What's the return on investment (ROI) of digital marketing? It's something every business wants to know. Here we help you to understand what goes into this calculation.Adept Marketing works with a range of businesses looking to achieve growth through digital marketing - ecommerce retailers, non-profits, professional services firms and more - and they all want to know about ROI.
One segment Adept works with a lot is dental practices. In fact, over the years Adept has worked with hundreds of practices. Many of these dentists are starting to use digital marketing, but aren't always sure how the money they spend translates into value for them. That's what this article will explain.
Digital Marketing - Mini Jargon Buster
First of all, let's look at a few key terms.
ROI is a pretty simple concept: it's how much value you get back compared with what you spend on digital marketing.
Other important terms are:
- Lead - someone who could become a patient. This is anyone who calls your practice, fills out a form or engages with you as a result of our digital marketing strategy.
- Cost per lead (CPL) - how much you spend for each lead you get.
- Cost per acquisition (CPA) - how much you spend for each new patient you get.
- Lifetime new patient value - the money that a new patient brings into your practice.
Adept believes in ROI-focused marketing. For dental firms, this means tracking metrics to make sure that:
- Any marketing campaigns bring in new leads who may become dental patients
- The cost of acquiring those patients is lower than the lifetime value of those patients.
Another important thing for dental practices to know is this: digital marketing drives the leads; your team handles the close. Or, to put it another way, while digital marketing can bring you possible new patients, it's up to you to turn those potential patients into actual patients spending real money in your practice. Most practices are able to do this quite effectively!
In Adept's experience, based on auditing forms and phone calls for dental practices over the past seven years, the close rate for new dental patients ranges from 20%-60%. In working out ROI for dental practices, Adept uses the most conservative figure of 20% (you'll need to remember this later).
There's one more thing to do before you can work out the ROI of your digital marketing campaign. That's to establish a baseline for the lifetime value of a new dental patient. There are two ways to do this.
How to Work Out Patient Lifetime Value - Easy Method
One of the easiest way to work out the average lifetime value of a new patient is to use publicly available information. This won't give you information tailored to your actual dental practice, but it can be a good starting point. Here are a couple examples:
- According to New Patients Inc, the lifetime value of a new patient ranges from $560-$1,100.
- According to The Wealthy Dentist, the lifetime value of a new patient ranges from $900-$1,200.
The figures cited above range from $560-$1,200, giving an average of $880. While Adept's experience suggests that the average is even higher, the firm prefers to be more conservative. When working out ROI using third-party patient value figures, Adept uses a figure of $500 per patient (the lowest estimate the firm has ever seen). You'll need to remember that figure too.
(Of course, some sources suggest a lifetime patient value in the $10,000 to $25,000 range. That is possible, depending on your service offerings and patient retention. )
How to Work Out Patient Lifetime Value - Advanced Method
If you want accurate data, then you need to use the more advanced method. This will give you data based on your actual practice rather than an industry average, and then your ROI figures will be accurate. Here's how you do that.
1. Export your patient data from your practice database.
2. Work out the total revenue for each patient.
3. Add up the total revenue for all patients then divide by the number of patients.
That will give you the patient lifetime value for your own dental practice.
In Adept's experience, most dentists are far too busy seeing patients for that kind of analysis, which is why Adept is happy to help you crunch the numbers.
So how does that number help you work out ROI? To really do the math, you need one more number: the amount you spend on digital marketing campaigns. Adept has found that most dental practices use a digital marketing strategy that combines pay per click advertising and search engine optimization. The average spend per month on this combined campaign is $1500-$3000.
How to Work Out ROI
Now it's time to put it all together and work out your ROI. Here's a sample scenario:
Using your data, Adept has determined that the lifetime value of each new patient is $850. Your dental practice has spent $1500 on digital marketing this month. As usual, Adept has tracked the number of visits to your website from the marketing channels it has used and has seen how many of those have turned into leads.
As a result of the campaign, your dental practice has acquired 41 new leads. Based on a conservative 20% conversion rate, you should end up with 8 new patients. Here's how the figures stack up.
- $1,500 spend / 41 new patient leads = $15.85. That's the CPL - the cost to acquire each new patient lead.
- $1,500 spend / 8 new patients scheduled = $187.50. That is the CPA - the cost to acquire a new patient. As you can see the lifetime value of your new patient ($850) is less than the cost to acquire the patient.
- Based on the lifetime value of your patients, those 8 patients will bring $6,800 into your business.
- Subtract your original spend. That gives you $5,300 in income.
- Divide that by $1,500 to find your ROI.
- Your ROI = 353%. In other words, the income your dental practice gets is 3.5 times your original spend on marketing.
That's a figure that most dentists can relate to. If your marketing spending is less than you're getting in revenue, that's money in your pocket. And that's what it's all about!