Whether you’re planning on selling your practice, building arbitrage for a sale later on down the line, expanding your practice or simply looking to increase your profit margins, there’s no doubt that effective marketing can make all the difference. So, the question from many practice owners is: what return on investment should you reasonably expect from a marketing spend?
What is return on investment, and how is it calculated?
Return on investment (ROI) is way of measuring an investment’s profitability.
It is calculated by subtracting the investment sum from its final value, dividing the result by the cost of the investment. It is usually represented as a percentage or a ratio against the initial investment. For example, if you spend £5k on marketing, and the measurable, additional income after that investment was £30k, the ROI is six times the initial spend.
Essentially, the ROI measure should be part of an evaluation process for any investment. It should tell you if the marketing spend was worth it.
On the face of it, a 6x ROI looks good. The investment has resulted in a 600% return – or has it? Without context, these numbers are meaningless. Out of that 30k return on the marketing investment, a principal will to have to pay 50% to their associate. The 30k return is already halved, £5k has been spent on marketing, and the £10k remaining will need to be spent on additional resources to invest back into the practice, and deliver on the service being marketed.
If you’re investing in clear aligners, for example, ten cases of stock at about £500 per unit will leave you with £5k. After the initial marketing investment cost, you are left with only 5k to pay the team to deliver the services to your patients.
Ostensibly, the equilibrium point hasn’t been passed, and this investment hasn’t resulted in any genuine gains on the practice’s valuation – but (and this is a big but!) – as a principal it’s important to think of the bigger picture. The main disadvantage of ROI as a measure is that it doesn’t account for dividends arising from the initial investment over time.
Using the example again of marketing and delivering an excellent clear aligner service – results can be lifechanging, and offer a real wow factor. Clinicians can say directly to their patients that the biggest thank you they can offer is to recommend the practice’s services. Grateful patients, who have been attracted by your initial campaign, will often be more than happy to refer friends and family, or to post online reviews. Successful treatment often speaks for itself as a powerful advertisement for your services.
So, to get a true picture on the value of your marketing investment, rather than looking at the direct, immediate effect, look at the initial spend, and the month on month gain to get a true picture of the returns.
When building a marketing strategy for a dental practice, you have to look at the life cycle of the patient, not just their initial spend.
The compound effect
Are you pouring a large marketing budget into a single shot campaign to promote a service, or are you encouraging your audience to re-engage throughout the whole patient journey? Taking considered, informed decisions around an ongoing marketing process is known as the compound effect.
In the clear aligner scenario, each happy patient referring just one additional patient represents exponential growth, rather than a one-off figure based on the value of that single patient’s custom.
Key to the success of the compound effect is consistency. As long as an investment or campaign adds value, and is habitually applied over time with recognisable and dependable quality, even the smallest changes can accrue into greater and greater results.
Strategic spending
Marketing costs have increased hugely in recent years, so investment in the right ongoing strategy is important, whether it’s pay-per-click (PPC), direct marketing, promotions and deals or a combination. However you choose to invest, a good marketing strategy should result in consistent visibility, that enhances your professional reputation, building your brand over time.
Working with a specialist professional to increase the value of your practice offers a huge advantage to optimise outcomes. Dental Elite has over 14 years of specialist experience in dental practice mergers and acquisitions. Our expert teams offer clients bespoke advice that will make a genuine difference to the success, and subsequent valuation and saleability of their practices.
The specific return on an investment in marketing will vary from practice to practice, and region to region. However, if you are looking to grow your business – either for increased profitability or to build arbitrage, with the help of specialist professionals, your valuation can grow exponentially with the right strategy. As a practice owner that’s something you’ve got to encourage.
For more information contact
the Dental Elite team on 01788 545900
https://dentalelite.co.uk/
