How to Calculate Patient Acquisition Cost (PAC)

The PAC Is the Amount of Money Spent to Convert a Possible Patient or a Potential Lead Into an Actual Patient.

For a medical practice to grow and be successful, it needs to attract new patients to its location constantly. Their medical marketing plan helps them accomplish this by putting together paid campaigns and other marketing strategies to promote their business. These marketing efforts need to be evaluated to determine if they are successful and convert enough patients to make it worth the money spent on them. One metric to assess a medical marketing campaign’s efficiency is the Patient Acquisition Cost, also known as a PAC. The PAC is the amount of money spent to convert a possible patient or a potential lead into an actual patient. The cost of acquiring that patient will show you whether a campaign that leads to that conversion is working well, needs to be improved, or should be scrapped altogether.

Generally, the patient acquisition cost needs to be lower than the patient’s lifetime value or the amount of money that patient will spend or generate at your medical practice. In the simplest terms, if you spend $100 to bring in a patient and that patient only spends $50 there before they stop coming to your medical clinic, you are losing money. You always want the PAC to be lower than the lifetime value of the patient. While this is certainly a simple concept to understand, calculating those numbers can be difficult.

How do I calculate the patient acquisition cost for my medical practice?

Many medical practice owners incorrectly assume that a marketing budget is the only factor that goes into a patient acquisition cost. While a PAC is used to evaluate how effective marketing campaigns are, other things must be considered when calculating this figure. An accurate patient acquisition cost will include:

1. Cost of treatment given to the patient, including any materials used during their appointment (bandages, medications, cosmetic treatments)
2. Salary and taxes for staff at a medical practice
3. Cost of a marketing company or other vendor fees
4. Cost of any research needed before a marketing campaign
5. Spend on any marketing materials, if needed
6. Marketing budget

As you can see, the total patient acquisition cost is not only a marketing budget number. Some of these factors are one-time costs, while others incur every time you visit a patient. It may be difficult, if not impossible, to nail down an actual number for some of these factors. In these cases, do your best to estimate the cost per patient. Ideally, you want to spread these costs out across as many patients as possible. For example, doing $500 worth of research that applies to 1,000 new patients will be better than 50.

What should be the goals for number regarding patient acquisition cost and lifetime value of a patient?

Your top goal with these two numbers is trying to widen the margin between them. In the end, it does not matter which number moves. All that matters is that the margin grows. For example, both of these goals would work in a medical practice’s favor:

• Reduce the marketing cost to bring in new patients, therefore lowering the PAC and increasing the margin.
• Retain the patient for a more extended amount of time, producing more visits and income from that patient, increasing their overall lifetime value.

Depending on your medical practice’s nature, you may not be able to increase the lifetime value of patients, forcing you to reassess your marketing campaigns. In other cases, you may be getting the absolute most bang for your buck from a marketing perspective, and instead, you need to analyze what could keep your patient engaged and returning to your location.

How does knowing the patient acquisition cost and the lifetime value of a patient help me evaluate my marketing campaigns?

These two numbers help you determine how much time it takes before you begin to see a return on your marketing investment, also known as an ROI. Knowing this will help you better budget your expenses to better plan your future medical marketing efforts. For example:

• You calculate that it takes $300 to bring in a new patient to your medical practice.
• Every visit to your clinic generates $150 from that patient.
• A patient needs to visit at least two times to break even and more than two times for you to turn a profit.
• If a patient visits every week, this will not take very long to recoup your cost. If a patient’s visit is once every three months, you may not be making a profit until the following year.

As you can see, knowing how much it costs to acquire a new patient, how frequently they visit, and when you can expect to make a profit off of them are all very important.

What is another way a medical practice owner uses patient acquisition costs and a patient’s lifetime value when building their business?

Owners often use these numbers when they apply for a business loan. These sort of detailed numbers help banks and other financial institutions with their decision. These numbers may also be shown if an owner is looking for potential investors in a medical clinic or if they plan on opening another location. An impressive ratio between the patient acquisition cost and the lifetime value of a patient can help convince an investor or loan officer to move forward with a project.

How does a medical practice owner figure out a patient acquisition cost in a step-by-step fashion?

It may seem overwhelming to try and figure out what the patient acquisition cost is for your medical practice. It can certainly become very complicated as there will be a lot of data you can look at. However, if you take your time and know what figures you are looking for, it does not have to be challenging. Below are some simple steps to determine the patient acquisition cost for your medical practice.

What is the time frame you want to examine with your PAC?

First and foremost, you need to figure out the period you are looking at before making any calculations. If you want to know how effective a campaign was for your medical practice, you will want to look at a period that begins with that campaign’s start. Other times, you may want to know what the average patient acquisition cost has been for the lifetime of your business. This number may be more useful in a presentation for possible investors or a financial institution. The time span of your calculations must be set first, or this task will be more difficult for you.

