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A Fast Track to Growing
Your Practice
You are not fully booked and you’ve tried various marketing strategies and you’re still not satisfied. Perhaps you’ve met a young doctor who you feel would be a perfect “fit” for your practice, but you don’t have enough patients. A proven method to grow your practice rapidly is to acquire the patient list of a retiring doctor.
There are several ways in which patient records can be purchased. Two methods are: Production Acquisition Method or Individual Records Purchase based upon patient retention.
Production Acquisition Method
In the Production Acquisition Method, you need to set a purchase price for the patient base. Typically, the value varies between 40% to 50% of last year’s gross receipts. Since the majority of dental practices sell in the range of 60% to 65% of last year’s gross revenue, this multiple weight is fair since you are not purchasing any hard assets of the practice other than the patient list (records) as well as the goodwill of the Seller.
We recommend a down payment of 20% to 25% of the purchase price. The balance of the payments are made over a two to three-year period. Once the Seller’s patients visit the practice, then he or she is paid a percentage of Net Production for those services rendered. This is done each time that patient visits the practice over a two or three year period from the date of sale. If it is a two-year buyout, 20% to 25% of net production is used or, if you extend payments over three years, 15% to 20% is applied. Payments are typically made on a quarterly basis. Using this method requires trust between Seller and Purchaser, since the Seller is relying on the integrity of the Purchaser to ensure that appropriate credit is given to the transferred patients. A Patient List Purchase Agreement is typically prepared. In the agreement, the Seller has the right to conduct an annual audit to ensure everything is correct in calculating Net Production and payments due.
Once the purchase price has been met, payments then cease. On the other hand, if the patient transfer is not what was anticipated and the net production has been below expectations so that payments have not reached the level of the purchase price, no further obligation to pay the Seller is required after the expiration of the payment time period. Here is an example of how it works:
| CASE STUDY | ||||
|---|---|---|---|---|
| The Transition | History – Net Production x 20% | |||
| Gross Revenue | $240,000 | 2003 | $260,000 | $ 52,000 |
| Market % | 50% | 2004 | $280,000 | $ 56,000 |
| Purchase Price | $120,000 | 2005 | $290,000 | $ 12,000 |
| Term | 3 years | Total Payout | $120,000 | |
| Payout | 20% | |||
This method can be a win-win for both Seller and Buyer because it rewards the Seller for assisting the Buyer in motivating patients to visit their new doctor and reduces the risk to the Purchaser of paying for something that may not be there.
Individual Record Purchase
Another method to value patient records is to place a value on each patient record based upon the patient’s retention behavior. Most dentists would agree that a patient who visits a practice two or more times a year for their recare appointment is more valuable than the patient who visits once a year or even less frequently, given the long-term annuity of the recare fees. Under this assumption, we utilize a weighted methodology to calculate a patient record value. We consider patient activity for the last three years while conducting a complete chart audit. Each patient is then assigned a weight based on their recare visit frequency.
Below is our weighting scheme with a sample calculation of a patient’s record using an average recare fee of $120:
Example Value |
||
|---|---|---|
| Recares greater than twice per year: | 3.0 x average recare fee | $360 |
| Recares twice per year: | 2.0 x average recare fee | $240 |
| One recare within one year: | 1 x average recare fee | $120 |
| Twice in past two years: | .75 x average recare fee | $ 90 |
| Once within past two years: | .5 x average recare fee | $ 60 |
| Once in past three years: | .25 x average recare fee | $ 30 |
This method works best for a smaller patient base due to the time required for the audit and calculations. Once the value is calculated, the Seller should receive the full value of the retained patients. A down payment of 20-25% is made with the balance being paid over an 18-month period. Payment is made after the second patient visit, thus ensuring that they have accepted the new doctor. However, the amount paid for an individual patient is based upon the original value calculated established during the audit.
At the end of the day, purchasing patient records is an excellent way to jump start a practice, not only for integration of an associate, but just for growing a practice as well. Finally, the real winner is the Seller who may have had no hope to finish his career and just simply close his or her doors.
