Are you spending your marketing budget wisely?
A promotional strategy should align with practice goals, which may include business and revenue growth.
Marketing used to be easier in veterinary medicine; many practices relied mostly on ads in the Yellow Pages and maybe a few other programs such as local advertising or community events. With the advent of the internet, marketing options have mushroomed. Practices have many more options, and most now focus primarily on digital marketing.
More options—and their related costs—means a part of the marketing plan must include tracking the success of each component. For most practices, the primary goal of marketing is to bring in new clients. Therefore, the management team needs to know where new clients are coming from, the customer acquisition cost (CAC), and which programs produce the best types of clients. For many owners and managers, it is not completely clear how to do this, particularly with digital marketing, which can generate a lot of responses (clicks, likes, and shares) but may not actually bring in new clients.
One of the first questions managers often ask is: How much should I spend on marketing? The budget should include digital efforts, such as the practice’s website and social media platforms, as well as more traditional nondigital advertising, community activities, or sponsorship of local groups. The answer, of course, is “the amount it takes to accomplish the goals set by the practice in its business plan or via strategic planning.”
These goals often have to do with the number of new clients desired, but they also may include revenue and growth targets and the sought-after level of profitability. Although the above answer is true, it doesn’t provide specific guidance to help practices make decisions about their marketing spending.
It is impossible to talk about business topics these days without bringing up the COVID-19 pandemic. Many practices are swamped right now, and the idea of trying to attract more clients is horrifying to them. If your practice is one of those that is too busy, marketing programs aimed at bringing in more clients may be a less critical area to focus on right now. However, the increased growth provided by the pandemic will not last forever, and practices will need to focus on new client marketing again in the future. Another marketing goal often involves client retention, which remains as important as ever.
Let’s start with how much of their budget practices are spending on marketing as a percentage of gross revenue: 0.5% to 1.0%.1,2
These figures are typically for mature, stable practices; startup practices or those focusing on significant growth are likely spending more. The above percentages only include direct costs for outside marketing services. If practice team members spend time keeping Facebook posts up-to-date or doing other promotional tasks, those costs would be included in staff compensation. Most importantly, just because this is how much practices spend on marketing activities does not mean it is the right amount or that the money is spent on the right activities. However, if your spending is significantly different than most practices, at a minimum that’s telling you it’s time to investigate your spending and see if it makes sense. Recommendations in articles or made during continuing-education programs are often much higher, but, again, they may not be right for your practice. No single spending level fits all.
The next step is to ask your new clients how they found you. The focus should be on what worked to get them in the door, not just what worked in engaging their interest digitally. Asking clients how they heard about you should be a question on your new client worksheet, followed with a list of your marketing initiatives to help clients answer properly. That list should include all your formal marketing programs (Facebook ads, Google search results, newsletter, etc) as well as things such as “recommended by a friend or colleague” or “noticed the practice when I drove by.” If the clients don’t fill this out when they complete the new client worksheet, the front desk team should be trained to ask for the information. Remember that it is the management team’s job to make sure the front desk staff have the time to do this with every client. The data then must be collected and reviewed regularly. The data may not be perfect. For example, clients may have driven by, looked up the practice online, and then received a recommendation from a work colleague before making the decision to come to your practice. However, it does give you a decent idea of what is working and what is not.
There are also a lot of data that can be collected from your digital efforts, such as how many individuals:
- downloaded something
- clicked a button
- followed a link
- shared something
- liked something
The downside of analyzing digital data, however, is that just because hundreds have viewed your Facebook page, it doesn’t mean they plan to visit the practice. What if 99% of those page visitors live 1000 miles away? Analyzing the meaning of these data can be very difficult. Make sure your marketing service provider can help you collect the right data and knows how to interpret it. How many have actually become clients?
Ideally, you’d also like to compare the cost of acquisition between various programs, whether you are using a digital campaign or a more traditional marketing program. For example, let’s say you participated in a community pet fair and handed out flyers offering a free exam for new clients. There was no rental cost for the booth and you already had the things you brought to decorate it. Printing the flyers was $100, and you incurred $200 in staff compensation costs for the team members who manned the booth that day. Over the next 2 months, 14 new clients visited the practice, received their complimentary exam, and spent $25 to $150 each.
What was the customer acquisition cost?
Total cost of marketing program = $100 + $200 = $21.43 per client
Total new clients: 14
We don’t include the lost cost of the exam in this calculation because the practice doesn’t actually pay out any cash for those exams; it simply doesn’t bring in the exam revenue. The only exception to this might be if you have doctors on production pay and you give them some amount when they see these free exams. Some practices do and some don’t. If you do, you can include that cost in the calculation.
Is this a reasonable CAC? We don’t have good benchmarks for CAC in veterinary medicine. The numbers quoted in business articles in other industries are all over the board and not really applicable to our field. The best way to make this determination is to compare the CAC of your practice’s various marketing activities, taking into account the number of clients generated by the program and the estimated lifetime value of the client. You may have a program where the CAC is $5 per client, but if you only get 2 clients from it in a year, is that worth your time and effort compared with another program where the CAC is $50 per client but it generates 150 clients?
Determining whether the practice is spending the right amount of money on the right activities has both subjective and objective components, and although the analysis may not be perfect, it will give you information you need to make better marketing decisions. Remember that retaining clients is generally more beneficial than bringing in new ones, so if your practice isn’t doing a good job of that, focus first on figuring out why and fixing those problems.
Karen E. Felsted, DVM, MS, CPA, CVPM, CVA, is the founder and president of PantheraT, a veterinary management consulting firm.
- 2019 Well-Managed Practice Benchmarks Study. WTA Consultants. August 16, 2019. Accessed November 14, 2021. https://wellmp.com/2019-well-managed-practice-benchmarks-study-wmpb-provides-insights-to-the-top-veterinary-practices-in-the-country/
- Financial and Productivity Pulsepoints, Tenth Edition. American Animal Hospital Association. 2019. Accessed November 14, 2021. https://ams.aaha.org/eweb/DynamicPage.aspx?site=store&Action=Add&ObjectKeyFrom=1A83491A-9853-4C87-86A4-F7D95601C2E2&WebCode=ProdDetailAdd&DoNotSave=yes&ParentObject=CentralizedOrderEntry&ParentDataObject=Invoice%20Detail&ivd_formkey=69202792-63d7-4ba2-bf4e-a0da41270555&ivd_cst_key=&ivd_cst_ship_key=&ivd_prc_prd_key=dcd2a161-f778-498b-a097-3d107e993fe2