How Much Should Your Medical Practice Spend on Marketing?
In today’s competitive environment, you need marketing if you’re going to attract new patients and grow your practice. You have to spend money to make money. But how much money do you need to spend? Spend too little and you’ll forfeit necessary revenue. Spend too much and you’ll sacrifice your profit margin. So, where’s the sweet spot?
Let’s begin with the question that is doubtless on your mind: What is everybody else spending? There are two ways that most businesses (and medical practices) calculate a marketing budget:
Big Picture Approach
Percentage of Total Revenue
Google “what percentage should I spend on marketing” and you’ll find answers typically ranging from 2–12% That’s a big range (and not terribly helpful). Part of the difficulty lies in comparing apples to apples. Some sources are calculating a percentage of gross revenue—others a percentage of net revenue, or in some cases a percentage of the total budget (which by itself is somewhat arbitrary). Further difficulty lies in establishing what counts as “marketing.” Does that include branding? Does it include the cost of your website infrastructure and related technologies?
Confused? Let’s phone a friend.
As a general rule, small businesses with revenues less than $5 million should allocate 7–8 percent of their revenues to marketing. This budget should be split between 1) brand development costs (which includes all the channels you use to promote your brand such as your website, blogs, sales collateral, etc.), and 2) the costs of promoting your business (campaigns, advertising, events, etc.).
—The U.S. Small Business Administration
Read the Full Article
This is more helpful. The SBA recommends beginning with your total gross revenue and allocating 7–8% to marketing—including everything (branding, marketing infrastructure, and actual marketing campaigns). Of course that 7–8% is an average across all industries. In the same article, the SBA acknowledges some industries and some particular growth stages will require higher budgets — up to 20%.
The CMO Survey of top U.S. marketers at for-profit companies plots average marketing budget percentages over the past five years:
Marketing Spending As Percent of Company Revenues
Source: CMO Survey — Highlights & Insights, February 2018 • Figure 3.8
Actual spending over the past six years falls generally in line with the SBA’s recommended average. Remember the trend line is an average spanning all sectors and industries. So while the average marketing budget in February 2018 is 7.9% of total revenue across all sectors or industries, the average spend for Business-to-Consumer (B2C) Services Sector — that’s you, doctors — is actually 11.8%.
The CMO Survey offers a further breakdown by industry. The average marketing budget for the healthcare industry is listed at 9% of total revenue (as of February 2018).
Marketing Spending As Percent of Company Revenues by Industry
Source: CMO Survey — Highlights & Insights, February 2018 • Figure 3.9
Based on the SBA guidelines and CMO survey, we can improve upon the google search we began with. It is reasonable to expect your overall marketing budget to be 7–12% of your total revenue. If you are an established medical practice with an annual revenue over one million, you should expect to budget 7–9% of your total revenue. If you are just launching a practice — and need to include both branding your practice and launching your first website — it is reasonable to expect your marketing budget to be 10–12% of your total revenue.
So all that remains is to fire up your favorite spreadsheet and work out what 7–12% of your total (or anticipated) revenue is on an annual and/or monthly basis.
Or, save yourself 20 minutes of work and download ours (with a few added benefits).
Marketing Budget Calculator
Downloadable Excel Spreadsheet:
- Calculate a low and high budget range based on your annual revenue (or revenue goal)
- Display your budget as either annual or monthly
- Allocate your budget by percentage to editable categories grouped by: branding, digital presence, digital marketing, & traditional marketing
- Fully editable—it’s yours to modify as needed. Nothing is hidden, protected, or disabled.
Goal-Based Calculation with ROI
Not everyone, however, begins with a percentage of their total revenue and then further divides that allotted percentage into budget categories. I sometimes work with individual doctors looking to grow their particular patient roster within a larger practice, who do not have (or need to have) access to the the total practice revenue. Other doctors are interested in growing a particular service (e.g. annual physicals or dermatologic exams). For these doctors, a “marketing budget” has less to do with percentages of the whole and more to do with what they’re willing to spend to achieve the goals at hand.
From this perspective, we begin with a specific growth goal (e.g. increase annual physicals by 20%), determine a financial value for that goal ($50,000 in revenue increase) and then establish a reasonable Return on Investment (ROI) ratio to calculate a marketing budget.
Planning your ROI Ratio
For every $1 you spend on marketing, you would ideally like to get a return of more than $1. And because you have expenses to pay, a return of $2 usually won’t amount to actual profit. A return of $3 for every dollar spent (ROI of 3×) could, in some cases be worth your while. Typically, however, a ROI of 4–5× will be consistently achievable and profitable. So if your growth goal for increased annual physicals is $50,000 in revenue, you would need to spend approximately $10,000 (at 5× ROI) to reach that growth goal.
Of course 4–5× ROI is really just another way of saying your marketing budget should be 20–25% of your revenue goal. So while your total marketing budget should be 7–12% of your revenue, specific business goals will likely require an investment of 20–25% the goal revenue.
So now you have a better sense of what others are spending on marketing … but what about you? How much should you be spending on marketing?
Asking Better Questions
It’s not wrong to want to know what other doctors or entrepreneurs spend on marketing, but there isn’t a one-size-fits-all formula. Your budget will depend on a number of factors specific to your goals, circumstances — even your personality. Here are some better questions to begin your process:
Begin with your current reality…
What marketing efforts do you currently have in place?
Make a list of everything you do to obtain and maintain patients. Do you pay a premium for the location of your office? Do you pay to list in printed or online directories? Do you have a referral strategy? How do you engage and retain existing patients?
How much are you currently spending?
Once you’ve made a list of everything you presently do, you can begin to attach a cost to your current marketing spending.
What results are you currently seeing from those efforts?
Is anything being measured? Are there areas where you’re currently seeing little return on your investment?
Then look to the future…
What are your growth goals?
Are you looking to increase your patient roster for a specific provider? Are you looking to increase visits from existing patients? Are you raising awareness of a new service across all your patients?
How quickly can you afford to grow?
How many phone calls, emails, or scheduling requests can you adequately respond to? How many new patients per day/week/month can you reasonably add?
What is your risk tolerance?
Writing for Forbes, CEO Joseph Apfelbaum notes, “Marketing is about testing. Say that you decide to designate $5,000 for a marketing budget and that you can only spend that $5,000 if you get 10 new clients. There is no way for you to know if you will indeed get those ten clients unless you spend it—and risk not getting any additional clients. There is always a risk of not getting the ROI you are looking for when you are marketing your business.”
How can you minimize risk?
Knowing that risk is part of marketing, how can you minimize risk? Can you diversify spending? Can you leverage technologies or strategies to better understand your risk and maximize success? Can you incrementally test specific campaigns?