You’ve read our last post and decided that you are the type of person to dramatically expand on the size of your practice. Now, you’re ready to get rolling. Where to start? For us, you begin with finding potential locations for your office. If you want to add 5 offices, you want to target 5 areas in which to place an office. You may not be building in that particular area immediately, but you want to identify the best areas and then focus in on the top ones in that group for immediate investigation.
There are a number of ways to go about picking areas. Here are some of the methodologies and considerations.
Evaluate demographics and competition
You may decide for a very detailed demographic analysis as promised by this company or you could go with your own breakdown of the market simply by visiting it. Whatever you decide, keep certain things in mind:
- If you have had success with a certain demographic group in the past, you will want to find areas with a similar breakdown. For example, if an analysis of your practice management software shows that most of your patients are males aged 9-11, you will probably want to find an area with a similar makeup, if possible.
- Certain demographics can be skewed. Cities dominated by large universities have an abnormally large percentage of people aged 15-24. If that university has a dental and/or orthodontic program, the number of doctors in the market may be abnormally high too. Large military bases have their own demographics. Pockets of population in South Florida are largely older and so on.
For us, we distill markets down to a single number called a competition factor. This number combines the demographics of a market with the competition level in that market. This is not an end-all figure, but does give us a starting point for determining which markets might provide the best success for a new office. For this number, a competition factor above 3 represents a market with strong potential. 2.5 – 3.0 represents a market with potential, but some demographic issues to be addressed. 2.0 – 2.5 represents a market that will require us to have a strong marketing plan or personnel to be successful. Below 2.0 are the most competitive markets. Again, markets with lower numbers do not represent markets in which we cannot succeed. Rather, they are markets that present additional challenges to be overcome.
For example, my home market of New Orleans has a competition factor of 2.413. That makes it a borderline market, but certainly not an impossible one.
If you have markets that you are considering and want all of the information possible at your disposal, we are happy to provide this number to you to add to your analysis. Again, the number guarantees nothing, but provides you with a new tool to make the best possible decision. Obviously, once you locate somewhere, you are attached to that location financially and operationally for a significant time period so you want to get it right.
Piggy back onto the market research for another company
If you attended any OCA investor presentation back in the late 90’s/early 2000’s, you heard us talk incessantly about the fact that we wanted to locate near a Toys R’ Us. After all, Toys R’ Us had used their substantial resources to identify markets and specific areas with lots of families and younger children. They put their locations in high traffic areas. We wanted to put our offices in exactly the same type of place so why not simply let Toys R’ Us do the research and let us follow them? The strategy proved to be generally successful.
Today, Toys R’ Us isn’t growing at the rate they once did so they probably don’t represent the best model to follow. But the principles are the same. A number of “big box” retailers – like Home Depot, Lowe’s, Target – want to locate in high traffic areas that are near large numbers of families. As in the past, you can let them do the heavy lifting and follow their lead to where markets are located. Grab a map of the locations for the retailer that you feel most similar to in terms of the target market sought. Pin the locations and start looking for a spot near them.
Check your competition
Some doctors are most concerned about competitors. If you have an orthodontic practice, you may decide to find the location of other orthodontic practices and locate as far away from them as possible. But just because another doctor of the same type might be in your area, that doesn’t mean you cannot either coexist peacefully or successfully compete.
Find out what you can about the other doctors in a market of interest. If a practice pushes its convenience, your marketing message may differ because you are focused on a message of price. There may be space for you to operate. Or, the practice in your area of interest may market only to people with higher incomes. If your focus is on middle income families, you and the other practice may be able to operate without conflict. In sum, do your homework on the competition before dismissing an area.
Consider spacing
If you have a successful office, you do not want to cannibalize it by putting an office so close that it competes for the same group of patients. You want to have a radius in which each of your office operates. You can certainly evaluate your existing patient base to determine that radius. If you run a zip code analysis or address analysis and pop that into a mapping tool (like Google Maps), you may determine that 95% of your patients in your first office are located within a 3 mile radius. So, any new office built should be built at least 6 miles away (so that the 3 mile radius of the new office doesn’t overlap the 3 mile radius of the existing one).
As a rule of thumb, a 5-mile radius works to give an office “exclusivity” for your practice within an area. In a top-20 sized market (Atlanta, Los Angeles, etc.) where traffic is heavier and people are used to having services nearby, a 2-mile radius can suffice.
Again, nothing is set in stone here. Some practices have found success by putting 2 offices near each other (one on each bank of a river, for example). Visit the areas, talk to the people there to see if they would travel, use SurveyMonkey.com to survey them or whatever investigation you feel is necessary.
Analyze your existing patient base
An analysis of your zip code or address list can give you a clue as to where to build a new office. If you find that 25% of your patients are coming from across town, perhaps you should be looking for an office across town. If that many people are willing to travel to your office, consider the multiple of people who would visit you, but don’t want to make the trip.
Back in the old days, we had a successful practice in Tallahassee, FL. A zip code analysis showed that we were getting a substantial number of patients from Tifton, GA, 90 miles away. If this many people were willing to make the drive to get treatment, we figured that at least 3 times that many weren’t willing to drive, but would use the services if an office were close enough. The Tifton office was then built. The Tallahassee office did experience a brief dip in revenue as it lost the Tifton patients, but we were able to fill up the lost revenue with more local patients. Even with the dip in revenue, the combined revenue and profit of the 2 offices was substantially higher than the Tallahassee office by itself. Both offices continue to thrive today.
And there are other methodologies. Hopefully, these have given you some food for thought. If you have any questions or require any assistance, please do not hesitate to contact us.
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