bring the percentage of lost patients down from 17% to 12%, a bit of magic starts to happen. The 12% patient attrition equals 300 lost patients per year or 25 lost patients per month, which, compared to losing 425 patients, is a huge difference of 125 people! But that doesn’t tell the whole story.
First, we need to look at the cost of replacing 125 additional lost patients. To get that, we take the $213.00 that it costs to acquire a new patient and multiply it by the number of lost patients (125). The total cost to replace the lost patients with new patients is $26,625.00.
125 Lost Patients × $213.00 Replacement Patient Cost = $26,625.00 Cost to Replace Additional Lost Patients
Next, we also have lost production for those 125 patients who left the practice. Using the average annual revenue of a second year patient (as seen in the previous numbers), you see those lost patients each represent at least $1,215.00 in lost revenue to the practice.
125 Lost Patients × $1,215.00 Lost Revenue Per Patient = $151,875.00 In Lost Revenue In Year One
Next, we have to look at the lost referrals. Dr. Taylor’s practice gets 27 new patients from referrals every month. So, if we do the math, we can figure out those 125 lost patients also equals 16 lost referrals per year. Which is another $14,288.00 per year in lost revenue.
16 Lost Referrals × $893.00 Lost Average First Year Patient Value = $14,288.00 Additional Lost Revenue
I could easily go on from here. We could add up all the marketing money we’d need to replace all of the patients just to get the practice back to 2,500 active patients each year. We could talk about multiyear values or lifetime values of a patient. We could talk about the referrals we would have gotten from the referrals we didn’t get because we lost the referring patients, per Dan’s Chapter 12 on the Endless Chain. It is a nearly endless calculation. But instead, let’s stop here. Suffice to say the difference between focusing on customer/patient retention and not focusing on retention, for this practice, is $192,788.00 per year.
$26,625.00 Cost to Replace Patients + $151,875.00 Lost Revenue from Lost Patients + $14,288.00 Additional Lost Revenue from Lost Referrals = $192,788.00 Total Lost Revenue
That’s $192,788.00 lost if Dr. Taylor were to ignore or fail to invest in and assertively manage patient retention. To add insult to injury, that $192,788.00 lost is nearly all profit. The practice has already paid all of its overhead, rent, electricity, and insurance. The practice wasn’t 100% full on its schedule, so most of the payroll has already been paid for. Also, for a business owner, it really is more than lost money, it is lost peace of mind; it is lost nights of sleep spent worrying; it is lost vacation time with your family.
Moving a needle by only five points seems small. But $192,000.00 in this instance is not small at all! If you’ll do the same calculations for your business with your facts, I’m certain you’ll make the same discovery: A small move of your needle can have big net financial impact.
Dan Kennedy owns a lot of racehorses, and he likes to wager now and then on the ponies and on sports. You can’t be around him very long without winding up in conversations about “odds.” He says that gambling and direct marketing have two things in common: math or odds, and behavioral psychology. More people are familiar with slot machines than the races or sports betting, so here’s a little trivia he passed on to me about slot machines. Keep it in mind the next time you visit a casino. Payback percentages and payback frequency vary by type of machine. On average, the house’s edge is about 4% on $10 denomination machines, 6% on $5 machines, 8% on $1 machines, 10% on 50-cent and 25-cent machines, 12% on 10-cent and 5-cent machines, and as much as 17% on penny machines, but then, it shifts more, and worse for the player, with “progressive jackpot” type machines, “betting pool” linked machines with giant jackpots (like “Megabucks”) or “branded” machines for which licensing fees have to be paid to celebrities, TV shows, or movies. The take-outs also vary by position of machines within the casino. It’s complicated. In this case, you will, ultimately, over time, lose no matter what you know about this or how you play, period. But you can lose less or lose slower and basically buy more entertainment for your dollars if you tilt the odds less in your dis-favor.
The good thing about marketing is that you don’t have to settle for tilting odds less in your dis-favor. You can actually tilt them in your favor!
When you only focus on new patients or customers and virtually ignore the current patients or customers, you are stepping over dollars to pick up dimes. According to research done by Market Metrics, the probability of selling repeatedly to an existing customer is 60% to 70%, while the probability of selling to a new prospect is only 5% to 20%. It is far easier to get someone who already has done business with you previously to come in and use your services or buy additional products from you than it is to always have to look for new business.
When you take the data from Market Metrics and add in the research done by McKinsey and Company that says an average repeat customer will spend 214% more when compared to a new customer, you can clearly see that an existing customer is far more valuable than a new one.
A Bain and Company/Harvard Business Review study found that a 5% increase in customer retention can increase profits between 25% and 100% percent. This can be seen in Dr. Taylor’s case study. Bain, by the way, buys, invests in, and resells companies, and has to improve their profitability to achieve its goals. Often, it is stepping into troubled companies and turning them from losers into winners. Other times, it is bringing a lot of capital, expertise, and connections to a company already winning with its numbers. In either case, given its finding that a small 5% needle move in retention can have such big impact, you can safely bet this is a point of focus in every situation it steps into.
Finally, looking again at Dr. Taylor’s case study, consider this: According to the 2013 Dental Economics Report, the average full-time owner/dentist makes $239,336.00 per year. An extra $192,788.00 in profit would be an 80% increase in pay. That 5% needle move in retention equals an 80% increase in income!
This example is over, but your Math Class isn’t! To get help working through your own math and developing your formula for investing in retention, you can download a plug-and-play worksheet to calculate your company’s attrition rate, loss referral rate, and estimated lost revenue at www.nobsreferralbook.com. It and other resources there are free to readers of this book.
by Dan Kennedy
A buyer is not yet a customer. A customer is not yet a committed customer. A committed customer is not yet an evangelical ambassador. But only evangelical ambassadors refer in any significant numbers, with any significant frequency.
Somebody can attend your church regularly, yet never really engage with it, with various groups, with other parishioners. Somebody can attend and engage but never or hardly ever invite, let alone successfully invite others to attend. This person can be a satisfied customer or a happy customer or even a committed customer, but never cross the Rubicon to evangelist.
A member of my mastermind/coaching groups I’ve gotten to know well, Nelson Searcy, is head pastor of The Journey churches as well as the director of Church Leader Insights, a nationwide support organization for pastors of growing congregations. Nelson freely admits that churches have several advantages over ordinary businesses in the securing of referrals—one of which is that evangelism is baked in. It is part and parcel of being a good Christian and a good church member. No comparable