Digital Marketing

Healthcare Marketing Ad Spend 101

By Austin Heerwagen On Nov 20, 2020 . 0 Comments

If you’ve never used paid advertising for your practice or if you’re looking to improve what you’re using now – you’re in the right place! 

Get ready, we’re going to cover all of the basics of paid advertising for a medical practice and dip our toes into some more advanced topics.

We have the privilege of talking to a lot of physicians, a lot of CMOs, and a lot of marketing liaisons– and every week we hear similar problems:

  • Their new patients are nearly entirely referral-based or word-of-mouth. They feel at the whim of everyone else – like patients just need to show up and they can’t do anything about it. They realize they’re in a dangerous place if that referring doctor retires, or moves, or gets acquired by a hospital group.
  • They have a misconception that they need to spend more than everyone else on paid advertising. It can be daunting to go against the big spenders, but it’s truly not about how much you spend, but how efficiently you can acquire patients. While that big group might spend $5,000 to see 20 new patients; you can focus on seeing 10 patients for $1,000. The important thing is that even if you are smaller than you look, you’re #1 to your prospective patients – no one wants to go to the #2 doctor in town.
  • They don’t know where to begin. They feel like they’re behind, but there’s almost information overload and they don’t know what to start with.

So we want to tackle all of those and take you from the bottom of Everest to Basecamp #1.

First Things First – Understanding Google Ads

Let’s say you’re a patient in New York searching for orthopedic doctors so you google “New York orthopedic”. When you look at the screen, you’ll notice there are three distinct sections.

Graphic depicting Google search results and highlighting paid ads at the top, map results in the middle, and organic results below the map results.
  1. Paid Advertising: Google is essentially running an auction each time someone searches. Whoever bids the most gets first place, second gets second, and so on. There’s a lot more to this, and Google also makes sure your website is relevant, but that’s the gist. You pay each time someone clicks on your ad.
  1. Map Results: This is heavily influenced by distance, review rating, local SEO, and trust rating.
  1. Organic Results: This is influenced primarily by trust rating and local SEO.

The map results and organic results are free. You might be thinking “Wait a minute, why would I pay when I can get this for free?”. And you’d be right!

But here’s the thing – even if you’re first on these organic results, a large percentage of people never look past the ads. This is especially true if many of your patients are Medicare and in that 65+ age bracket.

Although most of our clients are #1 on the organic results, we still spend on Google Ads. Not only does this ensure the patient sees your practice, but it also adds a lot of implicit trust: “Wow I see their name all over this page – I want to go to them”.

Organic rankings can take close to a year of investing to materialize into any patients. Paid advertising is instant – you can run ads tomorrow and get a patient tomorrow. 

The real secret is to start paid advertising now and then, with your profit, invest in longer-term marketing like SEO.

Spending on Marketing

By now I think everyone realizes, especially after COVID, that you can’t really just wait for patients to come in – you have to go to them.

All physicians I talk to realize that it takes money to make money, but the question is… how much?

If you ask 10 different practices, you’re very likely to get 10 different answers. We can get a good idea from large studies with thousands of data points.

The US Small Business Administration recommends that businesses with less than $5 million in annual revenue spend between 7% and 8% of their gross revenue on marketing.

Pie chart showing the SBA recommendation of 7-8% of gross revenue for businesses under $5 million per year.
Source: sba.gov

This includes all marketing spending, from sponsorships to postcards to digital marketing.

Another source to look at is Gartner. If you’re not familiar with Gartner they’re the biggest research company in the world. Every year they publish a CMO report that includes a bunch of questions, but most relevant to us right now is marketing spend.

Graph showing stats from Gartner displaying marketing expenses fluctuating between 7-11%.
Source: gartner.com

This chart shows the percentage of revenue that was spent on marketing from 2011 to 2019. There is some slight variation here, from around 7% to 11% but the spend is pretty consistent.

Remember this chart is for all industries – not just healthcare.

Gartner takes this a step further and breaks it down by industry. 

Graph showing stats from Gartner displaying marketing expenses for healthcare averaging 9%.
Source: gartner.com

We can see here that healthcare, on average, spends 9% of their revenue on marketing.

This is just a guideline to get started. Each practice’s marketing budget is going to be unique to their own situation. Competition, new product launches – like telemedicine, and your open appointment slots are all going to influence this decision.

