Know Your Worth

By John A. Ross, PHD

My partner, Lynette Conway, and I have been in hundreds of dental offices: some large, some small, some were decades old and some had not yet opened their doors. In most cases, the dentists embraced the assumption that if they do good work, they will have plenty of patients. It is an assumption based on faith and optimism, two important qualities needed by any successful businessperson. Faith that good work is rewarded with prosperity, and optimism that the economy will remain stable and favorable for growth. But optimism and faith must be grounded in reality, and reality must be monitored constantly.

 A simple way to bring reality into a dentist’s outlook toward the industry is to understand a patient’s lifetime worth. Once that value is known then the practitioner can decide whether to continue walking on the current happy path, or make the changes necessary to get on the right path.

 Over the decades sober-minded business analysts have produced equations to determine patient value, however, as modern marketers have entered the fray, dentists have been bombarded by more “creative” equations that are designed to scare dentists into buying the solutions they are selling. It becomes confusing to know who is right.

 When a marketer says the “typical dentist’s a lifetime value of a patient is…”, be careful! There are many assumptions built in to some of those equations that may not apply to your practice. To be fair, marketing is the art of persuasion based on variables that are in the “vicinity of truth”. But why assume what someone else tells you the lifetime value of your patients is, when you can calculate it for yourself?

 Marketing Clinique Dentaire of Longueuil, Quebec, Canada has cited a simple equation that offers a down and dirty way of discovering the value of a lifetime dental patient. The variables are needed to determine the value of your patients are the following:

  • Average annual revenue per patient
  • Average age of active patient files
  • Profit margin as percentage of 12 months of revenue
  • Number patients referred

Most practice management programs track these data for you. For the sake of this calculation we will assume the following values:

Average revenue per patient during last 12 months = $320, Average age of active patient files = 7 years, Profit margin = 33%, Number patients referred = 1

            $320 x 7 x .33 x (1 + 1) = $1,478.40

This reflects YOUR lifetime patient value. This will give you a key number so you will be able to make informed decisions about where your practice is, and where you want to take it.

Now, you can measure the baseline health of your practice every month, quarter or year. This is the first step in the process of taking more control of your practice. It will help you determine what is going well and what is not going well in your practice.

As a measure of progress, you can use this amount to measure the value of new patient, thereby determining the best ways to attract more of them to your practice. The more you know, the better you will be able to make the crucial decisions that will move your operation forward to provide a better future for your patients, more security for your staff and more control and prosperity for yourself.

You will finally have a way of knowing the economic value of every hour you and your staff work to maintain and grow your practice. I think you will feel more hopeful once you know where you are.