Developing Your Practice’s Marketing Budget

The key is to be realistic and consistent.

By Michelle Collie, PT, DPT, MS, OCS

Every physical therapy practice is different. Business goals, the type and size of practice, targeted demographics, culture, environment, maturity, and reputation result in the inability to come up with a one-size-fits-all marketing plan to meet the needs of all private physical therapy practices. Because of this, there is no perfect formula to determine the precise amount to budget and spend on marketing. Whether your business goal is to increase profitability, create more free time for yourself, be a leader in your community, or grow your practice, establishing a marketing budget is an important process to ensure fiscal success.

Three common ways to establish a marketing budget include: (1) How much did I spend last year; (2) how much do I want to spend; or (3) calculating the budget on the percent of sales. Of course, the most objective way to establish a marketing budget is based on the percent of sales or, alternatively stated, the marketing cost per new patient. Any budgeting process begins with an environmental scan to assess inside and outside factors affecting your business; for example, reviewing trends in health care reimbursement and the formation of different payment methodologies, consolidation of health care providers, accountable care organizations (ACOs) and bundled payments, competition from other physical therapy practices, and brand awareness in the community of your practice. An internal scan will, among other things, assess the stability, experience, and reputation of your clinical and administrative staff; loyalty and word-of-mouth referrals; and your clinic size and layout. The actual budget begins with the revenue. The environmental scan will assist with establishing a volume forecast; the number of new patients multiplied by the average number of visits per new patient. Total revenue can be estimated knowing the volume forecast and the estimated payment per visit.

The marketing budget is established based on the marketing cost for each new patient. The environmental scan, historical trends, and the maturity of a clinic will guide this expense. Scott Wick, director of marketing at Therapeutic Associates, describes in Marketing 101: Module 2, Marketing, Planning and Budgeting the phases of a practice and the estimated associated marketing cost per new patient. Wick suggests that for the established practice the marketing cost per new patient is around $8, whereas a practice in its first three years of business, its growth phase, the cost per new patient will be closer to $21. This is in line with the Chief Marketing Officer (CMO) Council, a professional organization for chief marketing officers, which reports that in order to execute an effective marketing plan a business should be spending at least between 1 percent and 10 percent of sales revenue on marketing.¹

Allocation of the marketing budget can be done by considering the three types of new patients: (1) professional referrals, patients referred by physicians and other professionals; (2) internal referrals, essentially patients from word of mouth, other patients, and employees; and (3) direct access, or patients resulting from consumer marketing. Examples of marketing expenses include costs incurred from direct marketing to referral sources, website and social media campaigns, advertising, event sponsorship, print media, branding giveaways, and salaries of marketing staff. Allocate your budget based on the types of new patients desired. Additionally, when developing a budget consider not only money, but also time and energy. Frequent analysis of what worked and what did not and measurement of return on investment will allow for adjustments in resource allocation and determination of the most cost-effective marketing strategies for your practice’s success. This will ultimately drive the marketing expense down per new patient to allow you to reach your business goals.

Taking the time to establish a marketing plan and a realistic budget will allow for consistency in the number of desired new patients coming to your practice and prevent the stressful peaks and valleys so often seen in private physical therapy practices.

References

1. smallbusiness.chron.com/recommended-percentage-sales-marketing-budget-25023.html. Accessed December 2016.

Michelle Collie, PT, DPT, MS, OCS, is the chair of the PPS PR and Marketing Committee and chief executive officer of Performance Physical Therapy in Rhode Island. She can be reached at mcollie@performanceptri.com.