Calculating the true patient acquisition cost

Article Highlights

1. Patient Acquisition Cost = Total marketing and sales costs / number of new patients acquired.
2. Patient acquisition cost directly connects marketing spend to the revenue-generating outcome of getting a new patient.
3. Do not include patient retention and loyalty actions, general brand awareness, or provider recruitment and internal communications in the PAC calculation.
4. PAC can be broken out by marketing channel and campaign to further identify what works for each patient demographic and location.
5. PAC calculations for multi-location organizations should be broken out by locations, marketing cost differences, and more. 

As healthcare marketing becomes more expensive, being able to clearly show ROI and the organization’s patient acquisition cost is vital to measuring success and getting continued investment. When the CEO or CFO asks, “What does it actually cost for us to acquire a patient,” marketers better be ready with an answer! Take a look through the tips below and start putting together your organization’s patient acquisition cost.

What is customer acquisition cost vs patient acquisition cost?

Patient acquisition cost is healthcare’s specialized version of the broader customer acquisition cost (CAC) metric used across industries. Patient acquisition cost directly connects marketing spend to the revenue-generating outcome of getting a new patient. It accounts for the entire patient journey from first awareness through booking that initial appointment, and provides a baseline for evaluating every marketing channel and campaign. 

Understanding the distinction between cost per action versus cost per acquisition is also important. Cost per action (CPA) measures the cost of a specific action, whether it be a form submission, phone call, or email signup. Cost per acquisition, however, measures the cost of acquiring an actual customer or patient. Overall, healthcare marketers should be tracking both, but decisions should be made based on CAC marketing results rather than intermediate actions.

Calculating patient acquisition cost

Luckily, the formula is simple… PAC = Total marketing and sales costs / number of new patients acquired. However, the end result depends on clearly articulating what gets included in each section and carefully defining them. For example, should new patients acquired include those who booked an appointment or those who booked and attended? 

What to Include in your PAC Calculation

It’s easy to overlook activities, so we’ve compiled a list of everything we think should be considered when looking at total marketing and sales costs. 

1. Paid Advertising (Digital and traditional): Print campaigns, Facebook ads, Google ads, and any other direct advertising purchased by the organization should be included. Generally, these are very easy to track, but don’t forget to include platform fees, bidding tools, and services purchased from agencies to assist on campaigns. 
2. Content creation and creative: Even with an in-house team, it’s important to understand how much money you’re spending on content creation. There are a range of costs associated, including photography and videography, graphic design hours or associated program fees, copywriting and editing services, video editing and post-production, and stock photography or footage licensing fees.
3. Website development and maintenance
4. SEO and organic search: You don’t directly pay for organic search, but that doesn’t mean it’s free by any means. Include consult fees, SEO tools, digital PR activities, organic social content and scheduling, and SEO optimization.
5. Marketing tools and technology: A big, broad category that should always be included. Most of your marketing would crash to a halt if you didn’t have the tools you use everyday. It’s important to include them in your analysis for future budgeting and to understand it they are actually helping you acquire new patients or make your team more efficient. Don’t forget: scheduling and patient engagement tools, all marketing platforms, including design, project management, content, ads, analytics, etc.
6. Employee and consulting costs: Not including employees that work on patient acquisition is a huge oversight that is going ot skew the cost of acquiring a new patient. Consider how often each person on the team works on patient acquisition and include that to calculate customer acquisition cost. This should also include external marketing support and fees. 

What to exclude when calculating the patient acquisition cost

Ideally, you want the most accurate representation of your organization’s PAC, so naturally some elements should be excluded.

1. Patient retention and loyalty programs: Anything that helps the organization retain or expand relationships with current patients or customers should not be included. This is sometimes much easier said than done because often there is not a clear distinction between the tools used for one or the other. It may require making percentage calculations and always labeling campaigns appropriately so they can be attributed correctly. In the end, there might be some overlap, but it shouldn’t be much.
2. General brand awareness: Seems like it would be used for new patients, right? No. Some marketing activities build long-term brand equity but don’t directly drive patient acquisition. Things like corporate sponsorships and community partnerships (unless directly tied to patient acquisition events), general brand advertising without conversion mechanisms, and any other campaign that does not include an acquisition call to action should not be included. 
3. Provider recruitment and internal communications: Slightly more obvious, but anything dealing with internal organization communications or staff should be left off the PAC calculation list.

The added complexity of multi-location organizations

PAC calculations for multi-location organizations add a new layer of complexity, and will most likely need to be broken out by different categories to get a clear picture of PAC. Multi-location organizations will have to look at: 

• Local vs national results – The national average may be very different than the location-by-location results. 
• Competitive intensity differences across locations – Certain markets are more competitive than others, requiring greater investment to make similar strides. Be sure to take into account these fundamental market dynamics to tell the whole story. 
• Demographic makeup – Different demographics respond to different marketing channels and messages, affecting both costs and conversion rates.
• Marketing cost differences – Campaign costs are not consistent across markets and should be taken into account. 

The next steps

Armed with the knowledge of how to calculate customer acquisition cost, there are many different ways you can use that information. PAC can be broken out by marketing channel and campaign to further identify what works for each patient demographic and location. Furthermore, you can take actionable steps to decrease it, creating a foundation for more sustainable growth. 

With a solid PAC calculation, you can build organizational alignment around the metric and use those insights to make smarter decisions about where and how to invest in patient acquisition. It’s a very compelling metric with a very interesting story, you just have to learn how to listen!