How much should a medical practice spend on marketing

How Much Should A Medical Practice Spend On Marketing?

 

A question that most medical practices don’t ask but should is, “How much should a medical practice spend on marketing?” Marketing should be an intentional part of a growing practice and too often it is an afterthought, letting poorly performing campaigns run for far too long.

 

How much a medical practice should be spending on marketing spending must be considered in terms of gross revenues and goals. Experts recommend:

  • 2% to 3% at a minimum to keep a consistent level of patient flow
  • 4% to 5% in a scenario where the practice is struggling or growth is starting to stall
  • 5+% if you want to accelerate your growth

 

I completely understand. As a business owner, keeping a good handle on your expenses and marketing costs can often feel like a black box—you put money in, sometimes a lot of money in, and you wonder about the results you are getting.

In the scope of running and growing a medical practice, marketing is easy to leave on the back burner. At a glance, it seems expensive, and it can be unclear if you really need it to hit your practice revenue goals.

But, while marketing costs might be categorized as expenses to your accountant, you need to think of them as investments that provide a greater return than what you put in. In other words, marketing investments should bring you new patients, or bring your current patients back more often.

I often say that marketing should be free, meaning that when you pay us we should be driving a return to you of greater value than what you’ve spent. If you spend $60,000 on a campaign, you should expect for it to pay back 3x-4x, or $180,000 – $240,000. It all won’t be immediate, but you should expect that return from what you are investing in.

How much should your practice spend?

There are two ways to think about this to determine your budget:

  1. Industry Standard Percentage of your gross revenue
  2. Growth Objective Marketing Budget Approach

Percentage of Gross Revenue

Google “what percentage should I spend on marketing” and you’ll find answers from 1% to 10%. I was talking about this topic with four medical practice consultants who advise practices on operational and financial planning. They have 1,000+ practices between them, and all of them had similar figures for how much a practice should be spending on its marketing, which is 2 to 3%.

In terms of its gross revenues, a practice should be spending 2 to 3% at a minimum to keep a consistent level of patient flow happening. This is the consultants recommended minimum, but they all agreed that far too many practices aren’t even doing this right now.

In a scenario where the practice is struggling or growth is starting to stall and you want to re-energize it, you should dig deeper and be investing 4 to 5%.

If you want to accelerate your growth, 5% is the amount you should spend to hit those growth targets.

Every market is different in terms of competition, market size, and other factors, but this should give you a good rough estimate if you aren’t sure where to start.

Practice Example

As an example, a practice that was grossing $1.3 million a year would need to invest between $26,000 and $39,000 each year in marketing.

However, if this is a practice that was striving to grow quickly or was in need of more patients because of stalled patient flow or other external sources, then they should look at investing 4 to 5% of their gross in marketing, which would be between $52,000 and $65,000.

Let’s break down some marketing budget numbers a bit further:

Gross Revenue Percentage Marketing Budget Approach

 $1,000,000$2,000,000$3,000,000$4,000,000$5,000,000$10,000,000
Standard 2-3%$20,000 - $30,000$40,000 - $60,000$60,000 - $90,000$80,000 - $120,000$100,000 - $150,000$200,000 - $300,000
Stalled 4-5%$40,000 - $50,000$80,000 - $10,000$120,000 - $150,000$160,000 - $200,000$200,000 - $250,000$400,000 - $500000
Growth 5%$50,000$100,000$150,000$200,000$250,000$500,000

2) Growth Objective Marketing Budget Approach

Instead of starting with your existing revenue, the Growth Objective approach to marketing budget calculation starts what additional revenue is needed to meet your growth goal.

We know that your marketing investment should produce a return of 3-5x. The specific multiple depends on a number of factors such as the size of your practice, location, and your specialty, but we’d work with you to determine the right ROI number.

Then, we apply that ROI number to your goals and determine how much additional investment you need to make in order to accomplish your goals.

Let’s say you were the same practice mentioned above, and you’ve stalled at $1.3 million for the last three years and you’ve got a goal of breaking out to $1.5 million. What do we need to do differently this year to accomplish that?

To get from $1,300,000 to $1,500,000 you need an additional $200,000 in revenue. If we determine your ROI is 4X, then you’ll need to spend $50,000 additionally on marketing over the next year to increase your practice revenue to meet your goal.

Run YOUR numbers

Run the numbers for your business and take a look at the marketing investment number for your business.

If you look at it and say, “This feels crazy HIGH” then you need to make an adjustment on the objective you set. Since the budget is directly related to the amount of revenue set in the objective, the only way to get to a lower marketing budget number is to decrease your new revenue number.

If you say, “This feels crazy LOW,” then increase the objective revenue goal and your budget.

 

Growth Objective Marketing Budget Approach

Current Gross Revenue$1,300,000
Objective Gross Revenue$1,500,000
Additional Revenue Needed$200,000
ROI4X
Marketing Investment$50,000

Which approach should you use?

There isn’t a wrong answer, both approaches will work to get you to a budget to grow your practice. If you aren’t sure, schedule a call with us and we can help.

If you’re trying to figure out a marketing budget, start with the gross percentage to give you a ballpark marketing budget number that will work for you.

If you have specific practice revenue goal, start with the objective based approach and determine and use the goal revenue number you want to hit in a year from now.

Just remember, if you don’t invest, you won’t get the results you want.

3 Comments
  • Darin Gilstrap
    Posted at 10:21h, 21 September Reply

    Great article. Especially for doctors in large metropolitan areas where there is competitive forces from newly emerging urgent care chains, hospital-based outpatient practices, and retail pharmacy chains.

    • bakerlabs
      Posted at 14:08h, 22 September Reply

      Urgent care chains are certainly playing a role these days. Appreciate your input!

  • Erin Wade
    Posted at 11:35h, 26 September Reply

    It also depends on the specialty…here in South Florida you can’t listen to the radio for 5 minutes without hearing a commercial for plastic surgery. In Atlanta, the competition among cancer centers leads to intense marketing.

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