Understanding Lifetime Value of a Referral

I had helped someone develop a Google AdWords campaign recently. In dismay, he told me he was thinking of ending the campaign, because in the past two months, it had cost him $300 a month for a total of $600. “And how many referrals did you get from the ads?” I asked. “Oh, I got 13″ he said quietly. “Thirteen?” I fairly screamed.  “Yes, thirteen. What’s your point?”

I paused for effect, knowing what I was about to reveal. “What’s your average fee per session?” I asked. “$135″ he said. “What is the average length of treatment before termination?” I asked. He said 8 to 12 sessions. I said, “Ok, let’s be REAL conservative and say it was only six. Multiply 6 x $135 and the average value of every referral you get is $810. Mutiply that by 13 and let’s see if that $600 was worth it.”

There was a long silence at the other end of the line. 13 x $810 = $10,530.  So for every dollar he spent on AdWords, he made over $17! That’s a phenomenal result, better than most people get with pay per click ads.

“Gee, Joe, I was about to cancel the account!” he sheepishly recounted.  I couldn’t resist and told him my recommendation: Increase your monthly budget!!! He said he couldn’t do that yet, but would keep tracking the results.

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This illustrates a fundamental problem for many healthcare providers. Any amount of money seems like too much to spend. So calculate your Lifetime Value of a Referral, and carefully track the results of  your marketing efforts. You just might be very surprised…