eyecare by the numbers

The Ecomonics of Marketing

by Alan Cleinman

How much does it cost to attract a new patient? How much should you invest in improving revenue per patient? What's a private-pay patient worth? ECPs ask these and similar questions daily. These are marketing questions and, unfortunately, there's no easy answer. Why? Because the reality is that most ECPs simply don't track the information necessary to determine the answers.

Marketing is an artistic concoction of information, creativity, and planning, and is one of the most misunderstood areas of business.

In a wired world, the complexities, risks, and rewards of marketing are increasing at warp speed.

MARKETING SURVEY

Most ECPs are not good marketers and have over-relied upon vision plans to bring patients to the door. With eroding margins and the advent of seemingly free marketing tools, many ECPs now seem to be scrambling to identify the methods, tools, and formulas that work, while others sit back and wonder why their practices aren't growing.

In 2011, in an effort to more clearly understand the impact of marketing on client practices, Cleinman Performance Network conducted a survey of members to ascertain their marketing investment levels and the results of their efforts. We defined marketing as “all consumer touchpoints that bring awareness to a practice and its products, including but not limited to public relations, advertising, promotions, donations, etc.”

Armed with this clear definition of marketing, we asked our clients for data that would help us better understand the differences between those practices that invest “heavily” in marketing versus those that do not.

To ascertain these differences, we simply compared the outliers: those practices that were in the bottom 10 percent of investment versus those at the top. The survey results are from data submitted by members of Cleinman Performance Network and are not intended to communicate national averages.

Overall, ECPs clearly invest a small percentage of revenue in marketing, with the median being approximately one percent. To put this into perspective, while Walmart invests a meager 0.04 percent of revenue on marketing, Macy's invests as much as five percent; the automobile industry invests about three percent; and service firms spend as much as 15 percent on marketing.

Quick Tips

“Half of my advertising investment is wasted. Unfortunately, I don't know which half.”

— John Wanamaker

DRAMATIC DIFFERENCES

When reviewed comparatively, even with a low marketing investment, ECPs who made marketing investments had dramatic differences in performance. Unit volume, as measured by patient exam growth, was significantly higher for those practices investing in marketing. Practices that didn't invest in marketing actually saw a decline in unit volume by two percent.

Business health begins with a growing clientele. Clearly, these results indicate that the overall trend of declining market share experienced by the independent sector of our industry can be reversed with marketing investment—so long as those investments are toward the right programs.

Collections per exam for those practices in the top 10 percent of marketing investment showed significant improvement when compared with those practices not making marketing investment. Practices in the top 10 percent of marketing investment realized an average of $45 more per patient in collected monies. Across a practice seeing 3,000 exams per year, that's an added $135,000 in revenue without seeing a single additional patient!

And for practices investing in the top 10 percent, even the percentage of revenue that turned into cash showed dramatic positive results. Practices that invest in marketing clearly attract more private-pay patients. As a result, the write-offs associated with vision plans are lower and profits greater. Using this example, a practice generating $1,000,000 in gross charges would realize an additional $120,000 in collections.

So what's at stake? What's the return on your marketing investment? The answer is certainly individual for each ECP and dependent on execution. But simply comparing a 10-year period of the patient-unit increase and per-patient revenue increase applied to the same size practice clearly shows that those practices that invest in marketing come out as winners.

The bottom line: When viewed from a strategic and global perspective, marketing pays handsomely. EB

Al Cleinman is the founder and CEO of Cleinman Performance Partners (cleinman.com), a consultancy specializing in developing high-performance optometry practices. © 2012 Cleinman Performance Partners, Inc.