So How Much Should I Spend on Paid Advertising Like Google Ads?

Now that we’ve determined how much to spend on marketing total, we need to decide how much to spend on the piece of the pie that is paid advertising. 

Paid ads are the absolute quickest to action and the quickest to return your investment, so it makes sense to start there.

This is not as straightforward of an answer as ‘marketing spend’. The short answer is that we recommend most practices with 1-2 locations to start off spending between $1,000 and $3,000 a month. 

This will allow you to capture new patients that you otherwise wouldn’t have and also provides you enough data to improve your ads in the first month or two. You can spend less than this and it will be profitable, BUT you’ll have to wait longer to improve your efficiency because there won’t be a significant amount of data.

Now How Much Should I Spend to Get a Patient?

This is the most important question in marketing and the answer is usually right under your nose. 

You should spend less than the value that a new patient brings you. You can estimate this using your best guess, or you can use your financials to get an exact answer.

Let’s use a Sports Medicine & Orthopedic Clinic as an example to get a good idea.

In most specialty clinics you have two types of patients. The first is a patient that comes in for a problem but ultimately doesn’t need a surgical procedure at the moment.

These patients come in on average two times and you might $150 on average, each time. So, on average, that patient is worth $300. It’s typical that that’s around 75% of your new patients. 

The other type of patient is those that do need some procedure done, be it surgery or otherwise. They are going to have a couple of pre-op visits, the procedure, and then some post-op visits. I’m going to use $2,500 for the average procedure.

Now, these patients are worth $3,100 on average and they make up the other 25%.

Visual aid example showing how to calculate the average lifetime value of a patient. This example shows low-yield patients with a value of $300 (2 x $150 visits) making up 75% of patients and high-yield patients with a value of $3,100 (4 x $150 visits, 1 x $2,500 procedure) making up the other 25% for an average patient value of $1,000.

So if we combine these, any random new patient walking in the door is worth $1,000. Sure, some of them will only have that office visit and leave and others will have one or even two procedures, but a good conversative average is $1,000 per patient.

Now, this doesn’t consider repeat procedures, family members coming, any word of mouth. Each of those will increase the value of that patient far past $1,000.

Let’s also consider that this is a new patient that you otherwise wouldn’t have had. Your fixed costs aren’t increasing – you’re still paying the same rent, the same IT bill, the same EMR payment – but you’re more effective day to day because your schedule has one less empty spot.

So— how much are you willing to pay to get $1,000 more? Would you pay $200? $500?

That answer is your maximum spend to get a new patient. Obviously, if you’re able to spend less than that – even better. That’s money on the table that adds up over time.

Looking at the industry as a whole, healthcare practices get new patients through Google Ads for $77 on average. 

Wordstream Study graphic shows an average cost per patient as $78.01 in their study in 2018.
Source: SearchEngineJournal.com

This is likely profitable for almost all medical practices and we generally hit this mark in the very first month.

This is a great starting point, but there’s a TON of value in decreasing this over time. We did a study at the end of September – post-COVID – and our clients, on average, spend $29 per patient appointment. 

Image showing Koda Digital's client's average increase in patients per month of 24 new patients added at an $29 each.

If you’re spending $1,000 a month, that’s the difference between 12 new patients and 34 more patients.

Diving Deeper into Ads – How Much to Pay Per Click?

Now we know how much we can spend per patient– but Google, Bing, and Facebook don’t charge per patient, they charge per click.

Let’s stick with working backwards. 

Not all clicks are going to result in a new appointment. Plenty of people are going to visit your website and decide to keep searching. This is why it’s so important to make sure that your website looks fantastic, provides all of the information a patient may look for, and, most important, is extremely easy and clear about how to make an appointment.

The percentage of people that make an appointment after a visit is called a conversion rate. If you have a 5% conversion rate that means that out of 100 people that clicked your ad, 5 made an appointment.

A standard conversion rate for good ads with a good website is between 5 – 10%. We’ll say 10% to make it easy.

So we said we can pay $200 per patient – at 10% that’s $20 per click as a maximum rate. Of course, anything lower is again just more money in your pocket.

We See You Out There – How Do We Know?

We see you out there. “That all makes sense, but how do we know whether or not someone made an appointment?”

The answer is – tracking. Have your webmaster install tracking on your website.

