What is the appropriate advertising budget for a professional practice?

As promised, I have consolidated most of the responses to the LinkedIn Discussion topic “…appropriate advertising budget as a percentage of revenues” into the table below.  I have also included many of the responses (by industry) below the table.

All of the responses were interesting, informative and many even qualified as entertaining.  A whole spectrum of responses was included from yellow pages help, to yellow pages don’t help, to referrals are the best source, to social networking is great.

I won’t bore you with an analysis other than to say, not one person responded with advertising is not useful.  And most agreed that some sort of advertising should implemented even in the worst of times.

Steve Dafnis

www.Vzual.com Video advertising for the professional practice

Professional practices	Approximate advertising budget as a percentage of revenues
Chiropractic
Hair Salon	15-20% 15-20%
Ophthalmology – Optometry	2 – 8%
Dermatology	5-10% 10-20% 10%, 15-20% for new practice
Hair salon	15-20%
Medical
Spa	10-15% 7%
Veterinarian	1-4% 1-5% 1-1.5% 10% of profits
Dental	2.5% 5-15% 5-10% 10-15%

Assorted comments

Chiropractor advertising marketing

I’m sure there is an official answer to your question and anyone selling a pie in the sky advertising program can spout off many quotes from the advertising industry. “Pepsi invests 30% of their gross on advertising and paid Michael Jackson $12 M to do a commercial.” And that helps you how?

But, if you were overstarved and undercapitalized like I was, any amount is too much and too little. Two important questions come first: What is the short/long term goal of advertising and are my investment results measurable to reach my goals?

So long as your return on investment in an advertising/marketing strategy is positive, you can bet the farm on it. If the results are not immediately measurable or you lack clarity in the intention of the outcome, it is like playing the slot machines; how much have you got to loose?

Expectations and measurable outcomes need to be clear. By definition,(my undergrad degree in economics) an effective advertising strategy is one in which the revenues generated equal the cost of the strategy. A winning strategy then, is one in which a $1 more is made than spent. Yuck! Who wants to play it safe? Everyone should, some do, few are not embarrassed by the thought.

Here’s my suggestion in several steps: 1). Set aside some amount that can be left on the gambling table without hurting your practice. 2). Let the pile build until you have enough to really do something substantial. 3). While the pile is building, go to work at finding an advertising strategy that you believe will be a winner, not one that pays off like a slot machine (they pay off big, but only 3% of the time) 4). Start your campaign with a test market rather than one roll of the dice for the hole pile. 5). If you lose, don’t be too proud to walk away and try something else – if you win ($1 more in than goes out) keep playing. 6). Keep a steady eye on your return on investment and you will be a winner.

Above all, you must choose a campaign that is absolutely stone-cold measurable in costs and outcomes. Warm and fuzzy dreams and pie in the sky chances will not pay the bills but they will suck you dry. Trust me, I’ve failed at all six of these steps in my practice and paid the price every time.

Want to laugh and cry at the same time? Start a discussion on failed chiropractic advertising strategies some time!

Chiropractic advertising

Great question, one I would like to know the answer to as well. But I think the answer here will depend on the location of the practice and the provider’s preferences and goals for the practice. But if anyone has any round about figures I would be happy to see some ideas.

Dental advertising marketing

This depends upon the practice’s situation. If it is in a highly competitive area, is only beginning to market, or needs to modify its image, the required percentage will need to be higher than if it has an ongoing dentistry marketing plan, is in a less competitive situation, or simply wishes to continue to bolster its current positioning.

Rules of thumb are just that, but do serve to help practices understanding what constitutes a reasonable investment in marketing.

I’d say 5-15% covers the needs for most private dental practices, in our experience.

Dental marketing advertising

Depending on the size of the dental practice, lets say $800K of yearly revenues, and the geographical specificities:
- 5% to Farming marketing activities ($40K). Goal is to increase the loyalty and business at existing patients.
- 10% to Hunting marketing activities ($80K). Goal is to acquire new patients.
- Eliminate evtg that is nice to have, but useless in $ effect (calendars, pens, etc…)

Dental Practice

10% is a big number whether marketing or advertising. What are you spending all that cash on?

I have experience generating all the growth required for a maximum marketing spend of 2.5% including advertising.

One free suggestion. Take 1/2 your advertising budget and invest it in a patient loyalty program that generates referrals.

In my humble opinion, most advertising is a waste of money as it communicates with too many people who never have the potential to be a probable patient.

