What does it cost you to acquire a LASIK patient? (Calculating CAC)

The Customer Acquisition Cost(CAC) is a metric that is important to you as a practice owner and to investors who may want to buy your practice when you choose to sell it.

If you want to measure how well your LASIK marketing campaigns are doing, you can start tracking how much it costs to acquire a new patient.

When you compare your CAC with Customer Lifetime Value (LTV), you can gauge whether you’re spending enough, too little, or not enough.

In addition, aiming for a target LTV:CAC ratio can help you define a marketing budget. Knowing your LTV:CAC ratio can also give you the confidence to scale.

Contents:

  1. What goes into a vision correction customer CAC?
  2. How to calculate CAC
  3. The CAC formula
  4. LTV to CAC ratio
  5. How to improve CAC

How can practice owners calculate LASIK customer acquisition costs (CAC)?

Whether it’s a LASIK patient, a lens replacement patient, or a dry eye patient, “the total sales and marketing cost includes all program and marketing spending, salaries, commissions, bonuses, and overhead associated with attracting new leads and converting them into customers.”

1https://blog.hubspot.com/service/what-does-cac-stand-for

A succinct list of marketing costs you need to account for are

  • Advertising costs
  • Creative costs
  • Technical costs
  • Publishing costs
  • Production costs
  • Costs of your marketing management/coordination and agency
  • Costs of your sales team (including patient liaisons, optometrists and yourself if you’re seeing patients before they commit to surgery)

You may also hear CAC referred to as Cost Per Acquisition (CPA).

Note that the CAC is distinct from a Cost Per Lead (CPL) figure that a marketing agency might share with you. CPL will only include the cost of acquiring a lead. It doesn’t include the downstream costs of what you need to do once you get the lead.

How can you calculate CAC in your vision correction practice?

You can calculate your CAC by dividing all the costs you spend on acquiring more patients (see the above list of marketing and sales expenses) by the number of patients you acquired in the period you spent the money.

For example, if a practice spent $100 on marketing in a year and acquired 100 patients in the same year, their CAC is $1.00.

Some caveats apply. For example, if your practice is making marketing investments in a new region, attempting to reach a new customer segment, or in early stage asset development (e.g. building a website, or shooting videos), you should not expect to see results until a later period.

The best time to apply and optimise CAC is when you are actively running marketing campaigns (like SEO and paid traffic).

I’ll now provide you with a couple of examples of calculating the CAC metric in vision correction scenarios like yours.

Example 1 – Independent surgeon

An independent itinerant cataract surgeon wants to generate new patients in excess of the referrals she receives from insurers and the facilities in which she works.

She decides to hire an SEO company and a paid traffic consultant to attract prospective self-pay patients to her website.

She budgets £1,000/month for SEO and £1,000 on paid traffic ad spend (i.e. Google Adwords and Facebook). The paid traffic consultant charges a management fee of $500/month on top of the ad spend. He also later advises her to build landing pages which cost her £2,000 over the year.

Her availability is limited, so she can’t offer online booking. Thus, she allocates 25% of her secretary’s time to responding to and converting new inquiries into appointments.

She needs to see her appointments personally and charges £250 per appointment. Thus, the appointment fees pay for her time spent on assessment.

The facility she works in charges the patient £4,000/eye and she receives 20% of this fee as her surgical fee (£800/eye).

Because the facility takes on all of the variable expenses involved in carrying out procedures, her gross profit per patient is equal to her surgical fee. Of course, she may have other operating expenses (i.e. fixed costs), but these are independent of her costs per patient.

By the end of the year, she generates 120 new cataract surgery patients.

As a result, she spends £335 acquiring each new patient with a lifetime value of $1,600. Here’s the calculation:

Number of new patients in the year 120
Fee per patient 1600
Revenue From Patients 192000
Total ad spend costs 12000
Paid traffic management costs 6000
Production of landing pages for ads 2000
Hosting, call tracking software 1200
SEO costs 12000
Her secretary spends 25% of her time processing inquiries 7000
Total Marketing Costs 40200
Customer Acquisition Cost 335

Let’s look at another example, this time featuring a larger vision correction facility.

