How Much Money Should a Medical Practice Spend on a Strategic Marketing Campaign?

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Today – A Frequently Asked Question

By John Deutsch

As a web services company specializing in medical practice marketing and medical web design, we are asked this question frequently.

Introduction

In this turbulent post healthcare reform era, physicians are now being challenged to either adjust to the market or be forced to join a hospital in order to stay profitable. The physicians who are adjusting to the changes are adopting new ideas in order to remain profitable – such as implementing Electronic Medical Record (EMR) systems with government stimulus money, introducing new cash-based or high profit services such as aesthetic treatments, or introducing concierge medicine care and launching marketing campaigns to attract higher-profit patients.

So – What is the industry standard for marketing budgets?

While suggested marketing budgets vary significantly from one industry to the next, the US Small Business Administration (SBA) suggests a marketing budget between 2% and 10% of gross revenue.

However, budgets for Business-to-Consumer, retail companies and pharmaceutical companies can exceed 20%. But, with a range of between 2% and 20%, where should a medical practice be?

How much should I spend?

Here’s a few questions to consider when identifying a marketing budget for your practice. Start with a recommended 5% marketing budget and add/subtract from there.

1)  Do you receive the majority of your patients through physician referrals – SUBTRACT 2%? If you do, and consider that a business model of receiving referrals from physicians is a sustainable one then you’re in the clear. Keep in mind that many practices are now being bought by hospitals and will therefore refer internally.

2)  Do you have any high-profit or cash-pay products/services – ADD 2%? If your business depends almost entirely on insurance/medicare reimbursement and there is limited profit margin on these products, your business is at a very high-risk since the trends in reimbursement have not been positive. You should consider introducing new products/services to diversify your revenue channels.

3)  Have you recently introduced new high-profit products/services such as aesthetics, concierge, diagnostics or nutraceuticals – ADD 5%? If you have, you’ve likely introduced new hard costs into your business. You therefore need to market these services enough to surpass your break-even point and generate a positive ROI on these new ventures.

4)  Are you located in or near a major metropolitan area – ADD 1%? If you have the ability to draw from a large pool of customers, especially where competition is higher, you must have sufficient marketing budget.

5)  Are you losing market share to another business in your area – ADD 2%? If you are, it is a slippery slope. The vast majority of medical practices are poorly marketed, even hospitals. Introducing a new marketing campaign in order to win back your market share will likely not require significant investment.

6)  Are your current marketing efforts producing a positive ROI – ADD MAX? If your marketing efforts are producing a positive ROI its an easy decision – max out your budget to a level that is sustainable for your current work load capability while maintaining a positive ROI on your marketing efforts. Sometimes businesses lose focus on which marketing campaigns are working and which are not. They get lumped together and focus is lost. Try to identify which of your marketing campaigns have been a success, track these campaigns as much as possible and make educated decisions for increasing the budget – while decreasing budgets on your poor performers. Internet marketing is one of the most effective forms of marketing and also offers the highest ability for precise ROI tracking.

About the Author

John Deutsch is the founder and CEO of Medical Web Experts, a marketing group for physicians, hospitals and healthcare organizations. Since 2001 he has specialized in healthcare marketing and has implemented hundreds of marketing campaigns. For additional marketing tips by John Deutsch, please read his blogs: johndeutsch.blogspot.com and medicalwebexperts.com/blog/

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