Marketing ROI: 5 Simple Steps to Evaluate Your Ad Campaigns

How much money do you spend on advertising for your practice?

Is it worth it?

How can you know for sure?

In this post, I’m going to show you how to measure the ROI of your ad campaigns in five simple steps.

Let’s get started. 

Step 1: Create A Marketing Budget

A budget helps you maintain accountability for reaching your financial goals. Without a budget, it’s impossible to know if you’ve overspent on a particular expense.

Advertising is no different than any other overhead business expense.

The amount of money you allocate each month towards ad campaigns will depend on your cash flow, market, and business goals.

Cash Flow

You can’t have an advertising budget if your cash flow can’t support it. There are more important overhead expenses such as payroll, rent, and clinical supplies that supersede the need for Facebook ads.

It’s important that you have a conversation with your accountant about the financial health of your practice before you spend money you may not have on marketing.

The recent economic impact of COVID-19 has highlighted the importance of a well managed expense budget. So before you increase your overhead, make sure that you can afford to do so.

Market Considerations

Assuming that you have the cash to spend, the next thing to consider is your market – specifically the degree of local competition.

Consider for a moment why a company like Coca-Cola advertises as much as they do. TV commercials, sponsorships, billboards, you name it – the Coke brand is everywhere. Why? Because they compete in a saturated market among many alternatives. If I’m thirsty, I might buy a Coke product, but I could just as easily buy Pepsi, Red Bull, Lipton tea, or Aquafina.

Likewise, a dental practice in a densely populated and competitive city might benefit from spending more money on advertising than a practice in Monowi Nebraska.

Business Goals

Lastly, your advertising budget should align with your overall business goals for the practice. 

Are you a relatively new practice that needs to grow and establish a patient base? Or are you a mature practice that is well known in the community and receives a lot of foot traffic from word-of-mouth? 

Each practice has different growth opportunities, and each provider has different career expectations. Some people are eager to open up a second location. Others are content working three days a week. 

The important thing is that you’re spending money on marketing activities that are aligned with the direction you want for the business.

Getting Started on Your First Budget

When developing your first advertising budget, it may be helpful to look at what other people are doing. 

As a member of the National Society of Certified Healthcare Consultants, I get access to healthcare practice statistics from across the country. 

Here are the averages that I gathered for advertising expenses (taken as a percentage of receipts).

Specialty Type	Marketing Expense (% of Annual Receipts)
General	0.5 – 1.5%
Dental	1.5 – 2.0%
Surgical/Cosmetic	2.5 – 5.0%

If you already have a marketing budget – how do your numbers compare?

As we already noted, every practice’s budget will depend on their unique needs. But these industry benchmarks should give you a good place to start.

Step 2: List Your Marketing Campaigns

Once you have set a budget, it’s time to start tracking where the money is being spent.

The best way to do this is by using a spreadsheet.

Begin by listing all of your campaigns on a spreadsheet in one column. Then record the annual expense of each campaign in the adjacent column.

Don’t forget to list “word-of-mouth” referrals at the top of this list! Word-of-mouth accounts for a large majority of new patient referrals. Another form of less direct marketing is participation in a Preferred Provider Organization (PPO) – if you are obtaining new patients from your participation in the program that’s great. But, look at the discounted fee you are receiving as the “marketing cost” to determine your estimated ROI on participating.

This fact illustrates that marketing your practice goes beyond the dollars you spend on specific ad campaigns. Marketing is everything. It’s the way you answer the phone, greet your patients, and escort them to the exam room. Marketing is the full customer experience.

Additional ad spend is unnecessary if you find out that you can reach your goals for business growth on word-of-mouth alone.

💡 Note: If you are a client of MDManagement Group, you will find a free marketing ROI calculator in your Client Resources membership site here.

Step 3: Calculate Average Revenue Per Patient

Keep in mind that this calculation is going to be an estimate.  

There may be a report in your practice management system that will compute this number for you. 

If not, simply divide your annual collections by the average number of active patients.

For example:

$1,000,000 annual collections / 3,500 active patients = $286 average annual revenue per patient.

Step 4: Track New Patient Referral Sources

You need to develop a process for capturing how new patients are referred to your practice. This is the only way you can quantify the effectiveness of your marketing campaigns. 

Many practice management systems have a referral data field in the patient demographics.

Are you using it?

It’s a good idea to include a question like “How did you first hear about us?” in your new patient paperwork. Then work with your team at the front desk to create a process by which you routinely collect that information and enter it into your PM system.

Once you have the information, run a new patient referral report once a month and add the data to your ad campaign spreadsheet. The goal is to measure the number of referrals you received from each marketing campaign as accurately as possible. 

Your method may not be perfect. You might even have to make a few assumptions. But I would argue that sometimes imperfect data is better than no data at all.

Step 5: Calculate The ROI of Each Campaign

The final step is to calculate the return on investment of each ad campaign.

First calculate the average revenue generated from each referral source. Do this by multiplying the average revenue per patient (Step 3) by the number of new patients (Step 4).

Then divide that number by your cost of the campaign (Step 2) to arrive at ROI.

ROI = (average revenue per patient X new patients) / campaign expense 

For example, let’s say that during the year you spent $3,000 on Facebook ad campaigns and had 70 new patients from that referral source. The revenue generated from your internet campaigns would be $20,020 (70 patients X $286 average patient revenue). And your ROI would be 5.7 (20,020 / 3,000).

Using this simplified ROI calculation, you can quickly get an idea if your marketing campaign is money well spent.

If your ROI for an ad campaign is less than 2, I would suggest you find a different campaign to allocate your budget. 

If the campaign is greater than 2 and less than 5, I would suggest you continue to closely monitor this campaign and re-evaluate the effectiveness.  

And if the campaign produces a rate of return of 5 or greater, then it is a campaign that is working for your practice and I would keep doing it.

ROI	Recommendation
<2	Not cost effective. Reallocate marketing budget.
2-5	Monitor and look for ways to improve.
>5	Good investment. Continue this marketing campaign.

Shortcomings of This Model

The ROI calculation that I described above is very simple. As such, it is influenced by some assumptions that are important to note here.

For one, new patients often hear about a practice from multiple sources before they make their decision to schedule their first appointment. So boiling down the referral source to a single marketing campaign or word-of-mouth is perhaps oversimplifying a more complex reality.

We’re also not considering the lifetime value of a new patient, with all the additional revenue and costs you incur during the time they continue to be an active patient. A more accurate mesasure of ROI might substitute expected profit for each newly acquired patient instead of expected revenue.

These shortcomings notwithstanding, I still believe that this simplified ROI calculation is a worthwhile activity. 

I see far too many doctors and practice managers who don’t have an idea what that money is doing for them.

As we’ve seen in this post, ROI can be tricky to nail down exactly. Nonetheless, it’s important to the financial success of the practice to have some grasp on the effectiveness of your advertising campaigns. 

Next Steps

Would you like help creating a marketing budget for your practice?

Or, not sure if the ROI is worth it?

Give us a call. We’ll work with you to identify your best marketing opportunities.

Then let us know your thoughts at the bottom of this post.