First I must tell you I usually need a calculator to add 2 + 2, or if I use my fingers that works too. OK, now that I have your attention let’s talk about marketing and figuring out what a marketing budget should be. I can go and find any financial genius and they can give us all kinds of strategies for coming with the perfect number probably down to the exact penny.
The owner of the business, the CEO usually has the last say in what gets approved and nixed. So let’s say we have a services business, a drug rehab, a hair salon, a consulting firm, an accounting firm, law offices or a graphic designer or you name it, pick the SIC code we want to figure out what it will take to market our business and do so profitability so we can continue to stay ahead of the curve.
Marketing is the Engine that Pulls the Train
Let’s face it, marketing is the engine that pulls the train and sales is the conductor. Without profits we are screwed. So in my world our revenues must exceed our expenses. If that is not the case we are bleeding red ink and if we bleed red ink we probably don’t have a license to print money or do something called “quantitative easing” we are in trouble. So as a benchmark I have come up with a minimum starting percentage of revenue to determine a marketing budget.
Side note on sales, these sales guys can get expensive fast and in my experience it seems like the top 5% will generate about 80% of the profits, another number I pulled out of thin air. They drive expensive cars, eat at expensive restaurants and love ringing up their expense accounts to the max because they deserve it and are entitled, or at least some think so. My point here is marketing should be giving these guys high quality leads ALL the time so we can boost the ~5% top sales producers to a greater percentage, however in my experience accounting is usually has pressure on them to “cut expenses in sales” via marketing and the company winds up sucking wind in the long run if they cannot sustain a steady pipeline. I know this first hand because I lived it.
This percentage is based on my experience and NOTHING else. So I am pulling this number out of thin air, however it seems to work well for a starting point. We need to spend at least 20% of our current monthly revenue on marketing if we are going to get any real measurable results in the first 3-4 months. This marketing budget includes admissions, marketing assistants, VP’s, 800’s, web designers, ad agencies, consultants, market research, social media, SEO, traffic generation, PPC, article writing you name it.
If after spending 20% on marketing and you are getting too much business, start to spend less. On the other hand if you are not making a profit with a 20% marketing budget it is time to do two things, either spend more so you do get enough business to make a decent profit or stop what you are doing and change fast, for example hire a website consultant or a competent internet marketing consultant and start to test other methods of getting revenue going where your expenses do not exceed your revenue.
This is where the rubber meets the road
OK, so some dude (me) who wrote this on the internet says 20% is the good starting number what the heck does he know? He knows very little in the grand scheme of things, but has 30 years experience in business. However what he does know is if you spend for instance $10,000 per week on marketing and you can generate $40,000 per week in revenue that is called a 4:1 MER or media efficiency ratio. (This number HAS TO WORK or we MUST make it work. We must generate more revenue than we spend, period. So what happens when we increase that weekly spend to $100,000? It should generate $400,000 in weekly revenue. Depending on your profit margin this is either a good ratio or a bad ratio. Hopefully you have enough margin it is a “good ratio.”
So let’s say if we have a treatment center that has 100 beds. If we are at a 30% capacity for 30 day stays we have 30 people or 30 residents. If we charge let’s say $15,000 per month for treatment we are currently generating $450,000 per month in current revenue, however we really want to be at $1.5 MILLION per month at $15,000 per head in bed times 100 beds. There are two ways to look at this, are we going to use the 20% marketing spend for the 100 or the 30? Let’s assume that money is really tight since we only have 30 people in a 100 bed facility. If we don’t spend something significant i.e. 10% -20% of the monthly $450,000 we are fooling ourselves that we are really making an impact to get results, the even harder part is we are going to have to spend this kind of money for 3-4 months to begin to get out of the hole.
The thing that we have going for us should we want to generate leads and admissions from the internet is that we can track ALL of our spending and our results. So we will learn very quickly what works and doesn’t work, however we have to be prepared to make at least a 10% – $20% commitment, on the $450,000 we discussed earlier, which can be really painful financially. We have to do something different and do it well if we are going to get a different result.
When I find treatment centers in difficult marketing situations I do my best to explain what is required: web site access, web site tracking, adding content, link building, article syndication, 800# tracking, videos and I could go on. Most centers do not have the experienced technicians and writers and a team that can do this, (I do) or when I tell them what is required they attempt to get it done themselves often, and what I find is I’m waiting around for weeks, to get answers so I can help them. This is NOT acceptable, especially if there is a strong need to boost census from a lowly 30%, or maybe 70 empty beds is ok?
If you are spending 5% of your monthly revenue on marketing and not getting your admissions results, but the marketing you are doing is working why not spend more? Oh, the CFO says we have to “cut back.” Well let’s cut back and we can cut ourselves out of a job too. I will also tell that CFO s/he is not in business to make money and help people and this thing he calls “work” is something of just a “pet hobby” and not a business and he is sucking others into his “pet hobby.” (We can’t help many people with addiction if we are broke). If we operate out of fear of failure chances are we will get there, it’s happened to this search marketing consultant, I speak of personal past experience.
On the other hand, if we boost a 5% monthly marketing budget to 20% and start to get the results and the profits then let’s do more of it and refine the marketing efforts even more. Test different offers, different calls to action, different media….testing……testing…..testing…..success…..roll out! I know this is an over simplification rant of sorts but if we are “going to play it safe” let’s do that in shuffle board and curling, if want to play it safe let’s play it safe when we retire.
When it goes wrong – Change Thinking
So if we aren’t getting the results we want we have to know why. I’ve basically stopped asking these questions to new treatment centers clients since I have found only a handful of centers actually know, how many leads did they get last month, how many did they close, what their cost per lead is and what their cost per admission is? And I must admit, it is not easy to sometimes calculate this stuff since some of the admissions come in on referrals and sometimes the admissions person just plain forgets to ask the person while on the phone, or maybe they just get and answer like, “I found you guys on the Internet.” Tracking the keyword phrase from a telephone number is critical. Did they call us by typing in “Florida drug rehab” or was it something like “treatment centers in del ray beach, Florida that accept insurance?” (We have the technology to do this today, many successful treatment centers are using it).
When we are spending as much as we can on marketing, let’s say 40% of our monthly revenue and we can’t keep our customers and we can’t make a profit it is time to reevaluate the whole business situation. Ask why? How can we do it better? Are we going after the right customer? Do we charge enough? Should we close? As Einstein said, “We can’t solve problems by using the same kind of thinking we used when we created them.” So do something, pick up the phone and call a website consultant or a internet marketing consultant, or do nothing and “play it safe.”