In order to effectively measure the success of a healthcare marketing campaign, one must begin with a benchmark customer acquisition cost, or CAC for short. Understanding the CAC tells us whether additional investment should be made in the campaign or if marketing dollars are better spent elsewhere. 

In other cases, CAC compared to the industry average CAC allows you to measure the success of your campaign versus other providers. Using this information, you can make necessary changes in your marketing department to move yourself closer to the industry average if your CAC is too high. 

Throughout this article, we’re going to explain how to calculate your CAC, what to look for when determining what KPIs (key performance indicators) to be looking for regarding your CAC, and display our meta-analysis of the average CAC for other providers within your industry. 

Calculating your Customer Acquisition Cost

To begin your comparison, you should understand exactly how much you’re paying to acquire a customer. This number should be calculated to the furthest point of granularity possible. Ideally, it is broken up by marketing channels or specific campaigns. 

For example, tracking patient generation from one specific radio ad or, if not possible, from radio as a whole, so it can be compared to another channel such as Google Ads. At a minimum, this should be calculated separating patients generated from marketing and patients generated from word of mouth or organic channels. The formula is as follows:

CAC = Total Marketing & Sales Spend / Total Number of New Patients

Expect to perform this analysis at a consistent frequency, such as quarterly or monthly, and at points where a new advertising budget is being allocated to new or existing campaigns. 

Medical Practice Average Customer Acquisition Cost by Industry

The following are necessary to understanding our figures:

• Organic campaigns include SEO (search engine optimization) and organic social media traffic because resources are not spent directly on advertising platforms, but rather on building out content for publishing. 
• Inorganic campaigns include any campaign where marketing dollars are exchanged for traffic from an advertising campaign such as PPC advertising or paid social media.
• Data was derived using a meta-analysis of the average cost per procedure or visit, the average number of procedures or visits per year, and our KPIs for organic and inorganic campaigns
• We calculate that an average of 33.3% of revenue from patients generated via inorganic methods is spent on advertising, and 11.1% of revenue from organic patients is spent on SEO and organic social media campaigns. 
• In our case, we are considering the lifetime value of a customer to be the average first year of revenue from acquiring that customer due to the inability of many smaller practices to front large sums of advertising dollars without yielding a high ROI for many years. A 12-month time horizon is realistic for most healthcare providers.

Comparing Your CAC to Industry Benchmarks

While comparing to industry benchmarks, note your CAC KPI is entirely dependent on your own average first-year revenue from a new patient. The most important factor is that your organic spending accounts for 11.1% or less of first-year patient revenue and your inorganic spending accounts for 33.3% or less.

When campaigns are brand new, you may expect for the percentages to be a bit higher than these, but once results have leveled, those KPIs suit most of our clients well. For less expensive services, it may be more difficult to achieve those KPIs, especially for inorganic channels due to the rising costs of clicks and impressions. 

For more expensive services, aim for a lower percentage. Due to the higher revenue potential, assuming adequate demand in your market, campaigns should be fine-tuned to make advertising campaigns as profitable as possible. 

Improving Your CAC

Shifting from inorganic to organic means of patient acquisition is the simplest way of lowering your CAC. Organic methods compound marketing spend, whereas inorganic methods only grow linearly. With inorganic methods such as Google Ads, money is exchanged for a click and eventually a lead or sale. The machine must constantly be fed in order to keep the leads coming. With organic methods, there is massive upside potential because dollars are not exchanged for leads along a set ratio. Methods such as SEO pay dividends for years to come via the generation of free traffic and free leads (in the sense you are not paying an advertising platform for traffic or leads) once the system has been set up. 

Here at Focus Digital, we have a history of helping healthcare practices implement a long-lasting organic strategy designed to provide consistent, high-quality leads for years to come. To learn more about how we’re helping our clients improve their CAC, send us a message on our Contact Us page.

Sources