You’ve probably heard at one time or another that you should budget 3 to 5% of your collections for marketing.

It sounds reasonable, right?

And you probably heard it from your accountant, or your practice management consultant, or some other industry expert.

So, it must be true, right?

It’s not.

In fact, it’s absolutely terrible advice. Here’s why:

Imagine you had a guarantee to receive $5 in return for every $1 you invested. How much would you invest?

Your answer should be….”Every single dollar I have!”

Your answer should NOT be….”3 to 5% of my dollars.”

You see where I’m going with this?

This 3 to 5% guidance (while well-intentioned and based on averages) completely ignores your unique situation and what is the optimal investment decision for you!

Here’s some better guidance: If you’re marketing is generating a positive return on investment ….then keep investing!

Okay, that’s the guidance. But to do this right, you do in fact have to know your return on investment (ROI), and that requires you to track the following for each one of your marketing activities:

  • How many new patients did this activity generate
  • What is the expected lifetime value of a new patient via this activity (see footnote 1 for details)
  • How much money did you spend in total on this activity

From this, you can now calculate your return on investment. It’s simply: Number of new patients * Expected lifetime value per patient – Total costs. (see footnote 2 for details)

Having this information enables you to cross-compare different marketing campaigns and determine what’s working, what’s not, and where you should be investing your future dollars to get the best results!

And now, the next time you hear somebody say dentists should budget 3 to 5% of collections for marketing, you’ll know better, and you can help educate them on how to optimally invest in dental marketing.

“In investing, what is comfortable is rarely profitable.” – Robert Arnott

Footnote 1: Calculating the expected lifetime value of a new patient can be a bit of a tricky exercise. You’ll likely need to use an estimate based on past marketing activities (if you’ve tracked them at that level), or use an average for lifetime patient value across your practice. If you are unable to calculate either, you can always use industry averages as a proxy. Estimates vary widely across the industry from anywhere between $1k up to $40k – very heavily depending upon the unique situations of the practice and who you ask. If you are completely unsure where you sit in this range, I think a very conservative estimate is $5k. If you feel like you’re performing at least on average, or slightly better, than other practices in terms of patient retention and case acceptance, then I’d use something closer to $10k. If you have questions about any of this, don’t hesitate to send me an email. I’m always happy to help!

Footnote 2: A point of caution here. Your ROI is a moving target. It constantly changes. For example, maybe you start bringing in lower lifetime value patients over time, or your marketing cost per patient increases significantly as your advertising saturates the market. So, be sure you are watching these numbers closely for changes to ensure you’re continuously making the best investment decisions.

About Kent Sears

About Kent Sears

Kent provides over 15 years experience in consulting and marketing strategy. His work has spanned the globe, in both public and private sector, with leading companies such as Microsoft and T-Mobile. He brings his corporate experience to help private practice dentists realize their full business potential through more effective marketing strategies to stay competitive in the rapidly changing world of marketing and healthcare.