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Should Plastic Surgeons Advertise on Social Media in 2020?

December 1, 2020 | Medical Practice Website
Physician in the labratory
Physician in the labratory

Should Plastic Surgeons Advertise on Social Media in 2020?

The question “Should Plastic Surgeons Advertise on Social Media?” is actually part of a bigger question – “Should Plastic Surgeons Advertise Online?”

Here’s a quick summary of what you’ll get by reading this blogpost (table of contents):

  1. How many new customers will I get from online advertising?
  2. Customer Lifetime Value (LTV) defined
  3. Average Cost of Acquisition (CAC) of a New Client defined
  4. Subtract the CAC from the LTV
  5. LTV minus CAC Only Makes Sense for Scalable Businesses
  6. What if Your Business is NOT Scalable?

How many new customers will I get from online advertising?

The answer to “Should Plastic Surgeons Advertise Online?” is actually answered by another question:  “How many new customers will I get from online advertising?  This question is answered by understanding a plastic surgeon’s customer lifetime value (LTV) and the cost of new customer acquisition (CAC).

Since clients of a plastic surgery practice may return several times for repeat procedures, the lifetime value may span several different procedures (nose job, tummy tuck, etc.) and a practice manager may not know customer LTV until a specific period of time has elapsed.

Customer Lifetime Value (LTV)

For simplicity sake, we’ll use a full calendar year as the period.  We’ll take the practice’s annual revenue for that year and divide by the number of unique patients/clients seen in that year (you can probably use your Patient ID # or chart #).  If your practice made $1 million dollars in 2019 and you did procedures on 500 unique patients then your LTV is $2,000.

One wrinkle to consider in calculating LTV is that some medical practices count patient visits while others (most surgeons) may count procedures.
A surgeon may schedule a follow-up visit after a procedure but the payment for that follow-up visit is ‘bundled’ into the payment for the procedure.  

Also, be careful of multiple procedures within the same patient’s case.  For example, it is common to do breast augmentation and a tummy tuck during the same visit – the “Mommy Makeover” – do you count those as two procedures, or one?  

The question to ask is this, “Does the practice get paid by visits (eg: primary care, therapy and chiropractors)?  Or, does the practice get paid by procedures (eg: most surgeons)?  Some doctors get paid by both visits and procedures.

Whichever method you chose, make sure you are consistent in your tracking or your LTV will not be accurate.

Practice Annual Revenue / Number of Unique Patients/Clients = Customer Lifetime Value

If you have access to a larger data set, you could use 2-years, 5-years, etc.  The LTV may be slightly more accurate, depending on your patient population and the length of time you have been in practice.  Again, for this example we have chosen one year.

Generally speaking, using LTV to make online marketing decisions should be a straightforward analysis.  The additional time spent refining numbers may not add much incremental value.  

It is more important to be able to quickly assess and understand your LTV over different time periods than it is to have an LTV accurate to the 5th decimal place.  Here is a CAC-to-LTV Calculator spreadsheet that does a full P&L analysis (for the numbers geeks among us 🙂

Average Cost of Acquisition (CAC) of a New Client

Next, calculate your Average Cost of Acquisition (CAC) of a New Client.  The simplest way to calculate CAC is the take your online marketing spend for the same period and divide it by your number of new clients (not returning) in that period.

CAC is usually calculated by marketing channel.  For simplicity sake, this example will just distinguish online marketing from offline marketing.  The reality is you may want to futher refine your CAC metric based on spending, for example, a pay-per-click (PPC) Google ads campaign might cost $3,000 per month for a plastic surgeon in a busy metro area.  Perhaps your total budget is $5,000 per month for online marketing.  Calculating a separate CAC for the Google PPC campaign would probably be a good use of your time.  The additional $2,000 online spend might have its own CAC.

