E555 | Two Important Business Metrics To Understand

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Welcome back to another edition of the P.T. Entrepreneur Podcast! In order to understand the trajectory of your business, there are two very important metrics you need to understand within your business. They are cost to acquire and lifetime value. I dig into these in this episode. Enjoy!

• Why these numbers are important
• Practical examples of these in use
• How things can go sideways by not understanding these metrics

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Podcast Transcript

Danny: So I was having a conversation with one of our staff members about documentation and he had come over from a in-network practice that he was working at and he was talking about just how long it would take him to document and click through and the workflow and how, just how time consuming it was and how much easier it's been with the software that we use, which is PT everywhere.

And I know for us, we're very aware of. Sort of time leaks within our staff and our own schedules. And it's just one of the worst things you can do is just waste time on things when you could be doing them more efficiently. One thing for us is we have to document. It's something we need to do and you need to do it as efficiently as you possibly can because that's where you're gonna save a lot of your time.

We were seeing our staff members save upwards of an hour a day as far as cleaning up his documentation, making it more efficient. What if you got an hour of your day back just from documentation? What if all of your staff did the same thing? Highly recommend you take a look at PT everywhere.

It's been a huge time saver for us and really has made a big difference in our efficiency of our practice. You can check 'em [email protected]. I think you're gonna really like what they have to offer. So here's the question. How do physical therapists like us who don't wanna see 30 patients a day, who don't wanna work home health and have real student loans create a career and life for ourselves that we've always dreamed about?

This is the question, and this podcast is the answer. My name's Danny Matte, and welcome to the PT Entrepreneur Podcast.

What's going on guys? Doc Danny here with a PT Entrepreneur podcast, and today I'm going over two important numbers. You need to understand as a business owner to really get a clear idea as to where your business is going, the trajectory of your business, and if you should continue to do certain marketing techniques and channels and or if you should not.

And those two numbers are cost to acquire. We're also known as C, and then lifetime value. We're also known as ltv. So these numbers are important because they inherently let you know if you should continue to do certain. Certain things within the business to be able to acquire new customers. So here's what I want you to think about.

There's a number of ways in which you can get a new client, a new patient. It could be a local event, it could be a networking event. Let's say like a BNI group. It could be a workshop, it could be content that you're writing, email marketing. It could be paid ads. In this example, the easiest thing to do is to look at paid ads because you can rec very.

Directly target and calculate how much it's costing you to get a to get a client in the door, right? And from there, you just have to know what your what your conversion percentages are, if they come in, if they stick around, if they buy into a plan of care, and then understanding what your lifetime value is.

Here's what I want you to think about. So cost to acquire, let's say there's two different scenarios. One, let's say you go and teach a workshop. Let's say you teach that workshop. It's two hours long that you're there, and while you're there, you get two clients. Okay? Let's say for you, if you were to pay somebody else to go teach that workshop, and so you had to go pay a provider to go teach that workshop.

So you pay 'em $200 to go and teach this workshop, and they get two new, two new patients out of it, right? So two new people come in and you know that if someone comes from a workshop, the likelihood that they're gonna stick around do a plan of care is pretty high. So let's say those two people come in, and then both of those people decide that, all right, I'm in.

I want to fix this problem long term. They buy a 10 visit package. And let's just say that package is $2,000. So you've generated $4,000. In front end business, upfront business for the practice for a cost of $200. All right? So your cost to acquire is $200 and you've now generated.

4,000. Okay? So when you do a ratio of your cost to acquire in this case would be $200. If you were to pay somebody else to go and do this workshop and your lifetime value, which in this scenario we don't have, we just have the front end value. But even in that scenario, if you were to take your total revenue generated and divide it by what it costs you to acquire that person, in terms of marketing costs, you would have a ratio of 20.

So it'd be 4,000 divided by 200. That's an incredibly high cost. To acquire ratio. It's a really good ratio. You would do that all day. Right now, let's say lifetime value, which is the other factor is how much somebody's gonna spend in your business over the life cycle of them being a client. That can include them coming back, by the way.

So that could be okay to do a 10 visit package up front. They're done. They come back a year later, and they decide they want to do a little bit of like maintenance work. It's a few more visits or whatever it might be, and let's say that they end up with 20 visits over a three year period, so that would technically be your lifetime value.

If it's $200 per visit, now your lifetime value is $4,000. For that person, you'd have to average that out over all of the clients that you have. So if you have a newer business, the challenge is you don't have time and or enough people to understand what your lifetime value is. So you're guessing, but I can give you some certainty in terms of what those numbers look like.

If you run a model similar to what we have. Which is a, cash-based model with pretty decent con continuity offers, right? So that could be like semi-private training in the office. That could be remote programming, that could be ongoing maintenance work with people. But if you're doing that and you're, doing a good job on the front end of actually like selling a plan of care to build, to solve a problem with somebody, you're probably looking at somewhere between two and $4,000 in lifetime value.

For for a client in that type of a business model. So it just depends on, what you charge to in some ways. So let's just say lifetime value is. $3,000. All right we'll meet right in the middle. And this is a pretty good estimate For a lot of you. Like I said, anywhere between two and $4,000 is probably what you can expect from a client.

Lifetime value, by the way, of Starbucks per person is like $7,500. Think about that for a second. That's their lifetime value. We've gotta calculate out like how many copies you, you have gotten there over however long you've gone to Starbucks. Like they, they kill it. Because they have such a good, long lifetime value of people, they don't have to really acquire our customers too much cause they stick around forever.

