Revenue growth in May 2023 was much stronger than in the previous month (9.7% vs. 1.3%). These numbers are not entirely comparable, however, because May of 2023 had one more workday than May of 2022 and April 2023 had one day less than April 2022. A similar trend was seen with both patient visits and new client numbers; they increased much more in May 2023 than in April 2023. Although May 2023 looks stronger, overall, practice growth has definitely slowed and, on average, has moved away from the increased growth rates seen during the pandemic.
As discussed last month, veterinary hospitals have been dealing with either anemic growth or a decline in veterinary visits over most of the last two years. While revenue has been growing at a faster rate than visits, this is due to fee increases and/or increased individual pet owner spending. Mixed signals persist in the U.S. economy and inflation continues to be a challenge both for veterinary practices and for pet owners which means fee increases and increases in individual pet owner spending may be difficult to sustain. Growth in actual visits is critical to ongoing and sustainable practice growth both in revenue and profits and growth in new clients is essential to growth in visits. And, of course, effective marketing programs are essential to new client growth.
How does a practice know if it is spending its marketing $$ wisely?
Marketing used to be easier in veterinary medicine; however, with the advent of the Internet, practices have many more options and most now focus primarily on digital marketing.
More options (and the related costs) mean a part of the marketing plan must include tracking the success of each component of the plan. For most practices, the primary goal of marketing is to bring in new clients; therefore, the management team needs to know where new clients are coming from, the Customer Acquisition Cost (CAC) and which programs produce the “best” types of clients.
Historically, practices have spent about 0.5%-1.0% of gross revenue on marketing costs.
These figures are typically for mature, stable practices; start-up practices or those focusing on significant growth are likely to spend more. The above %s only include direct costs made for outside marketing services; if practice team members spend time keeping Facebook posts up to date or doing other promotional things, those costs would be included in staff compensation.
In some ways, what other practices spend doesn’t really matter; what matters is, of course, whether the amount spent (and how it is spent) is what it takes to accomplish the goals set by your practice in its business plan or via strategic planning. However, if your spending is significantly different from most practices, at a minimum it’s time to investigate your spending and see if it makes sense—there is no one spending level that fits all.
Every practice should understand where their new clients come from. Asking how clients heard about the practice should be a question on the new client worksheet followed by a list of the practice’s marketing initiatives to help clients answer properly. That list would include all the formal marketing programs (Facebook ads, Google search results, Lakeshore Condominium newsletter, etc.) as well as things like “Recommended by a friend or colleague” or “Noticed the practice when I drove by.” The front desk team must be trained to ASK clients for the info if the client doesn’t complete the worksheet. Remember too that it is the management team’s job to make sure the front desk staff have the time to do this with every client. The data then must be collected and reviewed regularly. This may not result in perfect info; clients may have driven by and then Googled the practice and then gotten a recommendation from a work colleague before making the decision to come to your practice but it does provide a decent idea of what is working and what isn’t.
There is also a lot of data that can be collected from the practice’s digital efforts; such as how many people:
- Downloaded something
- Clicked a button
- Followed a link
- Shared something
- Liked something
The downside to this, however, is that just because five bazillion people view the practice’s Facebook page doesn’t mean they visit the practice. What if 99% of those page visitors live 1,000 miles away? Analyzing the meaning of this data can be harder than analyzing the results of the kinds of programs practices historically used. Make sure your marketing service provider can help collect the right data and know how to interpret it—how many of these people actually become clients?
Ideally, the practice should also compare the cost of acquisition between various programs whether it is using a digital campaign of some kind or a more traditional marketing program. For example, let’s say the hospital participated in a community pet fair and handed out flyers offering a free exam for new clients. There was no rental cost involved in the booth and the things brought to decorate it with were already on hand at the practice. Printing of the flyers was $100, and the practice incurred about $200 in staff compensation costs for the team members that manned the booth that day. Over the next two months, 14 new clients visited the practice, received their complimentary exam and spent $25-$150 each.
What was the Customer Acquisition Cost (CAC)?
Total cost of marketing program = $100 + $200 = $21.43 per client
Total new clients 14
The lost cost of the exam is not included in this calculation because the practice doesn’t actually pay out any cash for those exams, it simply doesn’t bring in the exam revenue. The only exception to this might be if the practice has doctors on production pay and they receive some amount when they see these free exams. Some practices do and some don’t; if your practice does, this amount should be included in the calculation.
Is this a reasonable CAC? We don’t have good (or really any!) benchmarks for CAC in veterinary medicine and the numbers quoted in business articles in other industries are not really applicable to our field. The best way to make this determination is to compare the CAC of various marketing activities your practice engages in as well as the number of clients generated by the program and the estimated lifetime value of the client. If the practice has one program where the CAC is only $5/client but only results in 2 new clients in a year, is that worth the time and effort compared to another program where the CAC is $50/client but it generates 150 good clients?
Determining whether the practice is spending the right amount of money on the right activities has both subjective and objective components and while the analysis may not be perfect, it will give the practice better information than it currently has to make more informed marketing decisions.
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Karen E. Felsted, CPA, MS, DVM, CVPM, CVA of PantheraT Veterinary Management Consulting, www.PantheraT.com, provide data review and commentary.
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