Marketing Budgets: Is Your Approach Strategic? Or Seat-of-the-Pants?

By Gail Schwartz

2018 Alliance Sponsor feature article provided courtesy of Marketing Works

Medical practices don’t make operational changes based on the “crisis of the day,” nor do they develop clinical protocols without careful consideration and research. So why, when it comes to planning a marketing budget (the one budget line item that can grow your practice), should you take a less than strategic approach?

Without systematic planning, you’re likely to make some of the following mistakes that cost you money without delivering the desired results.

  • Seat-of-the-pants, “make-it-up-as-you-go” budgeting. An ad rep calls and offers a practice administrator a “great deal” on billboards, or on space in a regional lifestyle magazine. The deal sounds too good to turn down, but there is no ongoing, strategy-driven campaign. So, you allow the outdoor company or the magazine to create your message so you don’t miss the opportunity. As a stand-alone tactic without a message that supports practice goals, you’ll end up with a one-legged dog that doesn’t run very fast and a message that tries to tell your entire story. What did this one-shot initiative accomplish? Was this money well spent?
  • Underbudgeting. Guess what the most likely outcome is of a wimpy budget? Wimpy (or no) results. Business researchers have known for more than a century that the key to successful marketing is repetition of on-strategy messages to the right audiences at the right time and in the right place. Current research backs up this foundational marketing principle (Schmidt & Eisend, 2015). That means that running a single online campaign after finding out that one of your physicians has a cousin who “does digital marketing,” or sporadically buying billboard placements for a month here and there, is unlikely to deliver results.
  • Viewing a marketing program as “nice to have” rather than must-have. Let’s be frank. If your senior leadership views marketing as an expense that they grudgingly pay for, their fear of spending money on something they’re skeptical about will turn into a self-fulfilling prophecy. When business is good, a consistent marketing effort maintains success, but it’s even more important during growth periods and challenging times. For example, when revenue drops due to competition, marketing is more essential than ever. Viewing your marketing budget as the first place to cut when the practice budget gets tight will undermine your efforts to turn the situation around.

You can avoid these and other costly marketing mistakes by making sure a marketing budget is among the basic components of an overall business strategy built around your goals. This ensures that funds will be available to fuel the activities needed to help you achieve your goals.

But what’s the magic formula for the right marketing budget?

Determining an appropriate marketing budget is a struggle for most physician practices. They may feel even more confused when they realize there isn’t a single, correct answer. It isn’t a matter of ambiguity: it’s a matter of having several intelligent approaches to choose from. Here’s a quick review some of the most common approaches.

  • Percentage of expected (or targeted) sales. The percentage of sales approach has evolved as organizations have accumulated knowledge and experience about how different percentages of marketing investment affect revenue-generation. Viable marketing budgets can range from 1 percent of collected revenue to 10 percent and more, depending on various factors such as how well-established your business is and how ambitious your growth targets are. In healthcare, thought leaders such as John Deutsch have pointed to a typical range of 2–5 percent (Deutsch, 2011). That said, specific circumstances, such as operating in a large metropolitan area with a costly media market, could raise the percentage substantially.
  • Patient acquisition cost (PAC) budgeting. Assessing the cost of acquiring each new patient is another way to formulate a marketing budget. Take the number of new patients you gained last year and divide it into the amount you invested in marketing. The result is your PAC, which you can then use to calculate a marketing budget. Allowing for patient attrition, determine the number of new patients you need to attract in the coming year to meet your revenue budget, then multiply that number by your PAC.
  • Goal-based budgeting. In this approach, you begin with a list of what you want to accomplish, then build out a list of strategies and tactics that will support those goals. The estimated cost of the strategies and tactics is your marketing budget. If the resulting number is beyond what you have available to invest, it may be necessary to consider adjusting the goals based on what you can adequately support through marketing.
  • Sales-support budgeting. If your practice depends primarily on referrals, you may have a team of marketing representatives or physician liaisons. Like any sales team, these professionals are charged with bringing new customers into your pipeline and maximizing the value of existing relationships. In a sales-support approach, a marketing budget is driven by the cost of tools and resources the sales team needs to “meet their numbers,” in terms of revenue or volume. Support for a medical practice marketing team includes (1) identifying new referral sources or opportunities to grow existing relationships, (2) increasing demand by educating referring offices about services and differentiators, and (3) equipping the team with resources ranging from a customer relationship management (CRM) tool to marketing collateral that reinforces sales efforts.

What approach to a marketing budget is best for you?

Ultimately, it comes down to your business situation and even your subjective preferences. There isn’t one right answer, but the above list gives you at least four smart choices. Each may fit the realities of your business in unique ways. Goal-based budgeting has the strength of directly correlating your budget with your goals for the year. Sales-support budgeting is grounded in an assessment of what your team needs to succeed. Budgeting by percentage of expected revenue helps you evaluate your marketing investment in the context of how aggressive your revenue goals are for the year.

As you consider these alternatives, one may well rise to the surface as the best fit. But if the choice still seems perplexing, consider the fresh perspective and clarity that an outside expert can provide, especially one with experience in medical practice marketing that has guided practices away from their “seat-of-the-pants approach” to strategy-fueled success.

Works Cited

About the Author

Gail Schwartz has an extensive background in planning and executing strategic marketing and branding initiatives for entire healthcare organizations and specialty service lines. Her work has been recognized with Aster Awards, Healthcare Advertising Awards, and Quest Awards. Gail can be reached at (717) 852-7171 or gschwartz@marketingworks.net.

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