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Calculating Tangible ROI for Intangible Activities

By DeeVee Devarakonda; MBA [Former CMO of Quaero, Inc]

By Dr. David Edward Marcinko; MBA [Publisher-in-Chief]

Gone are the days when money was freely spent on medical practice marketing activities such as the yellow pages, radio or TV advertisements. And, today’s internet based business climate is especially harsh for ethereal programs that can not present a clear Return on Investment [ROI] for their existence. Concierge and cash-based medical practice marketing is especially vulnerable in this climate unless supported with a sound ROI argument.

The Challenge

A very basic challenge all medical practices is not only pooling the resources but also allocating them wisely. ROI arguments help practices make those choices. Typically marketing budget and outlay decisions focus on operating expenses like public relations, podcasts, webcasts and internet advertising. However, marketing can also involve capital investment decisions. To be successful, medical practitioners should learn to speak the language of business and build ROI analysis to support such initiatives.

How do you calculate the ROI for internet marketing initiatives?

Here are some basic steps to help you build the ROI scenario for your marketing initiatives:

1. Detail the marketing costs:
2. Estimate the revenue impacts:

• Hardware – computers, servers, accessories
• Software  – database, campaign management software
• Implementation costs of hardware and/or software
• Internal resource costs associated with the deployment of the capital improvement
• Upfront investments in call centers, staff, equipment and so on.
• Increase in patient response rates
• Increase in patient conversion and practice acceptance rates
• Increase cross-sell product and services ratios
• Decreased account patient attrition rates
• Increase in practice CM fees
• Increase in average spend per patient/account
• Increase in average number of patient transactions.

Practices can use past experiences to guesstimate the revenue impact; others like-minded colleagues.

Net Present Value

Once you calculate the revenue and cost impacts, you need to calculate the Net Present Value (NPV) of your marketing initiative. For a marketing project, if the NPV is greater than zero that means your project will make money; if it is less than zero – it will not (and you typically need a compelling business reason to implement a marketing project with an NPV less than zero).

NPV calculations include:

1) Investment – money you expend for the initiative at the beginning

2) Revenues – that accrue as a result of the initiative over a period – can be one time or a recurring revenue

3) Costs – that accrue as a result of the initiative over a period – can be one time or a recurring item

4) Discount rate – your accountant can give this rate.

5) Time Period – define the time period for which you would like to compute the NPV.

6) NPV is the cumulative differential between the revenue and cost stream discounted at the discounted rate minus the investment.

NPV=SUM ((Rt-Ct) / (1+r)t) – I

t=1

Given:

where t represents time, n  represents the number of time periods, R is revenue impacts, C is cost impacts, r is the discount rate and I is the Investment.

An NPV >0 means the project will pay for itself, <0 means the project does not pay for itself and an NPV of zero will give you a break even.

Assessment

Remember NPV is simply a guideline to help quantify the marketing results to make informed investment decisions. Note: NPV calculations that include assumptions also allow room for error. Spreadsheets help calculate the NPV for any initiative. Simple software can also help develop “what-if” scenarios with various values for NPV components and marketing options. The model can be used for non-marketing, or any initiative, as well.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. How do you determine ROI for any medical practice initiative? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Filed under: "Doctors Only", Career Development, Marketing & Advertising, Practice Management, Research & Development | Tagged: concierge medicine, DeeVee Devarakonda, net present value, NPV, ROI | 6 Comments »