Some brick-n-mortar businesses include ALL marketing costs in CAC.  I think it comes down to how much of your business is currently online – how many new customers per month are finding you strictly from online sources?  Personally, I don’t see enough online marketing from medical, chiropractic and veterinary practices.  Many are still just bricks-and-mortar with very little online presence, beyond a simple website.  According to the Wordstream blog:  

“CAC encompasses the cost of acquiring business across all your marketing efforts—online and offline, billboards and media placements, Google Ads and Facebook ads, even the cost of a store-front sign.”

However, as noted, CAC for each channel will give you more actionable information.  Social media, search engine optimization (SEO) and blogging are long-term investments that may payoff next month, next quarter or next year.  Facebook ads, Google ads and direct mail tend to show quicker results.

Online Marketing Spend / New Clients = Average Cost of Acquisition (CAC) of a New Client

Again, you can use any period of time.  We are recommending one year because that balances the value of multiple procedures and you probably already have your yearly (2019) number on a Quickbooks Profit & Loss (P&L) statement. However, you could use a quarter or a half-year.  I say this because many practice owners may want to evaluate advertising spend over a shorter period than one year.  

Let’s say you are speaking with an online marketing agency who will work for $3,000 per month and they want a 6-month term.  You could evaluate the $18,000 spent by the number of new patients brought in over 6 months.

You might want to stagger the periods to allow time for people to hear your marketing message.  As an ‘operations’ guy and small business owner, I prefer no more than 30 days between stroking a check and seeing results – although my online marketing friends tell me that longer periods may be necessary for specific types of marketing, such as a branding campaign or awareness advertising.

Online marketer Dan Kennedy says that the business who can spend the MOST to acquire a customer will win.  That is, you should spend the highest CAC you can profitably afford.  Kennedy’s mindset is a 180-degree flip-turn from many small business owners who seek to minimize expenses, including marketing. We’ll explain Kennedy’s logic in just a moment.  First, we look at the two number we just calculated: the CAC and the LTV.

Subtract the CAC from the LTV

This last step is the simplest.  Subtract the CAC from the LTV.  Your CAC for the year was $2,000 and your LTV was $3,000.  The difference was $1,000.  You made money.

LTV minus CAC Only Makes Sense for Scalable Businesses

Be careful.  This is where the interpretation gets tricky.  Remember Dan Kennedy?  The internet advertising guru who said, “The advertiser who spends the MOST wins.”

He’s right – IF you don’t have to service or treat all those incremental customers you acquire with your $2,000 advertising.

Remember the plastic surgeon?  Is he going to be happy with his $1,000 of additional revenue?  Not if he’s working till midnight every night treating all those additional patients.  If he can have his junior partner treat those new customers without having to scale up his labor costs then, yes, that $1,000 is incremental revenue that drops straight to the bottom line.

Many brick-and-mortar businesses are not scalable – like solo physician practices – any amount of additional revenue MUST be accounted for by additional labor costs – usually the physician’s time.  Only those businesses that can accomodate additional volume, without increasing their labor costs, will benefit from marketing decisions based on the CLV minus CAC equation.

What if Your Business is NOT Scalable?

CAC to LTV analysis was first used in e-commerce businesses and software-as-a-service (SaaS) where many of the costs were upfront (eg: developing an app) and ongoing costs, such as support, were relatively small.  The CAC to LTV analysis makes sense because these businesses NEED to scale up to survive.

Plastic surgeons, dentists, physicians and physical therapists all have standard brick-and-mortar businesses whose costs (aside from education and licensure) are uniformly spread out, over time.  As many of these small businesses have developed online advertising over the last ten years, the CAC to LTV analysis has become more broadly applied.

So, does the CAC to LTV analysis still make sense for small, owner-operated businesses?  Maybe – if you have excess capacity in your business such as idle manpower or machines that could be utilized by additional customers then additional marketing makes sense.

This straightforward CAC-to-LTV analysis of that marketing spend makes sense for these businesses.

If you are that plastic surgeon mentioned in the first paragraph the answer is “Yes!” if you are NOT the person seeing all the new patients.

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