Dr. Thomas L. Snyder, is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With over 75 years of experience in the field, The Snyder Group can provide you a full range of services relating to practice transition matters and retirement planning. They can also be reached directly at 1-800-988-5674.
If you would like additional help regarding implementing an associate into your practice, email Dr. Snyder at Drsnyder@thedentistsnetwork.net.
Interested in having Dr. Snyder speak to your dental society or study club? Click Here.
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Frequency or Reach?
A common mistake that many dental practices make is breaking the marketing rule of maintaining proper frequency and reach in their marketing efforts. Although entire books have been written on the subject of frequency and reach, the idea is really pretty simple. Reach is the number of consumers you touch with your marketing message or the number of potential patients that are exposed to your message. Frequency is the number of times you touch each consumer with your message.
In a world of unlimited resources, a dental practice would obviously maximize both reach and frequency. However, since most dentists live in a world of limited resources, the decision to sacrifice reach for frequency or vice versa is just part of their everyday reality. In the case of a dental practice, money can be wasted on marketing strategies that have too much reach because of the travel limitations of prospective patients. For example, radio and television advertising nearly always result in way too much reach and not enough frequency. Some magazines and even newspapers are also a poor advertising investment. Remember that for nearly every dentist, a five-mile radius from the practice is the prime marketing territory. Yes, there are some exceptions. However, they are few and far between.
A dental practice in Anaheim, California that has decided to execute a direct mail campaign has to decide whether to mail the entire Orange County area once, or to mail a much smaller area surrounding the practice many, many times. Another dentist who likes the idea of running a radio ad in Dallas, Texas will need to decide if it a wise decision to run an ad that many thousands of people will hear, that live more than 50 miles from the practice. The worst offenders I see are the dentists who advertise in national publications such as in-flight magazines. Those ads create wonderful awareness for dentists everywhere but the vast majority of readers would never think of traveling outside of their home market for dental care no matter how compelling the ad may be.
When faced with decisions of reach vs. frequency, remember this rule of thumb: Reach without frequency = wasted marketing money. Have you ever established a lifelong friendship with someone you had contact with only once? Probably not. Generally, friendships (and all relationships for that matter) grow as a result of frequent contact over time. Even when the potential to form a great friendship is there at the first encounter, it is unlikely it will grow without nurturing.
Seth Godin, in his book Permission Marketing, uses an analogy of seeds and water to demonstrate the importance of assuring adequate frequency in your promotional campaigns. If you were given 100 seeds with enough water to water each seed once would you plant all 100 seeds and water each one just one time. Or, would you be more successful if you planted 25 seeds and used all of the water on those 25 seeds?
Even though most dentists conceptually understand the importance of frequency to ensure a successful marketing campaign, somehow when it comes to actually implementing the plan, too many opt to choose reach over frequency. And then complain about the ineffectiveness of their marketing efforts. Sometimes, the idea of hearing their ad on the radio or seeing a gigantic billboard on a major freeway is just too hard to turn down. Unfortunately, it’s usually a hard lesson to learn.
When faced with the decision of mailing one direct mail piece to 50,000 people, or mailing to 5,000 people ten times, think about the fate of those 100 seeds you can water only once. Unless you have an unlimited source of water or marketing dollars you must think smaller to achieve greater results.
Don’t let your ego get in the way... Target a smaller, focused area and you’ll win every time.
Joel Harris, is CEO and Co-Founder of Intelligent Dental Marketing one of the Nation's leading Dental Marketing companies focused exclusively on dental practices. Intelligent Dental Marketing provides powerful marketing tools to help dentists grow their patient base, increase their profit and improve their image. He can also be reached directly at 877.942.8855Interested in speaking to Joel about your Direct Mail marketing campaign? Email him at Joel@thedentistsnetwork.net
Interested in having Joel speak to your dental society or study club? Click Here.
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