One of the numbers healthcare business owners absolutely must know is the gross profit on an average admission. Without this number, managers are flying blind when it comes to budgeting marketing strategies. Interestingly, the typical gross profit per admission for home health, home care, and outpatient physical therapy is roughly $700. This means if you spend $1,800 on a marketing campaign, you need it to add three patients to have a positive return on investment.

3 x $700 = $2,100.
$2,100 ÷ $1,800 = 1.17.
That’s a 17% return on investment.

Established healthcare providers should look for a 50% return on marketing investment to call a marketing method an unqualified success. New agencies and practices typically experience a lower return on investment for at least one year.

One of the mistakes managers sometimes make is using net profit in these calculations instead of gross profit. Gross profit refers to the reimbursement a business receives minus the cost of delivery. The cost of delivery would be only those costs directly related to the delivery of the billed service: employee wages, supplies, mileage reimbursement, etc. Net profit refers to total revenues less all costs (cost of delivery plus fixed costs such as rent, insurance, executive wages, costs of durable equipment, etc.). Net profit fails as a measure of marketing success because it is subject to various non-growth-related factors. For instance, when business is great, managers tend to pass out bonuses which lower net profit. Furthermore, savvy managers have a tendency to keep gross profit as high as possible and net profit as low as possible. Gross profit serves as a better numerator in return on investment calculations because adding a few additional patients per month does not have an immediate effect on fixed costs.

When deciding whether to try a new marketing strategy, divide the cost of that strategy by your gross profit per admission. Then ask yourself if you think that strategy will generate that number of new admissions or more. For instance, home health cost report analysis shows Brazzell’s Referral Doubling Strategy creating an average increase of 30% in annual unduplicated census. The cost of that strategy starts at $399 per month or $4,788 annualized: $4,788 divided by $700 equals 6.84. This means the Referral Doubling Strategy need only produce seven additional patients per year to pay for itself. For an agency already getting 70 patients per year, a 30% increase would be 21 additional patients. Those 21 patients would create $14,700 in gross profit: $14,700 divided by marketing expense of $4,788 is 3. That means an agency already admitting five or six new patients per month might expect to receive a 200% return on investment if their experience with the Referral Doubling Strategy is average.

If you would like to see a 30% increase in referrals from doctors and discharge planners, start here.