Marketing Costs: Ad Spend, Patient Acquisition, and Management Spend

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Many nurse practitioner entrepreneurs want to hire an outside marketing agency to do all their marketing for them. This is fine, but in my opinion, I think you as the practice owner should be proficient in general marketing. Remember, marketing is the number one function of your business. Therefore, as the practice owner, you need to understand the number one function of your practice! But there will come a time where perhaps you are too busy seeing patients and doing other income generating activities to dedicate to marketing yourself and you decide to outsource it someone else. Well first off, you need to understand the costs of marketing before you outsource this vitally important function.

When it comes to marketing, you need to understand that there are 3 main costs:

  1. Ad spend
  2. Patient acquisition cost
  3. Marketing management spend

These 3 costs reflect how much you are spending on the ads themselves (ad spend), how much it costs to obtain a new patient (patient acquisition cost) and how much you are spending paying someone else to create and manage the ads for you (marketing management spend).

Ad spend is the working capital of your marketing campaign. This is how much you spend on the advertisements themselves. I wish ad placement were free, but it is not… There are only a few forms of free marketing and those include word of mouth and your Google My Business listing. Advertising over social media, on Google, on billboards, in newspapers, on the radio, and in magazines for example costs money. This is how these media outlets generate income. Advertising via paid routes can provide for some powerful results, but it will cost you.

Remember, marketing should be the number one expensive in your business (especially as you get started) and the majority of this cost will go towards ad spend. For example, you could budget $500 a month on Facebook advertising and another $1000 a month on radio advertising, therefore spending $1500 on ad spend a month. This ad spend is your marketing campaigns working capital and should result in at least a net profit margin of 50%, but preferably closer to 75%. For every $100 you spend on marketing, you should receive at least $200 in revenue at a 50% net profit margin. Sometimes it is less than this, and sometimes it is a lot more. Typically, the net profit margin increases as your ad spend increases. If you are spending $1500 a month on marketing, then at a 50% net profit margin, you would bring in $3000 in revenue, but spending $1500 would likely result in more business as your ads will be seen by a lot more people, therefore at a 75% net profit margin, then you would expect $6000 in revenue.

Now, these are just theoretical numbers and suggestions. Everyone’s market will be different. Sometimes it costs more money to obtain a patient in a highly saturated and competitive market whereas it will cost less in less competitive markets. But remember this:

The more you spend on ad spend, the more revenue you should generate. This is true most of the time, but sometimes luck won’t be on your side. So, take that into consideration.

With all of this in mind, then how much should it cost you to obtain one patient? Well, figuring out your patient acquisition cost is very simple and can be done using the following equation:

Total monthly marketing costs divided by number of new patients in that month.

We will use last months numbers for my men’s health and medical cannabis clinics as an example:

Men’s health: $3000 ad spend / 24 new patients = $125 patient acquisition cost.

Medical cannabis: $300 ad spend / 65 new patients = $4.60 patient acquisition cost.

Big difference huh? Take this into consideration though:

I only see the medical cannabis patients one time and a new visit generates about $100 in revenue.

I see my men’s health patients’ long term and generate about $1980 in revenue over a period of a year from each patient on average.

With that said, what are my net profit margins based off my marketing costs?

Men’s health: 93% net profit margin

Medical cannabis: 95% net profit margin.

These are fantastic margins in terms of rate of return on marketing spend. This is why you should focus on marketing as it USUALLY results in a healthy return on investment and ultimately, your profits.

Patient acquisition cost will vary from area to area. I have heard anything from $30 to $200 is a good patient acquisition cost. It really just depends on how much you are charging for your niche service. Consider these two aspects:

The higher the acquisition cost and the lower your pricing, the poorer your net profit margin will be.

The lower the acquisition cost and the higher your pricing, the better your net profit margin will be.

Now this takes me to the final marketing cost: management ad spend.

Marketers do not work for free. They expect to be paid for their time. When you hire a marketer, you are paying for their time as they should be using their time (keyword SHOULD) on creating ads and managing ads for your practice. This cost can vary widely depending on how much they are doing for you. Simple ad management could cost about $500 a month while total ad management, tracking, SEO, graphic design, and ad creation could cost upwards of $5000 a month.

Will these marketers result in more efficient use of your ad spend to offset their fees? Maybe or maybe not. It depends on how good they are and unfortunately, there are a lot of BAD marketers out there. So please take that into consideration if you decide to hire out a marketer. There are a sea of SHARKS within the healthcare system…

Now I also want you to consider this:

When you add the price of ad management into your overall calculations, the numbers can worsen REALLY fast if they are not delivering significant results to your practice. Let us say I was spending $1000 a month on management costs without changing my ad spend for my practice and the final results did not change that much from when I was managing them myself. My patient acquisition costs would change as followed:

Men’s health: $4000 ad spend / 24 new patients = $166 patient acquisition cost

Medical cannabis: $1300 ad spend / 65 new patients = $20 patient acquisition cost

This would drop my net profit margins as followed:

Men’s health: 91%

Medical cannabis: 80%

As you can see, the addition of the marketing management spend actually DECREASED my net profit margins and INCREASED my patient acquisition cost… Rather SIGNIFICANTLY for my medical cannabis clinic at that.

With all of this said, focusing your energies on learning how to do marketing yourself will typically result in HIGHER net profit margins and DECREASED patient acquisition costs than hiring a marketer to do it for you unless you can find a GOOD marketer, which can be difficult. Therefore, you should spend your money on AD SPEND when you are first getting started because the return on investment will be higher spending your marketing budget on the ads themselves rather than splitting your marketing budget between ad spend AND marketing management spend. This is CRITICALLY important folks. You will save thousands of dollars learning marketing yourself and spending your money on the ad spend vs. on management spend!

4 Responses

    1. You are very welcome. This is extremely important to understand if you want to scale your practice!

  1. Hello!
    Thank you for the marketing jewels! Very much appreciated. I have some questions regarding one of your courses, is there an email where I may contact you?

    Thank you!

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