Disclaimer: For those with a deeper knowledge of the lifetime value metric and retention rate, this post is meant to be a quick crash course. We’ll be going into more detail over the next few months as we discuss the implications of these metrics on PT practice.
I love a good metric, and I really love an easy to understand metric. Lifetime Value (LTV) is a key metric that we monitor when running our web-based subscription business, but it can be just as important to track when monitoring the health of your physical therapy practice.
LTV is, very simply, the product of two variables:
- Price: How much the service costs
- Customer Retention: How long you can keep selling your product to a given customer.
As an example:
- Your Netflix subscription costs you $10 per month
- You cancel your subscription after 10 months of using the service
- Netflix determines your LTV is $100.
It’s pretty easy to deduce that the overarching goal is to increase the average LTV of your customers. Obviously, you can increase a customer’s LTV in two ways simple ways: by increasing the price of the service, or by retaining your customers for a longer period of time.
In fixed cost scenarios such as PT, where insurance sets the price you will be paid on a fee-for-service schedule, the only way to increase LTV is to increase the amount of time you retain your customer. And the only surefire way to retain a customer is to provide a service that provides the customer with SUSTAINED VALUE.
We’ve talked about creating a unique value proposition before, but you may be thinking to yourself… what the heck do subscription metrics that work for web-services and newspapers have to do with Physical Therapy? The truth is, PT is unlike many areas of the healthcare system; instead of dealing with one-time interactions such as a surgical procedures or a yearly checkup, providers only make money if their patients come back. In many ways, physical therapy IS a subscription service, with patients and insurers paying per-visit installments. Having a sold grasp on the average lifetime value of your patients presents an actionable way to track the health of your clinic over time.
One unique difference between traditional subscription businesses and physical therapy is that a subscription business can theoretically keep a user in their system forever, while in PT each patient has a maximum care duration that is dictated by either:
- the amount of visits approved by insurance, or
- an improvement in the patient’s functional ability where therapy is no longer needed.
This places a cap on the patients LTV, but it is one of the few unique differences when comparing these traditional subscription businesses to healthcare. In a perfect world, every patient would fully complete their recommended course of care. But, this isn’t happening. We all know that patients are cancelling, no-showing, and many of them just flat out stop coming.
To track this in a more actionable way, the Healthcare specific version of retention rate to monitor is what we call Patient Retention Rate (PRR). PRR is very simple, it's the difference between the amount of visits a patient attends and the amount insurance approves (or if you’re running a cash-based business, the amount they should attend based on their clinical presentation). For example:
- The average patient at your clinic attends 7 visits
- The average visits authorized by insurance is 10, meaning
- Your clinic PRR is right around 70%.
The beauty of PRR is that an owner can use it to determine the amount of revenue lost due to a lack of patient retention. Meaning, if your clinic’s PRR is 70%, you are running 30% below maximum revenue.
Another positive aspect of PRR is that, as it changes, it will have an effect on the metrics you are already tracking. As PRR improves, there will (almost invariably) be a decrease in cancellation & no show rates, increase in visits per month, improved patient satisfaction and an increase in revenue.
The world’s most successful businesses know that their success is grounded in maintaining a high LTV of their customers. Now, you can figure out the average value of each of your patient by determining your clinic’s PRR. From there, you will have a clear picture of how much potential revenue you’re leaving on the table on average for each patient.
Once you have an idea of where you stand, you can utilize the best practices of the most successful subscription businesses to maximize your PRR, LTV, and revenue.
Need help figuring out your clinic’s PRR? Want to know how much money you’re leaving on the table? We’ve got you covered!
Click to download Strive Labs' Step-By-Step PRR Calculator.