Читать книгу No B.S. Guide to Maximum Referrals and Customer Retention - Dan S Kennedy - Страница 9
Оглавлениеby Shaun Buck
This chapter is about how big an impact a small number can have.
Business owners tend to focus on growth in gross revenue terms. That’s how the pack thinks. For that reason, small numbers don’t interest or motivate them. There’s a lot of passion for THE Big Idea that will produce BIG Growth, preferably overnight. This is the same sort of pack thinking that keeps hordes of overweight people trying one new pill or one new “trick” diet after another after another after another, in place of organizing a sensible eating plan and a basic exercise regimen and sticking to it.
Of course, there’s nothing wrong with a single, big, epic, magically transformative breakthrough, if you can find or invent one. But most success and wealth in business, especially in established businesses, doesn’t happen that way. Profit growth tends to come from small things combined or multiplied. What McDonalds’ founder Ray Kroc called “grinding it out.”
Here, I’m going to demonstrate how an apparently small number—5%—can have a big impact.
My first customer ever at The Newsletter Pro is still with me today. I want to use him as a case study. He is a dentist in a suburb of Boise, Idaho. Don’t allow his profession or location to send you down the path of thinking “my business is different” and this case study doesn’t apply to you. That’s how broke business owners think. Those specifics do not matter. What I want you to focus on are the numbers.
Dr. Taylor opened his practice two years before he and I met. His practice was located in the southern section of a small but very affluent part of town. Less than a mile away was West Boise, and directly across from his office was the northernmost town of Meridian, Idaho, one of the fastest-growing cities in America. To say his location was prime real estate for the area is a bit of an understatement.
Dr. Taylor’s office building was massive. It had room for at least a dozen operatories where they could clean patients’ teeth and provide other services. Only six operatories had been equipped at the time; three were ones Dr. Taylor rented to another dentist whose primary location was on the opposite side of the county. In other words, he had enormous unused capacity. Or less optimistically said, he had a vastly overbuilt facility. I’ll credit him with vision and ambition.
When I met Dr. Taylor, it was obvious he was a highly skilled dentist with a good chairside manner and no ego, which is not always the case when you are dealing with doctors of any kind. His practice was very small personnel-wise. At the time, he was employing one full-time front desk person and one part-time hygienist. He was his own assistant, and when the hygienist was not at the practice, Dr. Taylor did all the hygiene work himself.
As I previously mentioned, Dr. Taylor had a good location and wanted to grow, so we started working with him and put two campaigns into place simultaneously. The first was a multistep direct-mail campaign designed to get new patients in the front door. The second was a monthly print newsletter meant to decrease the number of patients Dr. Taylor was losing annually as well as to increase referrals. Regarding the first campaign, hey, more new patients were needed and would be exciting. But I knew that there was more opportunity than met the eye from growth by retention and referrals, rather than by costlier and more difficult new patient marketing to strangers. This is the opposite way from the pack. Most people assume they’ll keep customers just by providing good products and services, and get their share of referrals automatically, so they hunt for new customers in the wild.
RESOURCE
If you want to check to get examples of the multistep direct-mail campaigns and newsletters used by Dr. Taylor, just head to www.nobsreferralbook.com. This is a free website I have set up to provide you with additional free resources.
At the time, Dr. Taylor was losing about 17% of his patients per year. That number is very average. Most businesses we work with, prior to starting with us, tend lose between 15% and 33% of their customers annually. For Dr. Taylor, our goal was to simply decrease his 17% loss to 12%. In a professional practice, 12% is about as low as you can get because regardless of how great your service or how strong your relationship with patients, people still move away and still die.
Considering how small Dr. Taylor’s practice was at first, it may surprise you that he invested any money in patient retention at all. To be honest, many less sophisticated dentists skip patient retention and end up dumping 100% of their marketing money into new patients, but Dr. Taylor knew that his current patients were the ones keeping the lights on and were the ones feeding his kids. They were the lifeblood of his business and were therefore not to be treated as second priority.
