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May 18Doug Smith

What’s the Lifetime Value of a Customer?

May 18Doug Smith

Do you find yourself isolating your view of your company’s customers, thinking of some as high yield and others as just breaking even? That may be true in a particular month. However, over longer periods of time, the comparison becomes more complex, and sometimes even counter-intuitive.

From 2006-2011, I was the Chief Operating Officer of a company that provided home healthcare to help patients complete their healing, personal care aides in the home to help with daily living activities, and hospice care to allow terminal patients to die in comfort and with dignity.

It was easy to view these as three separate service lines, each with its own financial and other key performance indicators. There was little employee crossover among the service lines, and each had its own “service line leader.” Looked at in isolation, home healthcare seemed the obvious “winner” from a financial point of view. The services were provided by skilled nurses and therapists, and the effective hourly rates were much higher than in the personal care line.

However, over time we learned to consider the “lifetime value of a patient.” Home healthcare episodes typically lasted 40-60 days, and services could only be provided when the patient was recovering from an acute care episode such as a stay in the hospital. Personal care episodes, on the other hand, could be provided as long as the elderly patient needed some extra help taking a bath, getting dressed, or getting between their bed and the toilet. Relationships lasted for months, and sometimes for years.

Over the life of a patient’s stay in our agency, we found that the revenue from the average personal care patient exceeded that of the average personal care patient.

The lesson I learned? Every customer (patient) is valuable, especially if they stay your customer for a long time.

B2B CFO®

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