Archive July 2019 XX, No. 7

Economic Intelligence: What's the Lifetime Value of a Patient?

Calculating the true worth of a relationship to your surgical business.

Mark Weiss

Mark Weiss, JD

BIO

LIFETIME VALUE
LIFETIME VALUE Look at the worth of a customer as the value of the stream of sales or transactions over the entire lifespan of the customer relationship.

Surgical facilities track a lot of data — quality measures, patient census, service line revenue and so on. But here’s something that no one regularly tracks: lifetime value. Yes, it’s hard to track something that you don’t have a clue exists. Look at it this way: What’s a relationship worth to your business, whether your business is a hospital, an ambulatory surgery center, some other healthcare facility or a medical practice?

Originally from the marketing world (where it remains a very powerful idea), the concept of lifetime value involves looking at the worth of a customer not as the one-off revenue from a discrete sale or transaction, but as the value of the stream of sales or transactions over the entire lifespan of the customer relationship.

Let’s look at an example involving a sporting goods store. From the marketing context, a customer’s value in dollars to the business isn’t the average individual sale, perhaps $29.97. Instead, the true value is the total combined sales to the average customer over the lifetime of all of the sales to him.

At our mythical sporting goods store, the first sale to the average Billy Bob might be only a $19 t-shirt resulting in $9 of gross profit. But, measured over the years of the normal customer relationship, the balls and bikes and boxing gloves purchased by our avatar Billy Bob result in $3,567 of sales and $2,193 of gross profit. That new Billy Bob over in aisle 7 isn’t worth $9, he’s worth $2,193, and the smart store owner treats, and entreats, each customer in that light. And that’s before we even take into account how many additional “Billy Bobs” the original Billy Bob refers.

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