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What’s the Dollar Value of a Referral Source?

By Stephen Tweed

You are out there making sales calls on referral sources.  What is your weekly sales plan?  How do you decide which referral sources to call on?  What is one referral source worth to you and your company?

Your are considering the strategic question: Should I focus on referral marketing or consumer marketing?

These are some of the questions we ask owners, administrators, and CEOS of private duty home care companies when we are working on business growth strategies.  The more you know about you referral sources and their value to your company, the more you can grow your business.

For the past several years, I’ve been working on a regular basis with a husband and wife team that own and operate a very successful and growing home care company.  For 2012, they are on a run-rate of just over $3 million in revenue.  To help them focus their sales and marketing efforts, we did an analysis of their clients and referral sources for the last calendar year.  The insights we got were pretty amazing.

The CEO – I’ll call him John – is an experienced sales and marketing professional with a background in the medical devices business.  His wife Sally is an RN who also had some experience in pharmaceutical sales.  They have owned their business about seven years.

As we began this process, John was able to go into their Appointmate scheduling software and run a report of all of the clients they had served in 2011, the source of the referral, the start date of service, and the end date of service (if any).  Then he was able to go into Quick Books and grab the actual billing for each client for each month of the year.  He put all of that data into a spreadsheet. We then sliced and diced that data to create a statistical picture of his business for the year.

If you have been reading our newsletter, participating in our live web conferences, or attending conferences and conventions where I have been speaking, you know that I talk about three categories of inquiries and referrals for your home care business:

1.  Consumers
2.  Health Care Providers
3.  Trusted Advisors

There are two other categories that we have been studying recently … current employees and past clients and families. 

In summarizing our analysis of John and Sally’s company, we found out the following:

1.  The most valuable category of referral sources for them in 2011 was Trusted Advisors.  Trusted advisors brought them 15.06% of their clients with an average length of stay of 26 months and a total dollar value of $69,944 per client.

The total dollar value of a client is calculated by taking the number of months of Length of Stay times the average revenue per month.  Here’s a ranking of sources of clients by dollar value:

2.  Consumer marketing resulted in 11.3% of clients with an average length of stay of 19.21 months and total value of $39,896.

3.  Current employees resulted in 13.8% of clients served, with an average length of stay of 23.56 months and total value of $32,299 per client.

4.  Clients and family resulted in 16.44% of clients served, with an average length of stay of 15.94 months and a total value of $15,130 per client. 

5.  Health Care providers resulted in 41.08% of clients with an average length of stay of 13.75 months and a total value of $11,171.

This is one Case Study.

It’s important to remember that this is only one case study.  While we are constantly doing industry research to identify benchmarks and best practices, this is NOT industry wide data. This is one case study from one company.  

When you analyze your own data, you will get different results.  One of the big variables is how you focus your marketing efforts.  If you focus on marketing to health care providers, you’ll get more referrals from them.  If you focus on trusted advisors, you’ll get more from them.

The more you know about the sources of your own clients, and the value of those clients, the more you will be able to focus your sales and marketing efforts, bring in more clients, and bring in more high value clients.

Stay tuned to more of our research results from The Academy for Private Duty Home Care. 

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