental practice.
= ((Life span x ANP) x Profitability + NP) + ((Life span x ANP) x Profitability + NP) x Referral Rate x Life span
As you can see, we need to identify the values for parts of the formula before we can finally solve for it.
- Life span refers to the total number of years a patient is likely to have a relationship with your practice. For the sake of this calculation, let’s say ten years.
- Profitability refers to the average value of each patient. It can be calculated using this formula: 1-(CS/TNP)
- Referral Rate refers to the percentage of your active patients who will refer someone to your dental practice. It can be calculated using this formula: PR/((CP+LP)/2)
This means our complete dental patient lifetime value can be experessed as:
= ((Life span x ANP) x (1-(CS/TNP)) + NP) + [((Life span x ANP) x (1-(CS/TNP))+ NP) x PR/((CP+LP)/2) x Life span]
So, there you have it. You can use the variables and formula to determine your dental patient lifetime value and start making informed decisions about your practice. If you find that you’re not meeting your expected value, contact a Connect the Doc dental marketing specialist who can help you uncover growth opportunities.