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PRACTICE MANAGEMENT by Janyce Hamilton : What
no one taught you in dental school
What no one taught you in dental school
July 26, 2002
"It
borders on the criminal how dental schools only teach one leg of the
three-legged milk stool," said Daniel Bobrow, MBA, founder of
Chicago-based American Dental Company, Dentalconsultants.com
and Dentists Climb for a Cause. "They teach the clinical skills leg. But
that leaves the dentist with a pretty wobbly foundation."
Mr. Bobrow, also author of the 1996 book, The State of the Art
in Dentistry Marketing, thinks that unless dental schools start teaching
more business skills, the prerequisite for dental school entrance should be changed
to a major in business, not biology, "You can learn biology in dental
school, but to date, it's nearly impossible to learn how to run a successful
business there."
Business acumen
Most dentists are interested in attracting new patients, either as
an attrition fighter or to grow the practice. To do this, various internal and
external marketing strategies are often needed, and these must communicate a
consistent message. Some of these strategies can be costly, such as magazine
and newspaper display ads and mass mailings to an entire ZIP code. Each
marketing campaign has its own pluses and minuses. The biggest liability of any
marketing campaign, however, is perhaps the dentist who doesn't track
investment and responses to determine effectiveness.
"There's an old adage that 50% of marketing is wasted but no
one knows which 50%," Mr. Bobrow said, adding "In dentistry it may be
closer to 90%."
Dentists who stop a marketing campaign because "it didn't do
much" may have failed to carefully track response. Without quantifying the
results of specific strategies the dentist is ‘flying blind." Mr. Bobrow
offers the following solution:
Determining Average Annual Patient Contribution to Overhead
(AAPCO)
Dentists need to calculate the value of one average patient to
their practice. This is a simple calculation, and it needs to be done to get a
reliable measure of annual per-patient profitability. This number-crunching is
necessary for doing a cost-benefit ratio of the "patient acquisition
costs" of advertising or direct mailing (or other marketing campaign) and
the outcome of how many new patients were acquired as
a result of it.
Mr. Bobrow provides the following formula, while acknowledging
that individual results in accurately assessing one's marketing effectiveness
may vary due to AAPCO, actual lifetime value of your patient, and the cost of
your particular marketing campaign:
Step 1: Determine your AAPCO (Average Annual Patient Contribution to
Overhead)
Randomly select 30 patients from your practice who have been with
you for at least one year. List separately, by patient, the total hygiene
and non-hygiene revenue generated in the most recent 12-month period. Add
the results for each, then divide by 30. Next
multiply each number by the following adjustment factors: .89 for Hygiene and
.79 for non-hygiene. Finally, combine the results to calculate your AAPCO.
Example: The average American Dental Company client AAPCO is
around $1,400, and will be used in this example.
Step 2: Calculate the lifetime value of a patient:
AAPCO X 8 years* = Lifetime Value of a Patient
$1,400 X 8 years = $11,200
*8 years is the national average a patient will be with your
practice as determined by Professor Frank Martin of The University of
Minnesota.
Step 3: Calculate the break even cost of your strategy
Break even is calculated as the cost of your strategy divided by
your AAPCO. For this example we will use a mailing program that occurs
over a 3-month period. Many factors affect strategy cost of High Reach (an
American Dental Co. marketing campaign), so we will use a mailer that costs
$.50 in total, 20,000 will be printed and mailed over 3 months. In other
words, for this example the mailing program would cost $10,000, and the
breakeven would be 7.14 patients ($10,000 / $1,400 = 7.14). The mailing
program would need to generate only slightly more than 7 (or .07%) new patients
to break even in the first year. Generally, a properly implemented direct
mail strategy will deliver a response rate that is significantly greater than
this.
Step 4: Calculate ratios and profit
Taking a very conservative approach, assume an extremely low
response rate of 1/10th of 1 percent. This would mean that only 20 people
responded to the mailing program (20,000 X .001). Further assume that only 16
appointments were made and only 12 were kept. We are being extremely
conservative here to highlight a point, which is that a low response rate still
may mean a very high degree of profitability. Finally, assume that 10
responders become long-term patients.
New Patients X AAPCO = Total Return Year 1
10 X $1,400 = $14,000 or $4,000 profit year 1
New Patients X Lifetime Value of a Patient = Total Return
10 X 11,200 = $112,000 Total Return for High Reach Program
Step 5: Calculate ROI (Return On
Investment)
ROI Year 1 = Profit year 1 / Cost of High Reach Program
($4,000/$10,000) = 40% ROI Year 1
Strategy ROI = Total Profit/Total Cost
$112,000/$10,000 = 1,120 %
The above formula means if the return on investment is 11.2 or
1120% then, for every dollar spent on marketing, the dentist will realize
$11.20 in profit.
Interpersonal and other communications skills
"I am not convinced interpersonal skills can be taught, but
that's not to say that dentists shouldn't try to learn them," Mr. Bobrow
said. His coaching services provide this training on a comprehensive basis, but
here are a few of the interesting tips he provides.
Message-on-hold marketing. More dental offices have
music-on-hold than message-on-hold marketing.
"However, the biggest advantage of having a personalized
message comes when new patients are put on hold. They get a great first
impression that they are affiliating with a practice that is professional and
attentive to their needs," Mr. Bobrow said. "Plus it lessens their
perceived hold time." (Not irritating a potential new patient really helps
to start your relationship off on the right foot.)
Of course if your messages-on-hold make promises, it is the duty
of the doctor and staff to deliver on them.
Cause marketing. Volunteering for charitable causes is not only
great for the beneficiaries, it helps position the
practice as a trustworthy, honorable, decent group of professionals -- not some
greedy, profit-driven practice. Mr. Bobrow founded the Run for the
"Whatever your volunteerism is, it should be
publicized," Mr. Bobrow said. "For example, many dentists who do Climb for a Cause get featured on their local TV stations,
radio, and newspapers. Seeing all this naturally leads their neighbors and
patients to ask, ‘What are you doing? How can I get involved?' Suddenly, the
patient finds out what a good person you are. This will forever affect the way
your patient views you as a human being."
Conclusion
Striving for marketing effectiveness should be one of the business
goals of every dental practice. Implementing some of these ideas suggested is a
great start to building good will, generating a professional first impression,
and making informed decisions concerning your marketing investment.
Mr. Bobrow, available at (800)723-6523; www.americandentalco.com, offers
dentists a free Power Pack of marketing ideas by request.
This column is prepared by Janyce
Hamilton, a
©2002 Chicago Dental Society
What works for you? On Practice Management seeks ideas, tips, or questions that need answering
for upcoming e-columns. Email them to Janyce
Hamilton, On Practice Management, c/o Elizabeth Giangrego,
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