How to Develop your Marketing Budget
In part one of this series, we spoke about creating a marketing system and the 4 basic principles, which make up this system. Now that you understand that there?s a step-by-step logic involved, we?re going to help you identify the next steps and make it applicable to your practice situation.
The first step is to analyse your practice, similarly to how you would diagnose/treat a patient. This is your SWOT analysis: ? Look at your Strengths and Weaknesses (internal) and your Opportunities and Threats (external).
The next step is to set SMART (Specific, Measurable, Achievable, Realistic, Time) goals for the next 12 months, after all a marketing plan is designed as a one-year process.
How to Set SMART Goals:
Most practices fail to thrive because they?ve never really established clear specific SMART goals. In an effective marketing plan, particularly when you begin to shape your marketing system, you?ll need to evaluate both short- and long-term goals.
Most marketing goals are not planned further than 1 year out as the market is continually changing and you?ll need to make sure you have the flexibility to change with the changing needs of your target market. This also means that you can keep your goals specific and measurable.
However, you will still need to consider your long-term goals as you intend to apply and use your marketing system for years to come.
Once you?ve identified your business baseline and your goals, you can assign a budget to successfully go after those goals.
Defining your Budget
If you?re going to do strategic marketing that?s going to give you the best return on investment, you should predetermine a budget that?s appropriate to the level and specific type of goals that you?ve established in your Marketing Plan.
There are many different ways to establish your marketing budget:
Objective and Task Budget
This is the most purely effective way of establishing your budget. You don?t just pull a dollar amount out of the air to invest in your marketing ? you define your goals!
During the marketing planning process, define the types of strategies and tasks that would be necessary in order to achieve your goals. Then look at the associated budget costs that might be incurred implementing those kinds of concepts.
When you tally up the total costs needed to support the strategies to reach your goal, you have your marketing budget.
In theory this is a great approach, but in reality, when you add up the costs, the number is often greater than you had in mind. If this happens, you can always go back and readjust some of your goals to be less aggressive and more realistic, so that the budget necessary to support those modified goals fits with what you can afford.
If you have access to good information regarding Return on Investment (ROI) performance of different strategies in similar situations, then you can approach what we call an ROI based budget.
Start by establishing financial goals that you would like to achieve. Determine a reasonable return on investment ratio and work backwards to get your budget.
E.g. To achieve a growth goal over a year of $300, 000 of incremental revenue, and you have the data that supports a reasonable expectation of 4:1 ROI of your budget to achieve that goal. Then you would take the goal of 300, 000/4 and come up with a budget i.e. $75, 000.
The big question is how do you find good trackable data on performance? This can be difficult unless you?re working with a company that has a pretty long track record in healthcare marketing and they may be able to give you that kind of perspective.
As a general rule of thumb, in your 1st year of a marketing plan, your average ROI should not be higher than 5:1 maybe 4:1 is more realistic.
Many businesses outside of healthcare use a percentage method of budgeting. They identify a percentage of revenue that they will assign to their marketing budget. Be aware as this approach has its pros and cons. You will know how much budget you can invest, but the downside is that it?s an arbitrary number that may not align with your goals.
Many financial advisors will suggest a percentage, but whether it?s enough for you to use in achieving your goals is yet to be seen. If you look at all healthcare practices and estimate an average budget assigned to marketing and factor a percentage of revenue per year, you?ll get between 2.5-3%. To some, this may seem like a high percentage of revenue to devote to marketing, to others it may be low.
If you look at practices actively marketing and actively generating revenue from their marketing efforts, the percentage is usually 5% or higher. It all depends on the market place you?re in. And as much as we know you hate to hear it, there is no right or wrong answer. You just need to make sure that whatever method you choose supports your goals.
Zero Based Budget
Many practices use a pre-assigned budget for the year and each time a specific expense comes up they reassess whether they will spend that amount of money as originally planned on a specific activity or put it towards something better. For more established practices it can work, but for smaller practices it can be used as an excuse to cop out.
Opportunistic Budget Method
No plan, no budget and as opportunities arise, you spontaneously decide whether or not to support that effort and put money towards it.
All You Can Afford Approach
With this method, you?d like to do more, but you can?t afford it, so you pick and choose the activities that you can afford and hope for the best. In this case you either need to go back and re-evaluate your goals, or you need to consider the difference of looking at marketing as a revenue centre versus a cost centre.
Regardless of how you approach your budget, you need to remember that marketing is a revenue centre and not a cost centre. This is an important concept, most of the time, running a business focuses on running a cost centre. In a cost centre, you increase profitability by keeping costs down as long as it doesn?t compromise the quality of your care.
In a revenue centre the process works in reverse ? since it drives money into your practice it needs fuel. If you try to apply a cost centre rationale to your revenue centre, all you?re doing is cutting off your oxygen and you?re left wondering why it?s hard to breath.
Marketing is a revenue centre, its purpose is to drive revenue into your business and your marketing budget needs to be supported to the level of your goals.
Also keep in mind that marketing is tax deductible, so you can generously donate those same dollars to your government as non-recoverable taxes or invest in your business and its future success, the choice is yours.
If this all seems too confusing and you?re not sure which method applies to you, feel free to contact us and we will help you review your goals with you and help determine the best budget approach for your circumstances.