How much was spent in support of acquiring a new patient?

Many owners of medical practices stop at this step when they add up the money they spent on their marketing campaigns and then use this number to determine their patient acquisition costs. However, as mentioned above, there is more that goes into this number than a marketing budget. The following expenses should be included:

• Wages of staff and taxes
• Marketing service fees
• Marketing budget
• Any professional services used (such as designers or copywriters)
• Other expense related to patient marketing

These are all very straightforward; however, some owners get confused by the “wages of staff and taxes.” You should not include their entire wages throughout the day. A healthy portion of that day is likely spent treating patients, not marketing a medical practice. So while you wouldn’t include the wages of a doctor treating patients all day, you would count a portion of a receptionist’s salaries who may be working on an email campaign or monitoring social media posts.

How many new patients do you acquire as a result of your campaign?

This part of the calculation is straightforward to determine. You calculate how many new patients came to your medical practice. If you are evaluating a marketing campaign, do not include patients who have come before. If you are looking at a patient’s lifetime value, you would consist of everyone who visited during your selected period.

How do the numbers add up when you plug them into your formula?

To correctly calculate your patient acquisition cost, you will want to add:

• Wages of staff and taxes
• Marketing service fees
• Marketing budget
• Any professional services used (such as designers or copywriters)
• Other expense related to patient marketing

And then divide that number by:

• Number of new patients

For example, let’s say you determined the following numbers.

• Wages of staff and taxes – $100,000
• Marketing service fees – $8,000
• Marketing budget – $25,000
• Any professional services used (such as designers or copywriters) – $3000
• Other expense related to patient marketing – $800
• New patients acquired – 500

Therefore ($100,000 + $8000 + $25,000 + $3000 + $800) divided by 500 equals $268.20.

So, it took $268.20 to acquire each new patient during a marketing campaign. If a patient, on average, generates $100 for each visit to medical practice, then a profit will begin to show on their 3rd visit to that practice.

How much higher should the lifetime value of my patient be than the patient acquisition cost?

If that number is negative or at zero, there is a problem with your medical marketing plan. Ideally, the lifetime value of your patient should be three times the patient acquisition cost. Using the example above, you want your patient to generate at least $804.60 before they stop coming to your medical practice. This means you ideally want them to come eight or nine times before they no longer visit your medical practice.

If this ratio is more significant than three times, it means you are doing an excellent job with your medical marketing. If it is lower than three times, you may want to improve an area to get that ratio a little bit higher. This means either lowering your patient acquisition costs or increasing the lifetime value of that patient. Different situations at different medical practices will determine where you should focus your efforts. In some cases, you may be able to do both!

What is an example of a medical practice case study using patient acquisition costs to determine their marketing plan?

Dr. Libby was an owner of a pediatric medical clinic and ran several medical marketing campaigns throughout the year. However, to boost the patient count at his medical practice, he wanted to evaluate how his campaigns were performing. Throughout the year, ran major campaigns in the Spring, Summer, and Fall. He calculated the costs of these campaigns and the number of new patients they brought in. He arrived at the following numbers:

Spring Campaign

• Wages of staff and taxes – $30,000
• Marketing service fees – $2,000
• Marketing budget – $15,000
• Any professional services used (such as designers or copywriters) – $1200
• Other expense related to patient marketing – $1000
• New patients acquired – 325

Patient Acquisition Cost – $151.38

Summer Campaign

• Wages of staff and taxes – $15000
• Marketing service fees – $3000
• Marketing budget – $20000
• Any professional services used (such as designers or copywriters) – $800
• Other expense related to patient marketing – $500
• New patients acquired – 300

Patient Acquisition Cost – $131.00

Fall Campaign

• Wages of staff and taxes – $15000
• Marketing service fees – $5000
• Marketing budget – $30000
• Any professional services used (such as designers or copywriters) – $1800
• Other expense related to patient marketing – $1500
• New patients acquired – 450

Patient Acquisition Cost – $118.44

With this data, Dr. Libby concluded the following.

• The fall campaign is the most effective one, producing the most patients and having the lowest patient acquisition cost.
• The summer campaign did not produce as many patients as the spring campaign, but it was cheaper to acquire patients over the summer than in the spring.
• The spring campaign needs to be examined to see if the patient acquisition cost can be lowered to make it more efficient.

Dr. Libby decided to analyze if there was a different lifetime value of patients depending on if they are acquired in the Spring, Summer, or Fall. Early analysis shows no measurable difference, so he will concentrate on making his marketing campaigns more efficient. If new data changes these values, then he will reevaluate.

The experts at PatientGain.com can help you determine your patient acquisition costs. Our experienced team can find ways to lower your marketing costs to boost the margins between that number and the lifetime value of your patients. Call today and let us start to work for you to grow your business!