Dentists have got it good. No, it’s not all sunshine and roses, and there are very difficult things about your job. But in some areas, you’ve really got it made. Advertising is one such area.
Let me back up a bit and explain. If we look at advertising costs as a percentage of collections, we see that nationwide, dentists spend on average 1.9% of collections on advertising.
Breaking it down further, we see that generally speaking, medium and large practices — i.e. those collecting more than $500K annually — tend to spend more on advertising than small practices.
Ouch, you might be thinking, that’s a lot of my revenue going out the window every year. But let’s break it down, using that chart. Let’s say you own a practice bringing in $1M in annual collections. If you spend 2.1% of that on advertising, that’s $21,000. Believe me when I tell you: that’s nothing.
Now we’re getting to why I say that dentists have it so good. Most other businesses would love to have a 2% advertising cost. For comparison, the Small Business Administration says that the average small business in the U.S. spends about 7-8% on advertising. Businesses listed on the S&P 500 average over 11%. Coca Cola (admittedly an outlier) spends over 18% on advertising. That’s $5.8 BILLION dollars on ads.
Whew, that’s a lot of cash.
Now, you’re not Coca Cola. (In fact, as a dentist, you’re kind of the anti Coca Cola, I suppose.) But you’re still a business, and your business depends on revenue, just like everyone else. So getting new patients in your chair is vital. Luckily, you work in an industry where patients will often proactively seek you out, with no special effort on your part. On my first visit to my current dentist, he asked how I chose his office. My response? “Um…I can see it from my house, and you take my insurance. Seemed pretty convenient.” (Lucky me, he also turned out to be pretty good at dentistry.)
So you are lucky in that way. But luck will only get you so far. Yes, patients will wander in, but if you count solely on that, chances are your practice will be fortunate to hold steady, and it will probably start shrinking. So you need to fill the new-patient gap. Advertising is a huge part of how you’ll do that.
Still, I hear a lot of frustration from dentists who wish they could spend less, or even nothing, on advertising. And I understand why. It’s difficult to see a clear line between dollars spent on ads and patients in your chair. How do you know that that money was effectively spent?
If you’re looking for that straight-line, ad-to-patient proof that your advertising is working, I’m sorry to say that it doesn’t really work that way. The good news, though, is that you can absolutely see the effectiveness of advertising in the aggregate, and over the long term. The rule of thumb I’ve seen, as I’ve looked over the financials of thousands of dentists, is as follows:
- 0-1% advertising spend – These practices tend not to be growing, or may even be shrinking in collections. At least 20% of the practices I look at spend less than $500 a year, which is functionally $0.
- 1-2% advertising spend – These practices are in “maintenance mode.” They’re bringing in just enough new patients to replace those who move, die, or switch dentists.
- 2-3% advertising spend – These practices tend to be trying to grow. And they typically see some success.
- 3-5% advertising spend – These practices are aggressively seeking growth. Again, these efforts are typically successful.
- Greater than 5% – Out of thousands of practices I’ve looked at, I don’t recall ever seeing one spending more than 5%. And that’s okay! Again, you’re a dentist, not Coca Cola.
Let these numbers serve as a guidepost to how much you may want to be spending on advertising. In my opinion, your typical advertising budget should be somewhere between 2% and 4% of your annual collections. Much less than 2% and you risk losing your needed patient base. Much more than 4% and you may start getting into territory where your advertising money is becoming less than effective.
So that’s how much money you should spend on advertising. What I won’t get into today is exactly how to go about advertising your dental practice. That will be another topic for a different day. But if you have any questions on this or other topics around the value of your practice — or your future practice! — don’t hesitate to give me a call.