How Much Should Practices Spend on Marketing?

October 23, 2014

Experts may recommend allotting a percentage of revenue for marketing efforts. But customizing a marketing plan may be a better fit for most practices.

For the better part of three years now, you have heard me tout the importance of marketing your practice. It is vital: It helps you find a surge in profits you didn't even know existed; it helps you get your message to people that would have never found you or your practice; and it helps you serve more patients.

When I talk to practices about marketing, the question I am asked most frequently is: "How much should I spend on marketing?"

Most marketing firms will ask you "What is your marketing budget?" and then give you an estimate that is eerily similar to what your stated marketing budget was; often it is the exact number or $250-$500 more than the number you gave them.

When starting out with new marketing clients my firm also asks "What is your marketing budget?" But for a different reason. We take the information, the research on your company and deliver to you your best options for that budget range and we also deliver what the ideal "no-limit budget" plan would be, if there is one.

Why do I bring that up? There are marketing experts that, for example, recommend 5 percent or 10 percent of a practice's profit or revenue, or spit out some formula for calculating the optimal marketing budget. Here's the thing, there is no one-size-fits-all formula for achieving marketing "magic" for your practice. It is individualized based on your market, your ideal patient, your geography, and your goals for your practice.

You may be thinking "Hey that's not an exact science." And you're right, it's not. But after you spend some time marketing your practice there are a couple of numbers you can take a look at to determine what is working and what isn't working, and if you are spending too much.

Patient acquisition cost

The first number to have a look at is patient acquisition cost (PAC). Your PAC is the amount you spend on marketing, divided by the number of new patients you acquired that month. For example, if you spend $1,000 on social-media marketing and management, and brought in 72 new patients, then your PAC is around $13 to $14.

The appropriate range for PAC depends a lot on where your practice is; in smaller towns and rural areas, $14 or less is a fantastic PAC. In New York City, an acceptable PAC is going to be much higher than that. You want to track this number every month, and if you do, you will begin to see patterns - where you have spent more or less money, with greater or lesser success.

Return on investment

The second number you should track is your return on investment (ROI) for marketing efforts. This number gets specific. For example, if you spend $180 on a newspaper advertisement that brings in two patients, and you know that you make an average profit per patient of $15, your return on the $180 investment is $30. From there you can decide to test a different ad, different day, or different paper, or maybe even scrap the paper as a marketing avenue altogether.

The bottom line is there is no cookie-cutter formula to find the number that will work for your practice's marketing budget. I recommend starting small and ensuring that you are hearing the whole story from your marketing firm.