Example 2

In this example, a laser eye surgeon owns a clinic that treats 330 patients a year. He charges $3,000/eye. His patient LTV (lifetime value) is $6,000.

He spends $360,000 on ad spend per annum. He hires a full-service digital marketing agency that charges $50,000 and takes care of his entire marketing strategy and coordination.

He employs a full-time salespeople that he pays $25,000. One of his optometrists spends a portion of her time seeing free first appointments, which he calculates costs him $33,000 per annum.

His marketing software costs him $1000/month.

His CAC is $1,455. Here’s the calculation:

Number of new patients in the year 330
Fee per patient 6000
Revenue From Patients 1980000
Advertising costs 360000
Agency retainer 50000
Cost of your booking team 25000
Cost of free appointments (optom) 33000
SaaS technical costs 12000
Total Marketing Costs 480000

The CAC formula

You can calculate customer acquisition cost by using this formula:

Customer Acquisition Cost = Cost of Sales and Marketing divided by the Number of New Customers Acquired.

(NOTE: The best way to answer that nagging question about practice growth or marketing or patient volume in the back of your mind is to book a free 15-minute compatibility call. Get some options and go away with a clear idea of what’s possible.

The LTV to CAC ratio

Recall that LTV means Customer Lifetime Value. In a typical vision correction scenario, the LTV equals the gross profit from the fee the patient pays you for their vision correction procedure.

A common mistake when calculating LTV is using revenue instead of gross profit. Doing so can lead you to grossly overvalue customers, leading you to believe you can spend far more than what is sustainable.

Another common mistake is not differentiating between gross profit and operating profit. Gross profit measures profitability by subtracting costs of goods sold (COGS) from revenue. COGS are variable expenses; meaning, you only pay them when you process a patient. Operating profit measures profitability by subtracting fixed operating expenses (overhead), depreciation and amortisation from gross profit.

In the independent surgeon example, her LTV is equal to the fee she receives from the hospital facility (i.e. $1,600). Because the hospital assumes all of the other variable costs associated with treating a patient, every patient is 100% gross profit for her.

In the scenario above, her LTV:CAC ratio is 5:1. Is that good or bad?

Ideally, LTV:CAC should be 3:1.

So that’s good, right? Not quite.

That means that she is not spending enough on sales and marketing and could be missing out on opportunities to attract new leads.

In the clinic example, the practice owner’s LTV is based on a 75% gross margin (his gross profit per patient is $4,500). Again, this figure does not constitute his operating profit (which would include his fixed costs and is the subject of another discussion).

In his scenario, while he’s spending a lot more for a customer than the independent surgeon, his LTV:CAC is 3:1. That suggests he’s in the Goldilock’s Zone with his marketing budget – not too much and not too little.

How can you improve CAC?

Note how I deliberately say “improve”, not reduce. It’s a common mistake to assume that it’s always best to spend less on marketing to increase ROI (return on investment). Spending less than you should leads you to starve your practice of the leads it needs to convert into customers. Instead, you should spend to increase your rate of return.

Again, you should aim for an LTV:CAC ratio of 3:1 as a forward-looking ratio when planning marketing spending.

If you agree with me that you should spend as much as necessary and spend it efficiently, then I suggest the following approaches to improve your CAC.

  1. Improve your conversion metrics. Conversion relate to ads to clicks, visitors to leads, leads to appointments, appointments to patients, and patients to referrers. The better your conversion rates at any stage of the patient journey, the more efficient your marketing spend will be. However, don’t pocket that money you save for a rainy day. Instead, reinvest that into your best performing channels to increase the number of leads you can get.
  2. Increase LTV. There are five ways to increase your LTV. You can charge more for your core offer (that means increasing your price). You can upsell customers to more expensive packages (some charge for longer aftercare regimes, some upsell from basic procedures to more advanced and expensive procedures). You can expand your customer’s revenue by offering them additional products and services (e.g. sunglasses, eyelid surgery). Finally, you can retain your customers by offering them annual eye exams and age-related procedures (e.g. cataract surgery)
  3. Implement a referral program. If your patient refers you to a warm lead from their network who is already interested in learning about your service, their particular CAC will be considerably less if they convert. These “lower cost” customers will lower your CAC over time,
  4. Implement a CRM. Decrease the length of a typical sales cycle to increase the number of sales you can influence over the course of a year. Use a CRM and prospecting tools to connect with more qualified leads more effectively.

