Doctors & medical clinic owners: do you know what the average return of the stock market is? 8%.
Do you know what the average returns of riskier investments are? 15%.
What if I told you that you could be getting 100%+ returns by investing in your medical clinic?
This doesn’t even take into consideration the increased value of the company.
By strategically investing in your business.
Hello everyone! My name is Todd VanDuzer and I am the CEO & co-founder of three multi-million dollar businesses: Elite Vein Clinic, a vein clinic;, Natural Med Doc, a naturopathic and/ functional medicine practice;, and founder of Duzer Group: a digital marketing agency. We have helped dozens of clients add an additional 1+ million dollars in revenue to their businesses per year.
If you saw my previous blog post on the 4 most important numbers every medical clinic needs to know, you should now know what you are willing to pay to “acquire a customer or patient,” or “cost per consult,” and still generate a profit.
Introduction / Disclaimer
First off, full disclosure, I’d like to say I am not a financial advisor, so please consult with one before taking action on any of the advice or thoughts I am about to provide.
Now, I am not opposed to investing in the stock market or real estate.
In fact, I have set up a 401K for myself and for each of my employees for my three companies. I actually urge each employee to invest in that vehicle using index funds. I also am the co-founder of Duzer & Koh and own 9 residential and commercial properties.
The stock market and real estate can be safe and secure investments that yield slow and steady results. They should 100% be considered and I am sure your financial advisor would agree.
There are many other factors that go into how you invest:
- Net Worth
- Risk Tolerance
- Cash Flow
However, putting all that aside, I would like to talk about your business and the potential upside if you execute it properly.
Our Data-Driven Approach to Getting You a 100%+ Return
Let’s say your business is currently generating 2 million dollars in revenue per year and you are making a 15% profit, or $300,000 per year.
You can take that $300,000 and:
- Invest it in the stock market and get an 8% per year return.
- Or maybe you find a good real estate investment and get a nice 15% per year return.
Let’s do some quick math:
- $300,000 * .08 = $24,000 (Estimated Stock Market Return)
- $300,000* . 15 = $45,000 (Estimated Real Estate Return)
However: what if we grew your business from 2 million dollars to 3 million dollars, by targeting new advertising channels to generate patients?
- Google Ads
- Facebook and Instagram Ads
- Local SEO
- National SEO
- Email Marketing
- Direct Mail
- Physician Liaison (ground floor sales representative)
The channels listed above are all channels we currently use in the medical clinics I own, as well as for our clients.
If you applied what you learned in the previous video (The 4 Most Important Numbers Every Medical Clinic Needs to Know) you will know:
- The LTV: Lifetime value of your patient and/or how much revenue your patient generates over their life.
- The conversion rate of the patients from consult to the desired outcome – the desired outcome is typically a procedure, service offering, or the patient starting a membership.
- Cost per consult: What you are willing to pay via an advertising channel.
Once you know these numbers and rates, you can then invest your money into different marketing channels that are getting you at least a 100% return.
How Do You Eliminate Your Risk & Get 100%+ Return on Your Investment?
You do the math by working backward.
Let’s say after speaking with your accountant you learn that your average patient brings in $5,000 if they start your “core service offering” (typically procedures for medical clinics).
Your variable expenses associated with that patient (supplies, staff, etc.) are $3,000, resulting in a $2,000 (LTV after variable expenses).
- LTV After Variable Expenses = $2,000
You review how many patients had consults and what percentage of them proceeded to sign up for your core service.
You find your conversion rate from consult to the desired outcome is 70%.
- Conversion Rate = 70%
LTV x Conversion Rate = What You Can Spend Per Consult
If your income after variable expenses is $2,000 and your conversion rate is 70% then you should be willing to pay up to $1,400 per consult.
However, you want at least a 100% return!
So what do you need to get a 100% return?
You need the willingness to spend 50% of that or up $700 to acquire your patient.
Spend $700 and you get back $1,400!
This means now you need to figure out a way to spend as much money as possible… as long as it falls under that $700 cost per consult.
Because as long as you are spending less than $700 you are getting a 100% return!
I want to repeat this point again and give you a second to think about it.
If you do the math and realize that if you spend $700 you get $1,400 your goal needs to be to figure out how to invest as much money as possible!
What if my investment falls short?
Let’s assume you do your research (we have a very sophisticated way of doing this based on population, demographics, and historical data) and you shoot for a 100% return.
However, maybe you land short and end up spending $1,200 to acquire your customer.
Guess what: you still make a 16% return!
And if you recall from earlier in this post, that is a higher return than the stock market or real estate.
This also doesn’t take into consideration the value of the company which has just increased.
This takes me to the next point…
Understanding Your Company’s Value
For the longest time, I had a difficult time understanding the value of my company.
I thought I had a rough understanding but really had no clue how companies were valued.
For the past 5 years, I have:
- Spoken with friends who have exited their companies
- Received guidance from investment bankers
- Worked alongside M&A attorneys
- Read book
- Listened to hundreds of hours of podcasts around this topic.