Let’s take this site for example – there are really two ways to make an appointment here. 

Example of a ENT practice with 3 ways to make an appointment on the homepage without scrolling down at all. This includes a Call-to-Action (CTA) button, as well as phone number and appointment options in the header navigation.
Source: collincountyent.com

First, you can “Request an appointment” and fill out the form. Each time that form is submitted you should be tracking it. 

The other choice a patient has is to call your office. I recommend replacing the phone number on your website with either a Google Ads number or use a more advanced system like CallRail – which is what we use. 

Patients will call that number and it gets forwarded to your real phone number just like any other phone call, but now we can track it

We can see how long it takes and make sure that it’s for an appointment request rather than just a quick question.

In whatever tracking system you’re using, if it’s set it up correctly, you will be able to tell where that patient originally came from. 

Did they come from Google Ads? Did they come from Facebook? Maybe they visited from Facebook last week and then today clicked on your ads. 

Data analytics is a whole other rabbit hole to go down, but the important thing is that you know how your ads are performing. Without proper tracking, you are literally throwing money into the wind and hoping that something sticks. 

It’s great to get started in digital marketing, but in order to really make an impact, you need to be optimizing month after month after month.

You should stop spending money on what’s not working and start investing more in what is working. That’s where a good agency like Koda Digital can help you.

Stop spending money on what's not working. Start investing in what is!

Quick Q&A From Our Latest Webinar

Q: How do we best utilize our in-house marketing person?

A: It’s not necessary, but we’ve found that our highest performing clients have a part-time local liaison. The liaisons are responsible for maintaining and increasing referrals, through small gifts or in-person check-ins. Our team handles everything from the digital side, but we’re constantly working with the liaison to get pictures and videos to make it look like you have an entire full-time team in-house.

Q: When I Google search psychiatrist near me I don’t see any ads. Can we pay $0.01 and get on top of Google?

A: Well, one thing you should know is that just because you don’t see an ad at that moment doesn’t mean that there aren’t any competitors. They could be showing ads only to 20-30-year-olds, they could be targeting a very specific geographical area, they could be concentrating on certain hours of the day. It is entirely possible for a competitor to spend tens of thousands of dollars on Google Ads and for you to never see it – you’re simply not in their target.

Second, Google is in the business of giving people a good experience. They want the people that search to find what they’re looking for. They are more or less replacing their highly advanced search results with your ad, so they want to make sure that it’s worth it. Your bids need to overcome a threshold that Google deems “worth it”.

Circling It All Together

So we’ve done the math together. In this hypothetical orthopedic practice, the average new patient is worth $1,000. We’re looking to pay no more than $200 for a new patient, and to get to that $200 we need to stick to $20 or under a click. 

Now that we’ve set those values, as long as we stick to them, we can spend any amount on Google Ads and remain highly profitable.

So for homework, I want you to figure out your lifetime patient value. It might surprise you just how valuable each patient is. 

I’d also like you to consider what your goals are for 2021. The way patients choose doctors is changing – how are you changing to keep up?

Paid advertising enables you to take the ball back in your court and have more control over your new patient numbers. It diversifies your strategy so that you’re more resilient to changes like a new competitor, a doctor retiring, or like COVID-19.

However, while we covered some of the basics of paid advertising, there is still so much more information to learn like what graphics to use, what text to use, how to follow patients from site to site so that you convince them over time– the list goes on. 

Paid advertising is not easy and it’s time-consuming. AND it’s also just a tiny piece of the puzzle. 

There are so many other parts of digital marketing that deserve attention too from reviews to social media, to SEO, to your website. If you’re looking to grow in 2021, Koda Digital is here to help.

We handle the entire digital experience so you can focus on what you want to focus on, which is seeing patients.

Everyone’s going to tell you that digital marketing is an investment, but it doesn’t have to be so painful. With our system, and with the use of paid ads, we find that we stop costing money by month 3 at the latest. From there, it’s all profit.

The rebounding economy has produced this fantastic opportunity to capitalize on competitors slowing their marketing efforts – we’ve made more gains for our clients during the pandemic than at any time before. 90% of our clients are busier now than before COVID-19.

So again, if you’re ready for a change and want to take your practice to your patients instead of waiting around for them to come to you – We’re always happy to talk. 

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