Dental advertising marketing

Of course the deck is stacked because of the type of people answering this post (marketers!) BUT I think the interesting thing about Steve’s question is that he said “advertising” not “marketing”. Let’s assume he meant marketing — so many of our clients aren’t really sure what marketing is, and why should they know this? They went to school for dentistry! In fact when I ask the question “How much are you spending on Marketing?” I sometimes hear “I don’t do any marketing. I have an ad in the phone book, I pay a referral service to be listed, and I send out postcards…” On further examination, the person may also send his/her staff to training on upsells, or have in-office signage, or may have speaking engagements at local senior centers, churches, YMCAs, etc, or send press releases to local media on new staff, new resources, new certifications, etc., or give incentives to current patients for referrals. That is all money spent (or time spent, or opportunity cost).

Interesting topic. Hope to see some of you this weekend.

Dental

The first question to ask before setting the budget is to evaluate the marketing plan. Not knowing what you are trying to accomplish by marketing or advertising can set you up to waste a great deal of money. If you have solid goals in place, you may find you do not have to spend as much of your revenues to attract the patients you want to treat in your practice.

Dental

I agree with Lori well said, giving your excisting clients rewards for refering new clients really works and spend less on your marketing.

Dental

In my own opinion, ten to fifteen percent for at least a year until the name gets recognition for the quality of work they provide. After that it’s whatever percentage deemed necessary to create more revenue.

Medical marketing advertising

The answer depends, in part, on the nature of the industry in which the firm operates. Firms that operate in perfectly competitive markets generally do not find it profitable to advertise because consumers already have perfect information about the large number of substitutes that exist for any given firm’s product. In contrast, firms that have market power – such as monopolists and monopolistically competitive firms – will generally find it profitable to spend a fraction of their revenues on advertising.

As with any economic decision, the optimal amount of advertising balances marginal benefits and marginal costs: To maximize these profits, managers should advertise up to the point where incremental revenue from advertising equals the incremental cost. The incremental cost of advertising is simply the dollar cost of the resources needed to increase the level of advertising. The incremental revenue is the extra revenue the firm gets as a result of the advertising campaign. These extra revenues depend on the number of additional units that will be sold as a result of an advertising campaign and how much is earned on each of the units.

Here is the Profit-Maximizing Advertising-to-Sales formula:

A / R = E q,a / -E q,p

Medical advertising marketing

A / R = E q,a / -E q,p

Great formula if you’re an economist selling hypothetical widgets of Product X in a marketplace with a known advertising elasticity of demand to a target audience comprised of angels dancing on the head of a pin. (Or you’re cutting/pasting from a Managerial Economics publication.) Out in the world of advertising and marketing however we have a different formula that’s as useful as anything:

Half the advertising budget is wasted…we just don’t know which half.

The problem with trying to use some sort of magic formula is that the formula doesn’t know whether your objectives are reasonable, your strategy is sound, your tactics are well executed, or if your message is relevant.

Additionally, the formula has no idea what your competitors are spending or doing from an advertising/marketing perspective. Hell, the formula doesn’t even know if your product is any good or a piece of junk.

Ultimately there is no rational way to actually use sales revenue to determine the optimal advertising/marketing budget. Why? Because marketing is not caused BY sales revenue…marketing CAUSES sales revenue.

Of course in the real world of corporate finance, the CFO may well have his own formula, rule of thumb, or SWAG to determine how much money you CAN SPEND, but that has nothing to do with whether or not it’s optimal.

25 years of experience tell me it’s usually not

Dermatology advertising marketing

If you have an existing medical practice with patients that you can cross market- 5-10%. If you are a free standing medical spa- 10-20% is typical in the first few years. The secret is to be an expert at professionally selling the consultation to create larger packages that encourage your clients to be captured once and stay within the spa for one year or more to minimize the cost of marketing each patient.

Dermatology marketing

10% if you have an existing medical practice, but only if the practice demographic is the same as your medical aesthetics business. 15 – 20 + % for new medical cosmetic practice. There are several other important questions to ask as well. How dense is the market and how much competition is there? In addition, depending on the market (major urban market vs. suburban or rural) also impacts the size of the budget needed.

Dermatology

I think that depends on your goal. I’ve always heard that 9-10% is thrust (like for a new practice), 7-8% is moderate growth, and 5-6% is maintain (if you’re lucky). Now in this economy??? We’ll have to see if these numbers hold true

Optometry Marketing

Hi Steve- the metric varies based on what your overall goals are. Typically 2-8% of revenue. What is more important is to set up an annual marketing plan that gets reviewed every 2-3 months to confirm or change the practice’s focus.

Salon Med Spa advertising marketing

There are a variety of different opinions on this I am sure. However, as a salon and spa/medspa consultant we use figures of about 10%; slightly more if they are a newer business; up to 15%.