… and have since learned that every company is valued differently.
The industry, size, location, systems, and so many other factors all matter.
Without getting too into the specifics, there is one big question that will help you start to determine your value.
You need to ask: is my business owner-operated or manager-operated?
For example, if you went on a vacation for 3 months (like my wife and I did for our honeymoon) would your business still be around? Would it be growing?
- If the answer is yes; your business is manager operated and will be valued a lot more!
- If the answer is no, your business is owner operated and will be valued a lot less.
It makes sense right?
If you were to sell the company, you are either selling:
- A high-paying job (owner-operated), OR
- You are selling an investment (manager operated)
Our main goal with our clients is to help them become manager operated!
Taking your business from owner-operated to manager-operated involves, driving higher revenue to hire additional providers, systemizing your job roles with documentation, developing KPI (key performance indicators) to understand the success of each role and establish clear accountability.
Learn more on this topic by reading my case study where I dive into how to develop an operating system.
Why It is Important to Become a Manager Operated Business
If your business is owner operated, it will be valued by using SDE, or seller discretionary earnings.
- This is the number (net profit) you are left with after paying all your expenses. It is what you take home.
- The multiple the company will sell for will be around 1x -2.5x
If your business is manager-operated it will be valued by using EBITDA, or earning before interest, taxes, depreciation, and amortization.
- In more basic terms, this is profit after you pay the owner fair market value.
- The multiple the company will sell for will be around 3.5 – 10+
Let me provide an example.
I see many business owners declare that they’ve made 20% profit… but after you calculate their true wage, they actually made a negative profit!
Let’s say your business generated 2 million dollars in revenue, and your profit after expenses was 15%, or $300,000.
However, you are a doctor – to replace your job as a doctor would be $300,000.
Therefore, you have a profit of $0.
In that particular case, you would likely not be selling an investment.
You would be selling a high-paying job and the business would likely be valued using SDE (seller discretionary earnings).
Value if you didn’t grow the company: $300,000 to $750,000 (1x – 2.5x of earnings)
SDE multiples typically are around 1x – 2.5x (maybe more) of the SDE.
This means if your company was profiting $300,000 SDE (after expenses but not paying the owner), your company would be worth between $300,000 and $750,000.
If you grew your company, you eventually would be valued by using EBITDA.
Companies in the medical space for professional services (physician groups, dental offices, physical therapy, etc.) will sell at higher multiples of EBITDA the higher the profits are.
For example, a EBITDA profit of $200,000 would likely only be a multiple of 3.5 – 5 or $700,000 to $1,000,000 valuation.
But a EBITDA profit of $500,000 would be be a:
- 6.5 multiple in 2010 – 2013 – 3.2 Million
- 6.3 between 2014 – 2017 – 3.15 Million
- 7.8 2018 to 2021 – 3.9 Million
If your clinic generated 2 million dollars in EBITDA, your multiple would be 7,6. 8.2, or 9.9 for the same periods respectively, or between 15.2 – 19.8 million dollars.
As you can see, if you generate a higher profit, NOT only does your profit go up, but so does your multiple!
Now let’s tie this back to our original example…
Let’s say you are a smaller clinic and still operating as an SDR (seller discretionary earnings) multiple, and you have determined that you are making a 20% profit.
This means for every $1 in additional revenue, you are NOT only generating an addition $0.20 in profit but also $0.02 to $0.50 in value to your company!
If you’re a bit of a larger clinic and are being valued using EBITDA, every $1 additional doesn’t only result in an addition of .20 of profit, but $1.20 to $2 in additional company value!
Value if You Grew the Company: 2.2 – 2.7 Million Dollars (4.8 to 6 of earnings)
Therefore, if your company generated 2 million dollars with a 15% EBITDA profit ($300,000) your company would likely be valued around 1.2 – 1.5 million dollars.
However, if you generated 3 million dollars in revenue using the strategy I mentioned before, even if your profit percentage didn’t increase (highly unlikely due to economies of scale), you would now be generating $450,000 in EBITDA.
This means your company would now be valued at around 2.2 – 2.7 million dollars
So not only did you make a 100% return on your investment as I described earlier, you have also added 1 million dollars in value to your business.
Talk about return on your investment!
As I mentioned earlier, I am not a financial advisor.
However, as you can see, I do know numbers.
I am not telling you to stop investing in your 401K or real estate. what I am saying though is your business can be and should be your most valuable asset in my opinion.
Not only can you easily get a 100% return on your investment you can also increase the value of your businesss helping it become an assett you can sell!
Fun fact: investing in your business is also a tax write-off!
We have found that digital marketing is one of the fastest and most profitable ways to grow your business.
With our easy-to-use software interface we have built we are able to quickly see how well each marketing channel is performing. No guesswork.
In fact, I have used this same system for my 5 medical clinics adding 7+ figures per year alongside dozens of other clients.
If you are interested in learning more about our unique digital marketing agency please book a free consultation by following the link below.