How Much Do You Need to Spend on Advertising in Healthcare?

The budget for advertising in healthcare often varies significantly across different practices and is influenced by numerous factors such as location, specialty, and market competition. If you want to have an effective advertising strategy, it will not just require investments but also a clear understanding of these factors to ensure optimal allocation of resources. This article delves into strategic budgeting approaches, aiming to guide healthcare providers on how to set and adjust their advertising expenditures for maximum impact and efficiency.

What Is Cost Per Patient and Why Does It Matter?

Before we delve into the number game, it is essential to understand what Cost Per Patient (CPA) is in healthcare marketing, and why it matters.

Cost Per Patient (CPA), also referred to as Cost Per Acquisition in healthcare, represents the average amount spent to attract and onboard a new patient. This figure includes various expenses related to marketing, patient intake, and initial care provision. You should have a solid understanding of this metric for several reasons.

Firstly, CPA plays a vital role in maintaining the financial sustainability of your practice. When you know your CPA, you can ensure that the cost of acquiring a new patient is balanced against the revenue generated from that patient. Ideally, your CPA should be lower than the income you earn from the patient's treatments and services. This balance is essential to avoid financial losses and to support the long-term viability of your practice.

Secondly, CPA provides valuable insights for budget allocation. When you have an understanding of your CPA, you can make informed decisions about where to allocate your marketing budget. For example, if your digital marketing campaigns have a lower CPA compared to traditional methods, you can focus more resources on digital efforts. The main goal of this approach is to make sure that your marketing dollars are spent efficiently, which can lead to more effective patient acquisition.

Apart from this, tracking CPA also allows you to see how well your marketing efforts are doing. You can use this information to identify which marketing efforts are most cost-effective, which channels bring in the biggest ROI, and then discontinue less efficient ones. 

Lastly, knowing your CPA can give you a competitive advantage. If you manage to acquire patients at a lower cost than your competitors, you have the option to reinvest savings into your practice. This means providing better services and patient care, which can lead to increased market share and stronger brand loyalty. 

How Much Should You Spend on Marketing to Acquire a Patient?

To find out how much to spend on marketing to acquire a patient requires you to consider several factors, including your practice's goals, competition, and financial health. Surveys have revealed that on average, most healthcare practices (62%) allocate 1%-5% of their gross revenue to marketing budgets. This range varies depending on whether the goal is to maintain current patient numbers, grow steadily, or expand aggressively​.

Understanding Your Marketing Budget

Setting a marketing budget starts with understanding your current financial status and growth objectives. If you're looking to maintain your current patient volume, spending around 3% to 5% of your gross revenue on marketing is typically sufficient. For steady growth, consider increasing this to 8% to 10%. For aggressive expansion, allocating 10% to 14% of your revenue may be necessary​​. (source for reference: EHM)

The type of marketing strategies you use also affects your budget. Traditional marketing methods, such as print ads and billboards, might require a different budget allocation compared to digital marketing strategies like search engine optimization (SEO), pay-per-click (PPC) advertising, and social media marketing. 

Factors That Influence Marketing Costs

There are several factors that influence how much you should spend on marketing:

• Competitive Landscape: If you have a highly competitive market, you might need to invest more in marketing to stand out. Practices in areas with many competitors will require more robust marketing efforts to attract patients​.

• Nature of Your Practice: The type of services you offer and your specialty also play a role. For instance, cosmetic practices or medical spas, which often rely heavily on patient acquisition through marketing, might have higher marketing costs compared to general practitioners​.

• Patient Lifetime Value (LTV): You must also have the understanding of the average revenue a patient brings over their lifetime (more on this below). If a new patient is expected to generate significant revenue through repeat visits and referrals, you can justify a higher CPA. Conversely, if patients typically visit only once or twice, your marketing spend per patient should be lower​​.

Practical Steps to Set Your Budget

To set a practical and effective marketing budget, start by defining your goals clearly. You can use the SMART criteria (Specific, Measurable, Achievable, Relevant, Time-bound) to set realistic and targeted marketing goals. This helps in ensuring that your marketing efforts align with your practice’s broader objectives​​.

Next, analyze your current marketing efforts and their results. Track how patients find your practice and assess which marketing channels are most effective. For example, if digital ads on Google bring in more patients than other marketing forms, you might want to allocate more budget to it​.

Here, you can also consider consulting with marketing for more insights. Professionals experienced in healthcare marketing can help you determine the most effective strategies and allocate your budget efficiently. They can also assist in monitoring and adjusting your marketing efforts to ensure optimal results​​.

How Do You Calculate Return on Investment (ROI)? 

A good way to understand the effectiveness of your campaigns and making informed decisions about future investments is by calculating the Return on Investment (ROI) for your healthcare marketing. 

At its core, ROI is a measure of the profitability of your marketing efforts. The formula to calculate ROI is simple:

ROI = (Net Profit / Cost of Investment) × 100

For example, if your marketing campaign costs $5,000 and generates $25,000 in revenue, your net profit is $20,000. Using the formula, your ROI would be 400%.

This means that for every dollar spent on the campaign, you gained four dollars in return, indicating a highly effective campaign​​.

Assigning Value to Leads and Revenue

To calculate ROI accurately, you need to assign a monetary value to each lead generated by your marketing efforts. This can be based on the average revenue per patient or the lifetime value (LTV) of a patient. For instance, if a new patient brings in an average revenue of $500, you can use this figure to estimate the revenue generated from your campaigns​​.

Tracking the number of new patients acquired through specific marketing efforts is also crucial. You can do this by multiplying the number of new patients by the average revenue per patient, to calculate the total revenue generated by your campaigns​.

Incorporating Patient Acquisition Cost (PAC)

PAC is calculated by dividing your total marketing expenses by the number of new patients acquired. For example, if you spend $10,000 on marketing in a quarter and acquire 100 new patients, your PAC would be $100 per patient​​.

A lower PAC generally indicates a higher ROI, suggesting more efficient use of your marketing budget. Monitoring PAC over consistent time frames, such as monthly or quarterly, helps you track the performance of your marketing strategy accurately​ (AHRQ)​.

Calculating Lifetime Value (LTV)

As we discussed above, the Patient Lifetime Value (LTV) is another critical metric that impacts your ROI. LTV represents the total revenue you can expect from a patient over the duration of their relationship with your practice. To calculate LTV, you need to know the average value of an appointment, the number of appointments per year, and the number of years a patient typically stays with your practice.

For example, if the average appointment value is $200, with each patient visiting three times a year for five years, the LTV would be:

LTV = 200 × 3 × 5 = 3,000

This means that the average patient contributes $3,000 to your practice over their lifetime. A higher LTV indicates that your patient base is more valuable, which can help you justify higher marketing expenditures to acquire and retain these patients​.

Real-Time Tracking and Adjustments

There are multiple online tools that can help you measure your ROI in real time. This real-time tracking allows you to adjust your marketing strategies quickly to focus on the most effective channels and tactics​​.

We recommend regularly reviewing and analyzing your ROI data to be able to identify trends, make necessary adjustments, and continuously improve your marketing efforts.