Choosing a location: Demographics and Competition

How are demographic studies used to help choose good practice locations?

We use demographic studies in a couple of ways to help clients find good locations. The first, is breaking down large areas into sub areas. We then compare those chunks on important demographic variables for the client.

We often use variables like the total population in a certain age group, median household income, and expected population growth. But there are many others.

The second way we use demographics is as a metric with which to compare multiple sites. By looking at a standardized area around each site we can compare important variables to see which location best meets the client’s criteria.

How can competition studies help me choose a good practice location?

Competition studies can be very valuable for practices that are not largely referral-based. As the name suggests a competition study involves researching practices that would be competitive to a new location within an area. We then either map them or list them for the client. Competition studies become even more powerful when combined with demographic variables to create competition ratios. For example, the typical ratio we use for pediatricians is the number of people under the age of 16 in an area divided by the number of pediatrician practices in an area.

Higher ratios indicate less competition for every patient in the area. Comparing sites with competition ratios is one of the better ways to determine which sites has the most business potential for a client.

For referral-based practices we do a different flavor of analysis. We look at call potential referral source practices within an area and often provide a map and list for each site that a client is considering. This helps them get a sense of the potential referral network around the sites they are considering.

Where does demographic and competition data come from?

The vast majority of our demographics information comes from a couple of data brokers. Those brokers take US Census Data and analyze and enhance it. They make the data easier to access and easy to pull based on any geography that we ask for.

Beyond raw census data, there are some data sets that come from marketing research firms. They take broad spending and behavioral surveys of the American population and associate them with a whole set of census-based demographic variables. This allows us to make some decent guesses as to what types of products or services certain populations are more likely to purchase.

At practice Real Estate Group, our competition data is compiled by our in house research team and stored in a proprietary database. We use this manual method of researching and verifying practices because we have found that all of the off-the-shelf business databases don’t parse medical businesses in a way that is helpful for our clients.

When doing ratios for, say, a dermatology practice specializing in Mohs surgery we want to only count other Mohs practices in the area for our competition ratios. The same goes for orthodontic practices vs general dental practices, and many other flavors of medical practices. Standard business databases just don’t split medical practices like this, so many of the available competition studies in the market that use them usually fall apart upon closer inspection.

How heavily should a practice weigh the demographics and competition results they get vs other key location factors?

In general, the more clear the person opening the practice is on their business model and their ideal patient base, the more heavily they can weigh the results they get on a demographics and competition study.

Even then, for the vast majority of our startup clients, the demographics and competition studies on sites come after they have narrowed their geographic area using other factors like where they want to live, how far they want to commute, etc.

For our multiple-location clients the demographic and composition studies usually are weighted more highly in the decision-making process. They often dictate where we begin searching for new locations for those clients.

What are the limitations of demographic and competition analyses?

The limitations of demographic studies are largely that the data is really a best guess based on the census and intermediate surveys that are done yearly. That’s not to say that the data brokers and the approaches they use to generate the data aren’t rigorous. It’s just that they are at the end of the day an estimation and not perfect.

Further, there is some error introduced when compiling data for customized geographic areas. Demographic data is usually geo-located based on a census tract, or a census block group. These areas can range in size from a couple of square blocks to several square miles. This means that the closest to a “pinpoint” we can get on anybody counted in the census is the size of their block group.

When one of our study areas cuts across one of these census areas the data provider has to make a best guess as to what proportion of that population falls within our study area. Drawing a 3-mile circle around a typical site cuts dozens of these block groups into pieces. Estimating what proportion of those block group populations should be counted turns out to be tricky and is one of the main reasons we use experienced data brokers.

Do I always need a demographic and competition study?

Often banks will require you to obtain a demographics study as a condition to financing – so in that case yes! Outside of that, we think it is a best practice to make sure that there are no obvious red flags with a site you have chosen. Even in the case where you know exactly what neighborhood you want to have your practice in it’s a good idea. A demographic and competition study can give you valuable marketing data about your potential patient base and competition once you open. Commercial leases typically last for a least decade or more. A demographic study can give you a forecast of how your patient base will likely change during that time.

Dave Williams

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