So, we began with the 17% fact—we developed the 5% solution (see Figure 3.1).
FIGURE 3.1
5% Matters—More Than Most Think
In this chapter I want to take you through a case study of Dr. Taylor’s business’s numbers (see Figure 3.2). This chapter is filled with math and numbers, which I know is not a strong area for everyone, but stick with me here, these numbers can literally change your life.
Let’s look at Dr. Taylor’s numbers today:
• Dr. Taylor has 3,800 active patients.
• The average cost to acquire a new patient is $213.00.
• The revenue for each new patient is broken down over the first three years they do business with the practice. Most patients stay much longer than three years, but for this case study, we stopped at year three for average patient revenue.
• Average first-year revenue: $893.00
• Average second-year revenue: $1,215.00
• Average third-year revenue: $1,596.00
Now, before I go on, I want to point out that in some dental practices, first-year revenue can be skewed on the high side when compared to similar businesses because of the patient who comes in and needs thousands and thousands of dollars in dentistry to fix years of neglect.
FIGURE 3.2
As you can see from the numbers, the longer a patient is with this practice, the more money they spend on average. This trend of longevity continues with the average patient at this practice being worth $1,900.00 per year in year five. See Figure 3.3 on page 16.
At a 17% attrition rate, Dr. Taylor was losing 425 patients per year or 35 patients per month. According to a 2014 Dental Economics survey, the average dental practice adds 26.39 new patients to their practice per month or 317 new patients per year. With a 17% patient loss rate, if Dr. Taylor was simply adding this average number of patients to his practice each year, his total patient revenue and his patient base would be declining year over year. Most try fixing this by substantially outperforming the average for acquiring new patients, as if that were the only fix available. But attracting and seducing strangers is hard work. In business, it tends to be difficult and expensive. Investment in retention, by comparison, can be a bargain. Simply, there is often more profit in retention than in acquisition.
FIGURE 3.3
Of course, Dr. Taylor did focus on patient retention, but if we spend a minute on this hypothetical example, we would see that he needed to get 108 new patients, on top of the average 317, at a cost of $213.00 per new patient, for a total additional investment of $23,004.00 just to stay even. Of course that $23,004.00 comes straight off the bottom line, and frankly, it is demoralizing to work all year and spend a ton of money on marketing, only to end up in the exact same place you started. You can find yourself a hamster running on a wheel, stuck in place, yet running very hard!
Let’s get back to the case study. If we invest in patient retention and are able to bring the percentage of lost patients down from 17% to 12%, a bit of magic starts to happen. The 12% patient attrition equals 300 lost patients per year or 25 lost patients per month, which, compared to losing 425 patients, is a huge difference of 125 people! But that doesn’t tell the whole story.
First, we need to look at the cost of replacing 125 additional lost patients. To get that, we take the $213.00 that it costs to acquire a new patient and multiply it by the number of lost patients (125). The total cost to replace the lost patients with new patients is $26,625.00.
125 Lost Patients × $213.00 Replacement Patient Cost = $26,625.00 Cost to Replace Additional Lost Patients
Next, we also have lost production for those 125 patients who left the practice. Using the average annual revenue of a second year patient (as seen in the previous numbers), you see those lost patients each represent at least $1,215.00 in lost revenue to the practice.
125 Lost Patients × $1,215.00 Lost Revenue Per Patient = $151,875.00 In Lost Revenue In Year One
Next, we have to look at the lost referrals. Dr. Taylor’s practice gets 27 new patients from referrals every month. So, if we do the math, we can figure out those 125 lost patients also equals 16 lost referrals per year. Which is another $14,288.00 per year in lost revenue.
16 Lost Referrals × $893.00 Lost Average First Year Patient Value = $14,288.00 Additional Lost Revenue
I could easily go on from here. We could add up all the marketing money we’d need to replace all of the patients just to get the practice back to 2,500 active patients each year. We could talk about multiyear values or lifetime values of a patient. We could talk about the referrals we would have gotten from the referrals we didn’t get because we lost the referring patients, per Dan’s Chapter 12 on the Endless Chain. It is a nearly endless calculation. But instead, let’s stop here. Suffice to say the difference between focusing on customer/patient retention and not focusing on retention, for this practice, is $192,788.00 per year.
