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Three Strategic Calculations to Consider When Creating a Marketing Budget for Your Medical Practice

Running a medical practice without a marketing budget is like planting a garden and expecting it to grow withoutstethoscope and budget (clipping path included) watering it. Unfortunately, the concept of how to create a marketing budget isn’t usually something that’s taught in medical school. While there is no one-size-fits-all approach, below are three strategic calculations to keep in mind when creating a marketing budget.

  1. Percent of Revenues
    Perhaps the most straight-forward approach to creating a marketing budget is to simply set aside a percent of anticipated gross revenues for the year. For example, if you anticipate to have 4 million in gross revenue this year and decide to allocate 10% of that to marketing, then your annual marketing budget is $400,000.While the percent of revenue calculation is simple, the downside is that there’s no one-size-fits-all percentage. Regardless of how practices have determined their annual marketing budget, in our experience we see practices spend anywhere from 2%-15% of revenues on marketing. The percentage that’s right for your practice depends on many factors, such as local competition, practice size, if you have new doctors in the group, how much you want to grow, and your specialty. A practice that’s been in their market for 20 years and requires minimal marketing may only need a 2% budget where as a new physician group just opening their doors may require a 15% budget
  2. The Growth Factor
    With this approach, your marketing budget is calculated based on your desired level of growth. If you want to grow your practice’s collections revenue by $200k this year and you utilize a conservative ROI ratio of 4:1 (a return of $4 for every $1 you spend) then you can expect an annual marketing budget of $50k. That does not include any current marketing expenditures the practice is responsible for (regardless of ROI), which must be added to the budget. In this example, let’s say that number is $10k in preexisting marketing obligations. Add $10k to your new budget of $50k resulting in a total budget of $60k a year or $5k a month.Just as when determining a marketing budget based on percent of sales, it’s important to consider factors such as competition, specialty, and practice size when determining the ROI ratio. A practice in a highly competitive market may only experience an ROI ratio 3:1 where as a practice in a lesser competitive market may experience an ROI ratio of 6:1.Lastly, give consideration to your final budget number and determine if you need to go back and revisit your goals (ensuring they are realistic).
  3. Patient Acquisition Cost (PAC)
    One way to determine if your marketing plan is paying off is whether you have a reasonable patient acquisition cost. For example, if you spent $5,000 on marketing that month and acquired 100 new patients then your patient acquisition cost is $50 per patient. If a new patient is worth $100 in profit then the practice in this example has a highly profitable marketing plan. If a new patient is only worth $25 then the PAC is too high. Keep in mind that the worth of a new patient may be determined by either calculating the average profit on the first visit or the lifetime worth of the patient.A good PAC can also make the idea of spending money on marketing each month (especially if you haven’t in the past) less daunting when the marketing plan is essentially paying for itself and increasing practice revenues.An acceptable PAC is dependent on variables such as specialty and competition. A specialty such as oncology may call for a much higher PAC than an urgent care, and an oncology practice in a highly-competitive urban area may require a much higher PAC than an oncology practice with little competition in a rural community. On average, we see PACs range from $15-$150.

Remember that it’s much less expensive to maintain a current patient rather than acquire a new one so it’s imperative that your internal infrastructure is properly in place to ensure every new patient has a positive experience at your practice. There’s nothing worse than spending budget to acquire a new patient only to lose that patient due to long wait times, a staff member with a bad attitude, or outdated facilities. Make sure your practice is ready and equipped to take on the new patients you are spending the time and money to recruit.

Ensuring an optimal ROI on your marketing budget is dependent upon investing in strategies that get results. It’s very easy to blow through your budget buying yellow page ads and pens, which do very little to optimize your ROI. A realistic marketing budget must be accompanied by a smart marketing plan or it’s a waste of time and money.

In our experience, marketing strategies that earn the highest ROI and lowest PAC tend to revolve around digital services, such as search engine optimization (SEO), pay per click (PPC) advertising, social media, and email marketing. These services are also highly trackable, making it easy to measure the performance of your marketing plan.

While there is no one-size-fits-all approach to calculating a marketing budget for medical practices, the three numbers above should all be considered when looking at the big picture of your practice’s marketing spend.

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