A Formula for Budget-based Marketing
Not long ago, I sent a memo to a select group of clients informing them that as of January 9, 2009, pharmaceutical representatives would no longer be distributing the so-called dry goods. These are the branded premium items, such as pens and note pads, on which many offices have come to depend. One client recognized the opportunity to be a hero and asked an extremely important question: “How much should we spend?” This particular imaging center has been marketing for years and it was no surprise that its response did not even question whether it should try to fill the gap left by pharmaceutical representatives; that was a given. The budget question, however, was confirmation of the high level of sophistication of its marketing effort. In a profession turned upside down by the DRA, hospital outpatient imaging centers and freestanding imaging centers are increasingly dependent on sales and marketing, not just to maintain scan volume, but to help that volume become more profitable. One of the best ways to maximize the sales-and-marketing effort is to create a written marketing plan. One of the best ways to make that plan effective is to assign it a budget: a dollar amount that closely estimates the total investment to be made over the following 12 months. For 2009, your budgeting process should have begun about 30 days ago, but if you haven’t started, don’t worry. You still have time. There are still many imaging decision makers who view sales and marketing as necessary evils. Some don’t even see the necessity and look at them as just plain evil. For those who have embraced the concept and established a sales-and-marketing process, however, life is much simpler. Those people understand that planning ahead helps everyone in the organization get behind a strategy for growth and protection that will improve efficiency; improve morale; and help create a unique, defining message that can be embraced by every department. A marketing plans helps those in key positions think strategically instead of tactically—to work on the practice instead of just working in the practice. That plan must have a budget. For those who bristle at the notion of setting aside revenue for sales-and-marketing activity, I have a special message: You’re already doing it. The fact is that every imaging center is investing money on sales and marketing, even if there is no written marketing plan. Here are but a few of the hidden places that money is going: online ads and listings;
  • telephone-directory ads and listings;
  • brochures;
  • Web sites;
  • annual holiday gifts; and
  • sponsored events, such as CME or non-CME lunches or dinners.
There’s more—a lot more, in fact. Do you have a sign outside your facility? If so, you’ve made a marketing investment. The same is true of your letterhead, your business cards, and the pens that bear your name. In short, anything that carries your message can be considered a marketing investment. The goal, then, becomes taking inventory of these investments and structuring them so that they become a part of the overall budget, and no more optional than paying the electricity bill each month. How Much or How Little? The level of your marketing investment does not have to be a guess, as there are specific benchmarks that can be used to determine that figure. In the cosmetics industry, for example, the marketing budget may be as high as 30%. Industrial concerns, including automobile manufacturers, may consume just 0.5% of the corporate budget. Setting a percentage, as these established industries do, will help you keep your investment in line by reducing (or even eliminating) the random activity that passes for strategic marketing in many imaging centers. With random activity, a reasonable marketing opportunity comes your way and your decision is based not on any rational financial perspective, but on whether it feels good. There isn’t a single successful business in the world today that got to the top by using the feel-good formula. Your imaging business is no different. Just how much should you invest? Typically, you should be committing about 1% to 2% of your net collected revenue, exclusive of staff wages and incentives, on marketing. That figure is a close approximation and can vary, based on your level of competition, the cost of your local media, and the level of your outside sales-and-marketing effort. Settling on a percentage of your revenue may be a strategic, competent, and even comfortable thing to do, but it is not the only formula available to help you reach your goals. another way of determining your sales-and-marketing budget is to estimate the return on your marketing investment. Say, for example, that for every $1 you invest in marketing, you get $3 in return. That’s a ratio of 3:1, which is a reasonable expectation. Now, let’s say that your center’s net collected revenue is $5 million, but you’d like it to grow by 5% (or $250,000) next year; this is also a reasonable expectation. Using the aforementioned percentage formula, you would commit $50,000 to $100,000 to marketing, exclusive of staff. Using the ratio method, however, you’d have a fixed amount of $83,333 for marketing (your goal of $250,000 divided by 3). That falls squarely within the 1% to 2% range, but it provides something that the percentage formula cannot: It sets a firm benchmark by which all marketing investments can be measured. Using the ratio method, you have determined exactly how much you wish to grow, exactly how much you plan to invest to reach your goal, and the return on each marketing effort (3:1) that you expect. The ratio method forces a keener eye on the investment and enables you to perform an analytical review of all marketing to ensure that each and every effort is on track to yield a 3:1 return. Whether it is a percentage, a ratio, or just a wet finger in the wind, fixing a dollar amount on your marketing, and committing to it 100%, may be one of the smartest business moves you will make in 2009.