As seen in Maryland MGMA MediNews
MARKETING IS THE driving force behind every business plan. A business plan without the proper marketing plan is like having an automobile without the proper engine—it may look good, but it won’t get you to where you want to go.
There are three critical parts to every business: operations, business development and marketing. These parts are interrelated and interdependent. They work together to move your business forward.
A typical business should have an area for each of these on a Profit & Loss statement.
Let’s focus on the marketing area.
The first question that we need to ask is
How Much Should You Spend On Marketing Your Practice
Before answering this question, we need to realize that marketing should be considered an investment and not an expense. It is an investment in that you should be realizing a rate of return on the dollars you are investing in your business. Accountants will argue that it is an expense, but if you spend $1 on advertising, you should certainly expect $2, $3 or $4 dollars in return as revenue.
But no matter how you look at it, you still need to determine how much should be invested in marketing your practice. There is no right answer, although there are some parameters that you can use in arriving at a dollar amount that seems comfortable for you and your practice.
A financial adviser will suggest that when investing, you should “use your head and don’t invest over your head, make sure that you can sleep at night, knowing that you are comfortable with the amount you have budgeted for marketing. If you think that marketing is a gamble – then bet with your head, not over your head. In either case, be realistic and know what you can afford.
Historical Review
If you look at your practice as a patient, then when doing a business examination, you need to look at the patient’s/practice history. That is, look back over the past year or two and see how much you have been investing on marketing. Record that number on your worksheet.
Advertising To Sales Ratio
Next, use what is called the advertising-to-sales ratio.
This is done by looking at your total practice revenue and taking a percentage of that total to arrive at your marketing budget. According to the AMA (American Marketing Association) the average business spends between 3% and 5% of its total revenue on marketing. This may vary, depending on such things as the length of time a company has been in business, competition in the industry, location, public awareness of the product/service and the cost of a product or service.
The point is, do the math by playing with some of these percentages to arrive at a number for your practice. Keep in mind, it has to be a budget that is affordable for you and in line with the other line items on your practices P&L statement.
The Wish List
A third way of determining a marketing budget is to make a wish list of marketing strategies and tactics that you would like to use in growing your practice. Then, go shopping for these items in order to estimate the cost associated with each. Add up all the items to arrive at a total dollar amount. Then try that number on for size. Is it comfortable, does it fit where you are financially, can you sleep at night if you were to budget that much for marketing your practice? If so, then you are set. If not, then you need to pare it back until you reach your comfort level. That means that some items on that wish list will have to wait.
Now you have three budget levels with which to work. You can decide to average the totals, take the highest total or work with the lowest figure. It will all depend on your comfort level. But you are now closer to determining a final answer.
Once you have a marketing budget with which you are comfortable, you can begin to apply it to your marketing plan. You may want to consider hiring a marketing professional to help you manage the process.
Randy Gartner is with Integrated Marketing Services, LLC in Ellicott City, specializing in generating new patients and referrals so that practices can focus on treating patients. He can be reached at 410-707-5063 or rgart@ verizon.net.