So let's bring this to like the digital marketing side because for some of you, as you start to advertise online it can be tricky to figure out if what you're doing is worth doing or not. And this is where, again, cost to acquire and lifetime value are two really important metrics to understand. So let's say you're running a campaign and let's say it's costing you $100 for somebody to opt in for some sort of like a Upfront discounted visit.

Let's say it's even a, just a free visit. Let's say it's a free discovery visit or something like that, as an example. And let's say it's costing you a hundred dollars to get somebody in the door. Or a hundred dollars to get a, to get somebody to opt in for this, right? To schedule a time.

Let's say you have a 50% show rate. Cause you have to also understand how many of those people that opt in are actually gonna show up. It's far lower in the digital sense, so if somebody's. Opts in for something on Facebook or Instagram or YouTube or whatever. The likelihood they show up is far lower than if you met that person in person at a, at a workshop or something that you were teaching.

So let's say one out of two actually shows up, so now it's costing you $200 to get that person through the door. Okay? Let's say it's a free visit and you're converting, let's say 50% of the people that come through. So now all of a sudden you have to multiply that again. So you have half of those people that one person comes in, no, I'm good.

It doesn't seem like the place for me. The other person comes in, they're like, man, this is exactly what I've been looking for. Boom, I'm in. Let me buy a 10 visit package. And let's say that 10 visit package is $2,000 and that's all like the lifetime value you're gonna get outta that person.

Your cost to acquire. Is now $400 to make 2000. So again, we had a $100, like per lead opt-in half. Those people came in. So it was costing you $200 to get 'em through the door, and then half of those people actually committed to a plan of care. So now you have to multiply it again. So you're at $400. All right, so $400 to acquire to then make $2,000.

Would you take that exchange? The answer promotes you, hopefully is yes, because if you do the ratio again, you take 2000 divided by 400 and it gives you a ratio of cost to acquire to a lifetime value of five. And this is just front end value, but we're gonna use this as an example. Again, you could use this as, as anywhere between two and $4,000 as a baseline for lifetime value if you want to use that for your practice, if it's relatively new.

So even if you looked at $2,000. You're still at a ratio of five, so 2000 divided by four. Now, if you look at software metrics, this is where a lot of this comes from. They're good with anything that is a three or above. Now a three is, that's pretty tight. That'd be like you saying it's cost me $400 to get somebody in and I'm gonna make 1200.

You have to be like really sure that your marketing is. Is consistent and is gonna work because you could also spend a lot of money up front to acquire people and then it not work out. And then you don't know that until it's too late and you're very cash flow poor because you spent all your profit on marketing and it hasn't been profitable.

Marketing. This is actually what scares a lot of people off from digital marketing with good recent because you can definitely screw it up pretty easily if you don't know exactly what you're doing and you don't know your numbers and you're not very clear on it. So for you guys like. As you evolve and you grow your businesses, this is an area that I always go back to.

Local marketing is the best place to start. Think of it as foundational reputation development. Building reputation in the community, getting people in the door that are far warmer leads that are, that have met you, that are, have interacted with you in some way before they come in your office. And then as you evolve and as you grow and as you have more staff members adding in digital advertising, adding in some layer of digital marketing on top of That's gonna be your best bet because you're already, you're gonna convert better on the sales side cuz you have a lot more reps.

You have a lot more social proof and credibility, which is gonna help your digital marketing. And you're also gonna be a more sophisticated business owner that's gonna understand some of these numbers better. The mistake I see is people that are brand new and they just start like doing digital advertising at a pretty aggressive clip.

They actually don't know their numbers and it's like they're. Blindfold playing darts. Like they may hit a bullseye, but they don't know if they did because they're, they don't even know what to track. And that's where it can get really sketchy if you don't understand these things.

So I think it's great to layer this stuff on. Once you understand your metrics, once you understand your marketing and your avatar and all the things you need, by actually like having some clients and getting a better idea of what you're doing first, then understanding these numbers is key. Remember, Cac, which is cost to acquire.

That is how much is costing you to get somebody in the door, which includes people that don't show up, nohow you, or reschedule or whatever, or even like that don't actually, Convert, like your cost to acquire is how much is costing you to get a paying customer. Your lifetime value is how much they're paying over the course of time that you're there.

So if you think about lifetime value like that, again, you may not have enough data to predict that, but that's gonna be The le the lifetime of payments that somebody's making with you across the board, right? So this is years into the future. So if you understand anywhere between two and $4,000 is probably what you're looking at in a cash-based practice, gives you a really good idea of how much you should be willing to pay to bring somebody in the door, right?

So hopefully those make sense. CAC cost to acquire lifetime value. Two really important metrics to understand as you start to get a little bit more sophisticated with your marketing and or just start to calculate this stuff to get a better idea of what's going on with your business in a more predictable fashion than just yeah, I think we grew this month, or didn't grow this month.

Start to understand these and that will help you tremendously. So as always, guys, hope this helps and we'll catch you next week.

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Get signed up for the challenge today. It's totally free. We think this is gonna be a game changer for you and are excited to go through it. Hey, real quick before you go, I just wanna say thank you so much for listening to this podcast, and I would love it if you got involved in the conversation. So this is a one way channel.

I'd love to hear back from you. I'd love to get you into the group that we have formed on Facebook. Our PT Entrepreneurs Facebook group has about. 4,000 clinicians in there that are literally changing the face of our profession. I'd love for you to join the conversation, get connected with other clinicians all over the country.

I do live trainings in there with Yves Gege every single week, and we share resources that we don't share anywhere else outside of that group.So if you're serious about being a PT entrepreneur, a clinical rainmaker, head to that group. Get signed up. Go to facebook.com/groups/ptentrepreneur, or go to Facebook and just search for PT Entrepreneur. And we're gonna be the only group that pops up under that.