Salon Day Spa advertising marketing

Rule of thumb has been 7%. Today you could probably reduce this by 1 or 2% based on the social networking aspect. Depending on you demographics for target clients, facebook or twitter might be a lifeline that costs little to maintain. The real question is not the % devoted to advertising but which type of advertising works. I have always been a strong believer in internal marketing because it is definitely more effective than external marketing dollar for dollar. In a downturn economy it is even more critical to designate dollars to advertise whether it is internal, external, or ideally…both! We cannot afford to let our guard down as many businesses do when they cut back. This is the perfect time for us to convery to the consumer why they should come to us!

Spa advertising marketing

I try to keep it between 5-10% of revenue. I haven;t found that classified/display is really worth the money. If this money is primarily focussed on in-house promotion and events, it really goes a long way. My clients have had good success with Internet ad-words and newsletters as a cost effective way of using an advertising budget.

Spa marketing advertising

It depends on the business and what their level of expectation is as it relates to their total revenues, operating budget, etc. A number of years ago, I worked for a Fortune 500 that regularly invested over one-quarter of their total marketing and sales budget just for print and TV advertising. Perhaps a bit much, but then again, they did have major market share for their brands. Many businesses are hesitant to spend money on advertising unless they have a verifiable return on their investment and it can be proven before they make the expenditure. Of course, this isn’t going to happen. Advertising is part of doing business.

Salon marketing advertising

15-20%. The standard for a salon is the same for any business that wants to grow.

Veterinary marketing advertising

We used to spend about 3 or 4% of GI but are down to about 1%. Most of this decrease is due to our decreased use of the yellow pages. We find that most people find us on the internet so we try to focus our effort there. The amount spent is not as important as how much bang you get for your buck.

Veterinary advertising marketing

I am spending more on yellow pages than I should, but was compelled to use the tracking system with money refunded if certain numbers are not met. So far the numbers are not close to being met. We are paying for enhanced web placement that has been in place for several month. I have not yet been able to evaluate the effectiveness and cost benefit of the current web-search plan. We also have an active face book page where we post videos from my TV programs that we do twice a month. We are also posting videos of our dermatologist and will be producing You Tube videos of her.
For many years our registration form asked the client ” how did you learn of us” and they seem to be in the following order: Out front sign, Individual referrals and Media appearance.

Veterinary advertising marketing

I believe the best marketing is the dollars you spend on existing clients. Our practices track where our new clients come from and discover 85-90% come from referrals from our existing clients. I advise practices to reduce dollars spent on Yellow Pages and to create a great website that is interactive and interesting. I like email newsletters and reminders. I agree that tracking the results is more important than the dollars spent. The Well Managed Practice report for 2009 states .9% and AAHA 1.1%.

Veterinary marketing advertising

We have found yellow pages to be ineffective as well. In our market there are now two major players in yellow pages (book) advertising. Each one also has several smaller books. They have fragmented the market and are falling behind on technology so that this method of marketing is now obsolete in our profession.

Veterinary practice

I don’t think the cost of advertising is the point. How much are you getting in return? You have to make sure that every dollar you spend on marketing is tractable and if it isn’t I wouldn’t spend the money. This is the only way to know what works and what to continue with. Your staff has to be tuned into this also to monitor your methods of marketing. We do a lot of marketing with Face Book, Twitter and email and the nice part of that is it is free but it still needs to be tract. Yellow pages is of no value anymore and any client that says they found you in the yellow pages probably didn’t if you question them further. How many people still have a yellow pages in their house? We had a full page and spent a fortune and went to one line and our business has grown the last 3 years since we did this.

Veterinary practice marketing

It depends on the maturity of the practice. Newer practices should spend more as a percent of income and mature practices should spend less. I’ve seen anywhere from 1%-5% of gross mentioned.

Veterinary practice advertising

Though everyone will tell you do not spend a lot of money on the yellow pages that seems to be our biggest one for many, many years. We have tried asking “do you know some one who comes here” to determine if the Yellow Pages was just a venue to find the number and that seems to be increasing the personal referral number and lowering the YP some but Yellow Page is still our biggest. I think some has to do with our owner loves the Yellow pages and spends several hundred dollars per month in 2 books and so our ad is large and stands out.

Veterinary practice advertising

Appropriate or average? I always tell people that having a cap on marketing expenses doesn’t make sense if it’s working. That is, if you spend $1 and get $1.25 in return, why would you stop spending that $1? But this also demand a close to causal relationship to be established.

If you’re looking to know what veterinary hospitals typically spend, it varies but most benchmarks I’ve seen place it somewhere between 3-5% of revenue.