Determining The Right Dental Marketing Budget
By Wayne Lavery | April 7, 2016
I recently had a conversation with Dr. Mike Abernathy, author of The Super General Dentist. Our discussion revolved around different aspects of marketing processes and tools, and one area we touched on seems to be very subjective in the dental world, and that is, “What should I be spending on marketing?”
This is an interesting topic since the number (usually a percentage of revenue) seems to be universally accepted as 3- 5% of revenue, possibly even lower for an established practice and definitely higher for a practice looking for growth. An accepted level below 5% is unique to dental practices as most small businesses (outside of dentistry) traditionally allocate at least 7-8% of revenue to marketing. The accepted perception in the dental industry that a lower allocation is okay is likely a major reason that over 90% of dental practices are currently in a plateaued- or declining-revenue phase.
Where the “rule of thumb” percentages come under question is when “it all depends” comes into play.
Variables that effect marketing spend can include: start-up phase, years in practice, competitiveness of your market area, location demographics, neighborhood turnover (percentage of new movers), area employers and insurance plans, income levels, and even your practice’s ability to compete through hours of operation, visibility, and insurance plans accepted.
Another important variable is goal setting. What is the vision? Maintenance or growth? Does the business owner want to increase income or do they have personal goals, i.e. achieving and maintaining a certain lifestyle. Are great team members at risk of leaving because the practice isn’t delivering on their income expectations? Have plateaued or declining revenues been accepted because the principal wants to practice 3 days a week instead of 5 with no desire to sell the practice profitably? Or perhaps the practice has reluctantly reduced the days per week because patient demand isn’t sufficient to maintain activity.
When you have the ability to make the budgeting decisions, you can determine the trajectory of your practice revenue and profit.
So 3-5% should actually be 3-20% when real-world practice scenarios are considered. A 17% spread seems pretty broad, so let’s look at both ends of the spectrum:
- 3% marketing spend: This is almost always not enough even for a practice where competition is low, revenue is well over $1M, booking 4 to 6 weeks out, and a new patient can’t be seen for 7 to 10 days.
- 20% marketing spend: A new practice and the percentage should be considered an investment in your future. This may require borrowing or digging into your own pockets.
As a general rule, a marketing budget should never be based on what’s left over or on the smallest amount that you’ve heard another dentist say they’re spending. You simply don’t know the variables that are impacting their practice and whether it’s super profitable or if the dentist is taking home significantly less than you.
Marketing budgets are an investment in practice growth and need to be significant enough to cover a mix of internal and external campaigns. At minimum, a marketing budget should have enough funds to maintain superior patient and prospect communications and prevent lapsing visits and revenue decline. Unfortunately, many dentists are not allocating enough focus, resources, or budget dollars, and are unknowingly influencing others to make the same mistake.
Be wise. Forecast the impact. Know your facts. My team has sophisticated dental marketing profit and trajectory tools that we provide at no charge or obligation to assist you in reviewing your metrics.
For example, do you truly know what will happen to your practice in the next 24 months if you maintain a 3% marketing budget? Have you calculated the impact of increasing that to 7%? You might think you don’t want to increase your monthly allocation, but you might not realize the negative effects of staying static. I’m not saying that a jump to 7% is required, but you need to be sure that what you are allocating to your dental marketing budget today will produce a productive and profitable dental practice tomorrow.
Last year I posted a note about the impact of revenue to profit that you may find interesting: How Marketing Increases Your Margins & Makes Profits Soar.
Don’t wait. If you’re not sure whether your current marketing budget is sufficient to help you achieve your longer-term goals, call your Account Manager and set up a session to run through the profit calculator using your specific metrics.
As I wrap up this article, I can tell my next blog will address planning. Once you’ve established a sufficient budget, you need to know how you are going to spend it. That means having a plan and tracking results.