Patients freaking out over high copays and deductibles? Learn how to handle 'em in our March webinar. Register now.
January is synonymous with resolutions, and now that direct access is a reality in all 50 states, many rehab therapy practices are resolving to better market to consumers. But marketing costs money, and nothing dashes dreams like a budget. As Marketing pioneer John Wanamaker said, “Half the money I spend on advertising is wasted; the trouble is, I don't know which half.” Fortunately, you can avoid that trap and make your 2015 marketing dreams come true. After all, a solid marketing budget should drive growth, with every dollar you spend pushing at least another dollar back into your business.
Here are my three simple steps for creating a smart marketing budget:
1. Define your goals.
First, think about how you want your marketing dollars to benefit your business over the course of 2015. Every good budget should function with the purpose of achieving a specific, measurable, desired outcome—emphasis on specific and measurable.
Why High-Level Goals Don’t Work
Let’s say your goal is to increase the number of new patients seen in your PT clinic this year. That sounds like a good goal, right? Not so fast—this type of goal is too vague. There’s nothing concrete, measurable, or actionable about it, and there’s no clear start or end point. Setting a vague goal is a guaranteed way to waste your hard-earned cash.
Why You Should Set Detailed and Measurable Goals
There’s a better way to set goals. In The 4 Disciplines of Execution, author Franklin Covey proposes a simple but valuable goal-setting format: “from X to Y, by date.” Using this format will help you define daily tasks, establish a trend line to guide reactions, and express goals in an understandable way.
So, let’s reexamine your goal of getting more new patients in your clinic: You had 300 new patients last year, which averages out to 25 new patients per month. In 2015, you want to grow your new patient numbers by 60%. That puts your new patient goal at 480 for the year. So, your smart goal will be to increase the average number of new patients per month from 25 to 40 by December 31, 2015. Now, your clinic can take action and hold itself accountable.
If you set your goals to be quantifiable and actionable—and you impose a defined deadline—your clinic’s success will be clear and measurable.
2. Use key metrics.
Now that you have your goal in place, it’s time to introduce some metrics into the equation. You need to understand exactly how many dollars you’re willing to spend to achieve your goals.
Why You Shouldn’t Skimp on Asking Questions
The right numbers aren’t going to walk up and knock on your clinic’s doors. You’ll need to take the initiative to gather some figures so you can apply metrics to your goal—even if those figures are just estimates. To get down to the dollars and cents, you’ve got to ask the right questions.
Let’s stick with the example goal from the section above; here are some questions to ask yourself:
- How much money does the average new patient bring to my clinic?
- What percentage of that potential new patient revenue am I willing to spend to get that patient through the door?
Every clinic will have its own unique threshold, but the point is to be in the black (i.e., profitable).
Why You Should Know Your Numbers
To come up with a growth formula, you’ll need to define a couple of key metrics:
- What is the lifetime value (LTV) of a patient? The LTV is how much revenue a new patient will generate for your clinic over the course of that patient’s lifetime, or over the course of his or her time as a patient at your clinic. In our research, we’ve found that new patients are generally worth about $1,000 in revenue.
- What are your margins on that $1,000? What percentage of that revenue is profit?
The relationship between these two metrics is extremely powerful. If you know how much each patient is worth—along with the profit you’re able to make—you can shift your marketing tactics to stay in control of your budget.
Let’s try another example: You’re the owner of XYZ clinic, and you have a patient LTV of $1,150. After staffing and overhead expenses, the clinic operates at a profit margin of 12%. That means that you have $138 to work with per patient. Now, you certainly don’t want to spend all of your profit on marketing, but now you have some data you can use to set the next most important metric in your marketing budget—your customer acquisition cost (CAC), which is the total amount of money you’ll spend on sales and marketing to acquire a new patient.
Having control of your CAC will ensure you never spend your marketing dollars on tactics that result in money loss. No matter how you deploy your marketing budget, the numbers will always work if you keep your customer acquisition cost in line. So, find a percentage of per-patient profit that you are comfortable dedicating to CAC and set it. You can always adjust this number, so don’t dwell on getting it correct right out of the gate.
3. Finalize the budget.
You’ve set a measurable goal, and you know the numbers. Now, it’s time to nail down that money-making marketing budget.
Why You Shouldn’t be too Hard on Yourself
It’s inevitable: You have to finalize your budget, which will help you gauge progress toward your clinic’s goal. But after you set that budget, remember to stay flexible. Give yourself the freedom to react and adjust instead of beating yourself up over a few missed opportunities.
Why You Should Calculate Your Success
You’ve worked hard to sort out the numbers to create your marketing budget. The final step in the process is solving a simple math problem.
In the above example, clinic XYZ decided to dedicate 25% of its profit to CAC. That means you’re willing to spend $34.50 to get a new patient. Now you can predict how much money you should spend on a monthly basis to hit your goal of 40 new patients per month. Simply multiply the dollar amount you’re willing to spend by your goal number ($34.50 x 40) to get a growth-focused budget estimate. In clinic XYZ’s case, you have a marketing budget of $1,380 month, or $16,560 year. If LTV remains constant, you’ll spend $1,380 per month to make $46,000 of new patient revenue over the lifetime of the patient. This comes out to $5,520 of net profit—not bad at all. Remember, numbers talk, and it’s important to see your success on paper as it provides further motivation to stay on target.
Depending on your numbers, completing the process we’ve outlined in this blog post should take about an hour. If you don’t have exact data you need, go ahead and estimate. Your budget should function as a set guidelines—not an inflexible doctrine—so it’s totally fine to use estimates to establish your initial budget. Think of budgeting as a continuous process that you’re constantly optimizing. If you set smart goals and pay attention to your metrics, you’ll always know whether your marketing budget is working in your clinic’s favor—not the way around. Happy budgeting!