$26,625.00 Cost to Replace Patients + $151,875.00 Lost Revenue from Lost Patients + $14,288.00 Additional Lost Revenue from Lost Referrals = $192,788.00 Total Lost Revenue
That’s $192,788.00 lost if Dr. Taylor were to ignore or fail to invest in and assertively manage patient retention. To add insult to injury, that $192,788.00 lost is nearly all profit. The practice has already paid all of its overhead, rent, electricity, and insurance. The practice wasn’t 100% full on its schedule, so most of the payroll has already been paid for. Also, for a business owner, it really is more than lost money, it is lost peace of mind; it is lost nights of sleep spent worrying; it is lost vacation time with your family.
Moving a needle by only five points seems small. But $192,000.00 in this instance is not small at all! If you’ll do the same calculations for your business with your facts, I’m certain you’ll make the same discovery: A small move of your needle can have big net financial impact.
Dan Kennedy owns a lot of racehorses, and he likes to wager now and then on the ponies and on sports. You can’t be around him very long without winding up in conversations about “odds.” He says that gambling and direct marketing have two things in common: math or odds, and behavioral psychology. More people are familiar with slot machines than the races or sports betting, so here’s a little trivia he passed on to me about slot machines. Keep it in mind the next time you visit a casino. Payback percentages and payback frequency vary by type of machine. On average, the house’s edge is about 4% on $10 denomination machines, 6% on $5 machines, 8% on $1 machines, 10% on 50-cent and 25-cent machines, 12% on 10-cent and 5-cent machines, and as much as 17% on penny machines, but then, it shifts more, and worse for the player, with “progressive jackpot” type machines, “betting pool” linked machines with giant jackpots (like “Megabucks”) or “branded” machines for which licensing fees have to be paid to celebrities, TV shows, or movies. The take-outs also vary by position of machines within the casino. It’s complicated. In this case, you will, ultimately, over time, lose no matter what you know about this or how you play, period. But you can lose less or lose slower and basically buy more entertainment for your dollars if you tilt the odds less in your dis-favor.
The good thing about marketing is that you don’t have to settle for tilting odds less in your dis-favor. You can actually tilt them in your favor!
When you only focus on new patients or customers and virtually ignore the current patients or customers, you are stepping over dollars to pick up dimes. According to research done by Market Metrics, the probability of selling repeatedly to an existing customer is 60% to 70%, while the probability of selling to a new prospect is only 5% to 20%. It is far easier to get someone who already has done business with you previously to come in and use your services or buy additional products from you than it is to always have to look for new business.
When you take the data from Market Metrics and add in the research done by McKinsey and Company that says an average repeat customer will spend 214% more when compared to a new customer, you can clearly see that an existing customer is far more valuable than a new one.
A Bain and Company/Harvard Business Review study found that a 5% increase in customer retention can increase profits between 25% and 100% percent. This can be seen in Dr. Taylor’s case study. Bain, by the way, buys, invests in, and resells companies, and has to improve their profitability to achieve its goals. Often, it is stepping into troubled companies and turning them from losers into winners. Other times, it is bringing a lot of capital, expertise, and connections to a company already winning with its numbers. In either case, given its finding that a small 5% needle move in retention can have such big impact, you can safely bet this is a point of focus in every situation it steps into.
Finally, looking again at Dr. Taylor’s case study, consider this: According to the 2013 Dental Economics Report, the average full-time owner/dentist makes $239,336.00 per year. An extra $192,788.00 in profit would be an 80% increase in pay. That 5% needle move in retention equals an 80% increase in income!
This example is over, but your Math Class isn’t! To get help working through your own math and developing your formula for investing in retention, you can download a plug-and-play worksheet to calculate your company’s attrition rate, loss referral rate, and estimated lost revenue at www.nobsreferralbook.com. It and other resources there are free to readers of this book.
