Math never was my favorite subject in school, but I got by with passing grades at least.
Well, there was that one time I made a D with Mr. Drill Sergent Teacher in college Algebra! But, I retook it later with a different teacher and got an A.
Anyways, enough about my report card. Let’s see if you can do some business math…
Nothing complicated of course. I realize most of my readers are doctors and have other skills sets.
Hang with me here and you’ll see there’s a very important marketing lesson that goes along with this math problem.
The most important number in marketing is ROI (which stands for Return On Investment.) According to Investopedia.com the technical definition is:
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
It’s the money you make back, the return, on what you originally invested. So if you put $1 into marketing and make back $7. That’s a 7:1 ROI, also expressed 700%
This is an excellent return. You made $6 that you did not have when you started. All the big box stores would love to have that kind of return on their merchandise.
Let me make the example a little more complicated.
Let’s say you want to start an egg business. But, you need to invest in getting chickens first, before you can have any eggs to sell. Your first step is to hire a chicken catcher (work with me here, it’s an example!) You find a highly recommended chicken catcher for the nice sum of $100.
You ask Mr. Chickengetter (heretofore known as CG) how many chickens he can catch for you. He says he’s not sure, as those buggers are pretty fast. But he’ll do his best. Tomorrow he comes back with 9 chickens. Now it’s time for the egg laying to begin!
Within the first month these fine chickens produce 300 organic, free-range eggs to sell to Whole Foods, who pays you $700 for them.
Wow, this makes you feel really good about your business.
Let’s throw in a little twist. Let’s say all your chickens burn up in a horrible fire after 30 days (hey, stuff happens)!
You’ve now got to go back to Mr. CG and have him catch you some more chickens. But on your way to meet him, you strike up a conversation with another farmer down the road, Mr. Poach.
He informs you that he never pays more than $5 for a new chicken, never, ever! Even though Mr. Poach’s farm is looking pretty shabby, you thank him for his good advice and go on your way.
You then hire Mr. CG for $200 this time and tell him you need a lot of chickens to restart your business. He brings back 18 chickens. You do a quick calculation in your head, while thinking about your previous conversation you had with Mr. Poach. You just paid a whopping $11.11 per chicken! You feel completely duped.
Doesn’t Mr. CG understand how tight money is after the fire? If he really cared, he would have brought back more chickens. At least 50, or maybe 70 chickens.
After giving Mr. CG a piece of your mind for charging you so much per chicken, you go back home and start producing those wonderful eggs.
After 30 days, you have about 600 eggs, which you sell to Whole Foods for $1400.
How depressing this chicken business is. Last month you felt good about your business ,but this month you only got 18 chickens from Mr. CG. If only he could have brought you 80 or 90 chickens, you could be feeling good right now. You think to yourself, “maybe the money’s in turkey farming.”
What’s the moral of the story?
It doesn’t matter how you feel about the number of chickens you get, it’s the amount of eggs they produce that matters!
In both scenarios, the return is exactly the same, 7:1 or 700%. In both cases you put in $1 and got $7 back. It doesn’t matter how much the chickens cost, because that’s not part of the ROI formula!
How many investors on Wall Street would be ecstatic about buying stocks for $1 and selling them for $7?
Now for the true test of your arithmetic prowess. Here’s a real life example I got in email form.
“I just ran my first ad. We got 6 calls to schedule and 5 came in. I’ve already done one report and he paid $995 today. If he keeps his treatment recommendations he’ll pay an additional $500 to finish his care. 5 NP’s from a $1000 cost to run the ad is not a very good return, don’t you agree?”
Be one of the first 10 comments to get all of the following questions right and I’ll give you a free video for improving your website ranking on Google.
1. Assuming all 5 patients finish the care plan of $1495 each, what will this doctor’s ROI be?
2. Would you be happy with these results?
3. Multiple choice, choose only one:
A. Run the chiropractor’s ad again.
B. Not run the ad again because it only brought in 5 new patients.
C. Not run the ad again because it lost you money.