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Riddle: What do you call a practice that spends one-half of one percent of its annual revenues on marketing the group?
If there is only tepid support for a more robust marketing effort at your practice, you are in the majority. According to the recent Englewood, CO-based Medical Group Management Association’s 1996 Cost Survey, the average multispecialty practice spent 0.56% of its medical revenues on marketing and promotional expenses.
Among single specialty practices, only ophthalmology and otolaryngology groups exceeded the multispecialty mark. Ophthalmology practices spent 1.33% of their revenues on marketing, while otolaryngology practices spent 1.04% of revenues on average.
Those figures are lower than might be expected because they represent a broad range of practices from throughout the country, says Keith Borglum, president of Professional Management and Marketing, a Santa Rosa, CA-based consulting firm.
"If you are in a town like Peoria, maybe you can barely keep up with patient demand and you are booked three months out. In that instance, you aren’t going spend a nickel on marketing," Borglum says.
However, evidence is mounting which suggests physicians’ marketing expenditures are about to spike upward. The marketing and advertising expenses of hospitals have soared in recent years. Marketing outlays for certain physician specialties, particularly ophthalmology, already have skyrocketed in the most competitive markets, says Borglum.
In markets where managed care penetration is high, physicians in many specialties find themselves spending much more money on marketing than they have in the past. "As managed care takes over, these doctors have less and less business," Borglum says.
Some spend money trying to market themselves to the managed care organizations. Others try to provide more elective care than in the past and quickly learn that trying to crack a new market requires a significant advertising outlay. Some physicians in the competitive northern California market are budgeting 10% or more of their annual revenues for marketing, Borglum says.
"As competition picks up, I think you are going to find more practices start to advertise," says Neil Baum, MD, a urologist in New Orleans. "That’s a trend for the near future. You are going to see advertising budgets pick up."
New Orleans has become a more competitive market of late. Baum estimates that his competitors spend 3% to 5% of their revenues on various forms of marketing. Baum’s practice will spend between 5% and 7% of its revenues on marketing this year.
Part of Baum’s expenditure goes toward marketing to managed care organizations the urology network in which he participates. The network hired a marketer and each practice in the network contributes to the marketer’s compensation.
Practice-specific marketing costs include print advertising and preparation of a practice brochure.
How much should a practice plan to spend on marketing? The answer of course depends on competitive forces. If a practice anticipates that its market is about to become much more competitive, it may have to increase it’s marketing expense significantly.
"My general recommendation is that it takes 3% to 5% to maintain a level of business in a competitive environment. It takes 5% to 7% to grow a practice and at least 7% to 10% to enter a new market," says Borglum. "I tell my clients to budget 3% to 5% of their projected mature revenues and start spending it now."