Every year, practices and agencies embark on very good marketing tactics and then abandon them because managers and administrators didn't measure the effectiveness correctly. With today's shrinking healthcare dollar, you cannot afford to let go the marketing strategies that actually work for you. Fortunately, measuring the effectiveness of your marketing strategies well takes remarkably little time and effort after you make some initial measurements. It's just a matter of knowing the right procedure and having the discipline to use it. Here we explain one of the best ways to measure marketing effectiveness using physical therapy marketing as an example. In a separate article ("Measuring Marketing Effectiveness: The Most Popular Errors"), we discuss why various other measurement methods commonly in use are likely to hurt your marketing strategy.
Is just one referral per month enough to justify the addition of a new strategy to your marketing mix? How much is a new doctor worth to physical therapy practice? In physical therapy, to answer these questions, you have to know your gross profit margin, average number of visits per patient, and your average revenue per visit. Nationwide, outpatient physical therapy practices bill about $90 per visit and see each patient nine times on average. That’s a gross revenue of $810 per patient. A survey of two million orthopedic PT visits found that the cost of physical therapists, aides, receptionists, and billing staff averages $34.50 per visit. So a typical gross profit margin is 62%. Sixty-two percent of $810 is $502. That means, on average, every referral should be putting $502 toward paying rent, buying equipment, and executive bonuses.
Using a gross-profit-per-referral estimate will help practices gauge the cost-effectiveness of any new marketing strategy added to the marketing mix. For instance, if a proposed physical therapy marketing strategy costs $2,400, you will be looking for that strategy to generate at least five additional referrals. Because the average gross profit per referral is $502, five additional referrals would generate $2,510 in new profits. Factoring in the $2,400 cost of the marketing strategy, that means $110 have been added to the general coffer to help pay the mortgage and executive bonuses.
There is another benefit that is harder to quantify. When those new patients are satisfied, they request your services again and give you positive word of mouth. So growth today encourages a snowball effect eighteen months into the future.
To summarize:
- Determine your gross profit margin (not net profit margin). The gross profit margin is (Revenue – Cost of Delivery) ÷ (Revenue). Gross profit margin excludes fixed expenses that do not change regardless of how many patients you have that week (e.g. mortgage, rent, executive salaries, depreciation on equipment).
- Determine how much money you make per new case on average (i.e. your gross-profit-per-referral estimate). The formula is (average number of visits) x (average revenue per visit). Hint: in Medicare-certified home health this would be (average revenue per episode) x (average number of episodes per start of care). On average, the gross profit per patient is $502 for outpatient physical therapy. It is much higher for home health, but more on that in a later article.
- Determine the gross profit generated by your change in your marketing mix. Measure your new starts of care per month. Get monthly numbers for before and after your new marketing strategy was implemented. The difference between before and after is the number of new episodes attributable to the change in your marketing mix. Multiply that difference by the average gross profit per case. The result is your estimated increase in gross profit attributable to the change in your marketing mix.
The one main drawback of this method for determining return on investment is that it fails to take into account whether your local market is growing or shrinking in real terms and the effects of competition and other market influences on your census. Because Medicare-certified home health is so tightly regulated, Brazzell Marketing Agency is able to offer affordable, current, local assessments of market and competitor growth with the Early Market Intelligence product. We do not have a similar product for outpatient physical therapy as of yet. Regardless, the method described above for measuring return on investment is one of the best methods physical therapy practices and home health agencies can use.