Using CAC and LTV to plan a marketing budget over a year

We could go further to discuss LTV:CAC ratios per customer segment (e.g. laser eye surgery, lens surgery, etc.) and per channel (e.g. SEO, paid traffic, referrals). I encourage you to do these calculations as well.

For now, let’s discuss using an overall LTV:CAC ratio (ideally 3:1) to estimate what a optmised marketing budget for vision correction looks like.

Here, I used my

  1. Sales objective (new patients * fee per patient)
  2. Gross margin (75%)
  3. Ideal LTV:CAC ratio (3:1)
  4. to identify my “Total Marketing Budget”
Annual
New patients target 500
Fee per patient 6000
Revenue from Patients 3000000
Ad media costs 540000
Full service agency costs 80000
Costs of booking team 25000
Costs of free appointments (optom) 25000
SaaS technical costs 12000
Total marketing budget 682000
Customer Acquisition Cost 1364
Gross Margin 75%
Gross Profit per Patient 4500
CAC % of Gross Profit 30.31%

I’ve made several assumptions in this projection.

  1. My marketing costs generate the leads I need to convert 500 new patients
  2. Every patient has surgery on both eyes
  3. I can maintain the average price (across my portfolio of procedures)
  4. By using online booking for most of my new appointments, I only need to rely on one staff member to convert callers into appointments
  5. My optometrist closes 50% of first appointments

Assuming I can achieve my sales objective within these projections in year one, I have a significantly higher degree of confidence that I can scale this business by increasing my marketing costs next year.

What should you do next?

No one wants to spend too much money on marketing, but you also don’t want to spend less than you should to meet your objectives.

You need to know how much it costs to get new customers so you can make good business decisions. This will help you figure out how profitable your company could be in the long run. It also gives you the confidence you need to scale.

Take some time now to find this information for your practice. If you need help either setting or identifying the best way to spend your marketing budget, give us a call.

About the author

Rod Solar
Founder & Fractional CMO

Rod co-founded LiveseySolar and acts as a Fractional CMO for our customers. He’s on a mission to help transform the lives of 10,000 people through vision correction surgery by 2024. To achieve that, he inspires his customers to make confident decisions that will help 50,000 people take the first step towards vision correction.

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Rod Solar

Founder & Fractional CMO

Rod co-founded LiveseySolar and acts as a Fractional CMO for our customers. He’s on a mission to help transform the lives of 10,000 people with vision correction surgery by 2024. To achieve that, he inspires his customers to make confident decisions that will help 50,000 people take the first step towards vision correction.

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LiveseySolar completely transformed the way we were approaching this… We’ve gone from having just the dream of having a practice to having a practice up and running with people making inquiries and booking for procedures… It’s extremely pleasing. We feel lucky we connected with LiveseySolar.

— Dr Matthew Russell, MBChB, FRANZCO, specialist ophthalmic surgeon and founder of VSON and OKKO

Laura Livesey

Founder & CEO

Laura Livesey is the co-founder & CEO of LiveseySolar. She has developed powerful refractive surgery marketing systems that increase patient volumes and profits for doctors, clinics, and hospitals, since 1997.

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Rod and Laura know as much about marketing surgery to patients as I know about performing it. They are an expert in the field of laser eye surgery marketing. They know this industry inside out. I believe that they could help many companies in a variety of areas including marketing materials, sales training and marketing support for doctors.

— Prof. Dan Reinstein, MD MA FRSC DABO, founder of the London Vision Clinic, UK