Ownership

Dental Practice Ad Budgets Tell a Story You Need to Know | Being a Good Dental Practice Owner

Posted on by Brian Hanks

Q: How much should a dental office’s advertising costs be?

A: A practice will generally spend between 1% and 4% of collections on advertising. Anything higher than 2.5% is considered aggressive. If it’s well-spent, 2.5% is enough to see strong advertising results. But you’ll want to check anything higher than that to see the actual new patient numbers to see how effective the budget really is. 

A smart owner will also be smart about their advertising. They know that if they throw every dollar they have at every advertising tactic under the sun, the return on investment won’t be strong. Tuning into the most efficient and effective advertising pursuits is a bit of a balancing act.

Fortunately for you as the buyer, the seller is usually the one who has been throwing the noodles against the wall to see what sticks, so hopefully you don’t have to.

How do you know a noodle has stuck? Compare it to the new patient flow.

The minimum benchmark for strong new patient flow is 15 per month. 

If a practice is spending 4.2% on advertising, but only averaging 6 new patients a month, then it’s not so effective. Twenty-five new patients a month on a 1% budget? That’s some effective spending.

You can tactfully investigate what mistakes you shouldn’t make. Politely ask the seller, “I see you’re spending about 4.2% on advertising. What methods are you currently using? I’d love to learn for when I’m an owner.” 

Another caveat: If you see they’re spending 4.2% on advertising, but the new patient flow doesn’t seem to fit, there’s a good chance that some of that money isn’t actually going toward advertising.

Often we see personal expenses like Costco memberships and home renovation expenses categorized as “Advertising/Promotion” business expenses. 

Before you assume their ad game is subpar, double check. Let them know that you’re not judging their bookkeeping, but that you just want to get a solid understanding of the office’s profitability to be fair to all parties involved. 

After all, cutting out those “personal expenses” will ultimately lead to a lower overhead of the office which means a more profitable investment for you and a better offer made to the seller.

 

  1. Dental Transition Gold – The Inactive Patient Marketing Plan
  2. Negotiating a Dental Practice Purchase – Don’t Be THAT Buyer

3. Four Reasons to NOT Use the Seller’s Accountant

Brian Hanks

Brian Hanks is an author, advisor, certified financial planner specializing in helping dentists evaluate and acquire a dental practice of their own. Brian developed his dental practice acquisition framework to help dentists navigate the complex and overwhelming process. Brian's book, How to Buy a Dental Practice: Find, Analyze, Negotiate, and Purchase the Right Dental Practice for You, details the basic pitfalls that new dentists often make, and lays a roadmap for a successful acquisition. His consultancy, Dental Buyer Advocates, provides hands-on guidance and expertise for evaluating practices, negotiating with sellers, closing on a practice, financing, transitioning a practice from the seller to the new buyer's management, and much more. Brian has a business management degree from BYU, a finance MBA from University of Michigan, and a CFP certification from Northwestern University. He lives in Salt Lake City, Utah with his family and serves dentists nationwide.