What’s a New Patient Worth?

The answer varies from practice to practice but a simple equation can be applied to ascertain your Individual Patient Value (IPV).

How to Calculate Your IPV

The IPV Formula = Your average - Patient Bill x Gross Margin x Visit Frequency x Relationship Term x Referral Rate.

Practice Example:

Average Patient Bill (APB) – this is simply extracted from a sample of paid accounts (eg: 12 invoices per day by 12 weeks or 144 invoices with a total value of $12,461) This simple analysis yields a number like $86.53 as an Average Patient Bill

Gross Margin – sometimes a little more detailed. Typically it covers the costs associated with the service delivery as a percentage of the APB. These are operating costs and can include staff, rent, consumables, and professional services etc that are combined to deliver the service. Typically this is a number like 54%

Visit Frequency – this is calculated by dividing the number fee bearing patient visits per year by the number of active patients in your practice. Say 650 patients that you assume are only being serviced by you, divided by the number of fee generating episodes (eg: 2700 per annum). This is typically a number like 4.15.

Relationship Term – unless obvious it is probably easiest to assume 2-3 years, even though most practices enjoy lifetime relationships of 10-15 years on average. This also takes into account natural fall outs. So for the purpose of this exercise the number would be 2.5.

Referral Rate – some patients can’t help but sing your praises, others bring their entire family. In a practice with 650 patients you may enjoy 150 new patients each year via word of mouth referral. If this were the case your referral rate would be 1.23

The Individual Patient Value is:

Given the above metrics the practice's IPV is = $86.53 x 54% x 4.15 x 2.5 x 1.23 or $596.28

What does this mean?

Having the answer to this question gives you two important pieces of information. These are:

  • What value should be placed on acquiring a new patient, and 
  • What benefits to your practice would flow by improving your key metrics

Why is this important?

Doing this analysis and understanding your key metrics will give you a framework within which you can create and generate an effective Practice Growth Plan.

Furthermore it focuses you on specific outcomes. Having clear goals (ie target metrics within the practice) makes the strategy and tactic sellection far easier.

Did You Know?

If you increased only three of metrics in the above example by 5% it would increase the Average Patient Value by $90. 

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