Lifetime Value [2 of 2]: Not All Customers Are Created Equal
Whether you've explored the concept of lifetime value or only heard of it once or twice before, it's likely your customers are worth more than you think, and it's time to figure out what they're worth, and how to increase what they're worth so you can grow your business.
If lifetime value is the amount of money you estimate your clients will spend with you over the lifetime of the relationship, then let's take a look at how to estimate that number:
Formula:
Lifetime Value = retail price x number of purchases/yr x number of years
In other words, the total value of a patient is equal to the total number of dollars he or she spends with you for the entirety of the customer relationship.
Before you whip out your calculator, it's important to understand one critical distinction that can save you hours of wasted marketing planning:
Not all customers are created equal.
You'll most likely agree that in your pharmacy, different age groups health states mean different patient groups are actually quite different in value. Generally speaking, for instance, your patients with diabetes will typically generate greater revenue and profits than your patients on antidepressants.
And it's not just because your patients with diabetes might be on more medications due to other health complications. In a sense, your patients with diabetes might be more profitable as a patient group because they continue to refill their prescriptions for years to come, or because they might also need to purchase compression stockings, shoes, sugar-free candy, lancets, syringes, monitors...etc.
Looking briefly at the reasons above as to why the diabetic group might be more profitable, you will find that there are are a few ways to actually increase the average lifetime value of many of your customer groups.
Here are the basic ways to increase the value of your customer base:
1. Increase the number of customers
This is what most of us think of when we hear the words "marketing" and "advertising." However, there some really effective ways to acquire new customers, like conducting special on-site health screenings. Often, if a patient comes by the pharmacy for a screening and is diagnosed with a health condition, the patient will likely bring his or her new business to that pharmacy.
Customer acquisition can be an incredible method of growing your business, but only after you've gone through certain processes, some of which are discussed in this post. Since acquiring a new customer typically comes at a higher cost than getting new business from existing customers, let's look at how we can grow the pharmacy business from within our existing customer base.
2. Increase the average customer life (in years)
The bulk of this is going to come from good customer service and reliability. Most pharmacies all sell the same things, but when you can excel in one or more areas, be known as a trusted authority in those areas, and build strong relationships with your customers, your customers will stay with you longer, because people want to do business with people they know and trust.
3. Increase the frequency of transactions the average customer makes each year
Find ways to get your customers to come in more frequently, and you'll find they make more purchases. Seasonal sales and special promotions are great ways to bring your customers back through your doors if you have a good front end, but in the pharmacy itself, the number one thing you can focus on to increase the frequency of transactions is increasing the number of refilled prescriptions.
Patient adherence is at an extreme low, meaning prescriptions refills are left unfilled every week in your pharmacy. According to a report published by the National Council on Patient Information and Education, 50% of your pharmacy's patients likely do not take their medications as prescribed by their physicians.
According to another study [PDF], the #1 reason is simply forgetfulness. When patients don't take their medication, they're far less likely to refill on schedule, even if they get a refill reminder from your pharmacy system, because they still have medication left over. Compound this month after month, and you find that you lose out on multiple refills from about half of your patients every year. How much is this costing you? Probably a lot, meaning if you can help patients with their forgetfulness, your customers' frequency of transactions will increase, meaning more business for you. Not to mention, increasing adherence will greatly enhance your patient's quality of life and resulting relationship you will have with them.
A few ways to address patient adherence issues tied to forgetfulness include educating your patients on the consequences of not taking their medication as directed, in combination with easy-to-set-up dose reminder programs like My Dose Alert that can alert forgetful patients when it's time to take their medications, by phone call, email, or text message.In fact, while not the norm, one pharmacy was was able to achieve a gross revenue increase from $450 to $1200 (monthly) from one patient through a combination of dose reminder and synchronization programs. See our blog post about this story here.
It's almost time to pick one of those 4 areas to tackle first. But remember how we mentioned that not all customers are created equal? Well, you want to start your quest of business growth by going after the low hanging fruit, your high valued customers.
Let's identify those customers:
A University of Mississippi School of Pharmacy study revealed that in the average pharmacy, 10% of your patients are on 4 or more medications.
Significantly, that 10% makes up 54% of your prescription sales revenue!
So now that you know a few ways to increase the average lifetime value of your customers, bring out that calculator and figure out the lifetime value of your most profitable customers, and then go down the line with your other customers (because they're really important, too).
Knowing who your high valued customers are, understanding how much they're worth and how to increase their value will help you make better decisions when setting the direction for your marketing, advertising decisions, hiring decisions, and identifying new pharmacy opportunities. These opportunities can mean bringing new services into your pharmacy that existing customers will gobble up, or going out to recruit new customers who fit the profile of your best existing customers.
Make sure to first have stability in your operations, though. If you move forward before your business processes can handle the change, it can be difficult to keep focused on grabbing the low hanging fruit because you will be busy firefighting.
Get an accountability partner, a coach who can see your swing (even the best athletes have coaches), so you can understand the processes that you need to effectively deliver services to your end customer. That way, you'll be ready to move full steam ahead.
