A lot of small business owners approach their marketing efforts with a great deal of hesitation. Their biggest concerns? Time and money. You may have some brilliant marketing ideas—and hopefully, a marketing plan—for your PT, OT, or SLP private practice, but it’s hard to bring them to fruition when you’re unsure about means and resources. That’s where a budget—at least for the monetary portion—comes in. And I’m not talking about plucking a number out of thin air—even though, according to HealthcareSuccess.com, “that’s precisely what about 80% of private practitioners and small business owners do.” To make your marketing dreams a successful reality, you must craft a detailed budget that’s appropriate for your practice and its goals. Here’s how:
1.) Organize your finances.
In order to properly budget, well, anything, you must first understand where you’re at financially. As Dave Lavinsky explains in this Forbes article, “You need to know how much money your company makes on a monthly basis and the variations that might exist. Although income can vary significantly throughout the year, you must organize the information based on reliable revenue,” or the minimum amount your practices makes monthly. Then, subtract expenses.
2.) Look at the big picture.
Marketing is just one piece of the pie, and when you’re running a business, you can’t be singularly focused. So, examine all aspects of your business as well as your goals to determine how you should divvy up your budget. Where does your money need to go to achieve the desired result? For example, if your primary goal is attracting new direct access patients, then you know your marketing budget takes precedence over other items, such as acquiring new equipment or hiring a second front office employee. As you’re considering how to divide your funds, do so in terms of percentages or order of importance rather than specific dollar amounts. Actual calculations will come later.
3.) Determine where you’ll spend your marketing dollars.
This where that aforementioned marketing plan comes in handy. Figure out which marketing initiatives deserve your dollars. Again, think in percentages and priorities.
Traditionally, businesses allocate a percentage of revenue—whether that’s actual or gross—to their marketing budget. Looking around online, you’ll see percentages ranging from two to twelve. But as Caron Beesley explains in an article on SBA.gov, “...the allocation actually depends on several factors: the industry you’re in, the size of your business, and its growth stage.” However, HealthcareSuccess.com challenges that notion, suggesting that private practices should calculate budgets based on objectives. Let’s examine both routes.
Route #1: Percentage of Revenue
“As a general rule, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing. This budget should be split between 1) brand development costs (which includes all the channels you use to promote your brand such as your website, blogs, sales collateral, etc.), and 2) the costs of promoting your business (campaigns, advertising, events, etc.),” Beesley said on SBA.gov. On MedicalExecutivePost.com, John Deutsch takes that advice and tweaks it for private practice healthcare. He recommends starting with 5% and then adding or subtracting percentages as follows:
- Subtract 2% if “you receive the majority of your patients through physician referrals.”
- Add 2% if “you have any high-profit or cash-pay products/services.”
- Add 5% if you have “recently introduced new high-profit products/services such as aesthetics, concierge, diagnostics, or nutraceuticals.”
- Add 1% if you are “located in or near a major metropolitan area.”
- Add 2% if you are “losing market share to another business in your area.”
- If your current efforts are working (i.e., producing a positive ROI), consider ramping up your marketing spending to further augment your ROI.
To see Deutsch’s logic for these calculations, check out his full post here.
Route #2: Objective
According to HeathcareSuccess.com, determining budgets based on percentages is paradoxical: “How much I spend depends on how much I make… which depends on how much I spend… which depends on how much I make.” So they recommend calculating your marketing budget based on objectives. Here is what that looks like:
- Determine your conservative 12-month collection trend, or predicted revenue. This makes the assumption of no additional marketing—and really, nothing new at all. “Remember,” the author advises, “This number should be conservative, and only collections will count.”
- Establish a collections goal, “taking into account your capacity, willingness to add capacity if necessary, your lifestyle goals, etc.”
- Subtract your trend from your goal. The result will be your incremental collections goal. “Remember, this number will be ‘real growth,’ which is harder to achieve than the ‘natural growth’ you have been experiencing until now.”
- Determine a goal return on investment (ROI) factor for your marketing efforts. For example, if you would like to return $5 of revenue for every $1 you spend on marketing, your ROI factor would be 5. When determining this number, be sure to consider your “relative level of competition, [your] profession and specialty, whether or not professional referrals are possible, media costs if applicable, [your] marketing experience, the size of the practice, the number of practitioners and [your] social skills…”
- Divide the incremental collections goal by the goal ROI factor. The result will be your marketing dollars. Add this amount to whatever amount you already contribute to marketing within a year. This is your total marketing budget.
- Divide your total marketing budget by 12, and you’ve got your average monthly budget.
- Gut check the figure. Too high? Too low? If either is true, reassess the budget by increasing or decreasing goals.
To see an example, check out the full post here.
No matter how you choose to calculate your marketing budget, it’s important that you’re always comfortable with the facts and figures. You never want to produce, let alone act on, a budget you’re uncomfortable with. Your efforts would be doomed from the start. Try both calculations and see how the numbers compare. Perhaps a happy medium lies somewhere in the middle.
5.) Plug in the numbers.
Once you have your marketing budget, subtract it from your overall clinic budget. Then, based on your priorities and percentages, divvy up your money for your clinic as a whole and then within your actual marketing plan.
We’ve tackled how to create a marketing budget, so we have the money part of the equation all sorted. Now there’s that pesky time. Thankfully, your marketing plan can help you allot time to each marketing initiative, too. You could also budget time using a method similar to the one you followed for the money calculations above. How much total time does your practice have and what percentages can you and your staff allocate to each aspect of the business? This can help you determine whether you need some additional manpower to tackle your marketing efforts, which is just one more thing you’d factor into your budget.
Does your practice have a marketing budget? How did you calculate your figures? What questions do you have about budgeting for time and money when it comes to your marketing efforts?