As we’ve seen, PPC advertising on platforms like Google Ads can be an incredibly effective way to grow your business. But for practices getting started, there’s one question that looms larger than all the rest: how much should my practice spend on Google Ads?
Episode Transcript: How Much Should My Practice Spend on Google Ads?
What’s up everybody, and welcome to another episode of the Medical Marketing Podcast from Messenger – the show where we give you actionable tips and advice to help improve your practice marketing, grow your revenue, and take patient experience to the next level. I’m your host, Crawford Ifland, and today we’re going to be discussing advertising budgets, trying to answer the question: how much should I spend on Google Ads?
How Google Ads Works
First, let’s explore how Google Ads works. For our discussion today, we’ll focus on the 3 main components of a Google Ads account: Campaigns, Keywords, and Ads.
Campaigns are just as they sound – they’re ways of organizing your different advertising goals. You can create a campaign to promote your business overall, or maybe a particular service you offer.You will set your overall budget at the campaign level.
Keywords are, obviously, the products and services that your patients will be searching for. Not all keywords are created equally: some are more competitive than others, and therefore, demand a higher price.
Google Ads works on an auction system. When you start advertising, you select keywords that you want to “bid” on. Google will give you some guidance on how much you’ll need to bid on keywords in order to be competitive with other advertisers – to appear at the top of Page 1. If your bid is higher than other advertisers, you’ll appear at the very top. If a patient clicks on your ad, you are charged the amount that you bid on that keyword. This is why it’s called “Pay Per Click” advertising.
This is a somewhat simplified model of the auction process – there are actually many more factors that go into Google’s auction – but for our purposes discussing budgets, it will work just fine.
The final component of the advertising process are your ads themselves. Some ads are more effective than others – they have a more attention-grabbing headline, or they are more relevant to what your patient typed into Google. The more effective your ads are, the better your ROI on advertising, because you can get more conversions – think, someone scheduling an appointment – for a lower cost.
Let’s think about an example: Ad #1 and Ad #2.
Let’s say that on average, Ad #1 results in one new patient for every twenty people who click on it. Ad #2, however, converts one new patient for every ten people who click on it.
Let’s assume that your keyword bids are the exact same for these two ads: $2 per click. If Google sends $100 worth of traffic to each ad, Ad #1 is going to have 50 people click on it, which will result in an average of 2.5 new patients.
AD #2 will get 50 clicks as well, but since it’s more effective and converts one out of ten patients instead of one out of twenty, this ad will deliver 5 new patients. See how that works? Just because the ad itself is more effective, your patient pipeline just doubled – this is the power of an effective advertising strategy.
Now that we understand the basics, let’s talk about some formulas for growth and tie those into our original question: how much should you spend?
The Effective Advertising Formula
The easiest way to calculate the Return on Investment with advertising boils down to one simple formula:
(Revenue – Cost of Goods Sold) / Cost of Goods Sold
Let’s say you’re a LASIK surgeon, and your average revenue from LASIK is $3,000. Obviously you have some overhead and other expenses, but for simplicity’s sake, we’ll talk about gross numbers here.
Let’s say it costs an average of $100 to acquire a new lead from Google Ads. In the advertising world, we call this your Cost per Acquisition, or CPA, and it’s an incredibly important number.
So in this scenario, how much should you spend, and how much can you make?
Let’s assume your advertising budget is $1000/month. So if it takes an average of $100 to acquire a new lead, $1000/$100 = 10 new leads per month from advertising.
Plugging those numbers into our formula, we get the following:
[$30,000 worth of revenue ($3,000 * 10 new leads) – $1,000 in advertising costs] / $1,000 in advertising costs = 2,900% ROI
Now, obviously these numbers change as you factor in other costs. LASIK surgeons have an average overhead of 75% – you’ve got to pay co-management fees, surgery center fees, etc. So let’s say that on a $3,000 procedure to get LASIK surgery in both eyes, the surgeon nets $750.
With those numbers, we get the following:
[$7,500 worth of profit ($750 * 10 new leads) – $1,000 in advertising costs] / $1,000 in advertising costs = 650% ROI
Even when you factor in overhead and other costs, advertising such premium procedures still delivers an immensely positive ROI.
As long as your numbers work together to produce a positive ROI, you can keep reinvesting money back into ad spend and grow your practice indefinitely.
This is where budgets, bidding, and your ads themselves come into play, and that’s what we’ll discuss next.
How Much Should My Practice Spend on Google Ads?
Every advertiser is unique in terms of what they’re selling, how much they sell it for, their overhead, their customer conversion rate, etc, etc. So it’s a bid hard to say exactly what you should expect from various “levels” of advertising budgets on Google Ads. However, a few rules of thumb apply:
- The more money you feed into the system, the better the data will get, and the more accurate decisions you can make with it.
- Only invest what you’re comfortable losing, especially when you’re just starting out.
- Every metric, no matter how small, has the potential to influence your success.
Let’s dig in.
#1: The more money you feed into the system, the better the data will get, and the more accurate decisions you can make with it.
At a bare minimum, you should start with $500/month in ad spend. For some more competitive advertising spaces, like legal or some areas of healthcare, this number will need to be higher.
The higher you can go, the better. That’s because the more money you spend on Google, the more data you will have at your disposal to make better decisions.
When your traffic numbers are low, the percentages associated with those numbers may seem massive, but they’re too small to make a difference to your bottom line.
You might say, “We saw a 10% increase in Traffic!” and be all excited. But if you’re only going from 10 clicks to 11 clicks, that doesn’t really tell you much. If you go from 10,000 clicks to 11,000 clicks, that’s more significant. So the more money you can pump into Google’s system to get real-life data and metrics from which to make yours advertising more effective, the better.
#2: Only invest what you’re comfortable losing, especially when you’re starting out.
This is a corollary to point #1 – while you should spend as much as you can to get the highest-quality data possible, only spend what you’re prepared to lose.
Digital advertising isn’t easy, especially when you’re first starting out, and the first few months of advertising may not see any new patients. Your ROI may be negative for some time while you give Google a chance to optimize your campaigns and learn from your data. It’s at this point that some people decide they don’t have the stomach for PPC advertising and abandon ship.
Of course, over time, your campaigns will start to normalize and you should start seeing a more positive ROI. But don’t lose heart if you don’t see patients come through the door right away – it can take time to start to see results.
#3: Every metric, no matter how small, has the potential to influence your success.
This is maybe the most important point to drive home: if you can increase your conversion rate at any part of the process in your digital advertising, your metrics will improve dramatically.
Let’s take the following example:
You’re spending $5,000/month on Google Ads, and have an average Cost per Click of $5. This yields 1,000 clicks to your website per month.
Let’s say that 1 out of 10 patients who lands on your website requests more information about a medical procedure. That 1,000 clicks results in 100 new patient leads. Dividing $5,000 by 100 leads gives us a Cost per Acquisition of $50.
But it doesn’t stop there. Let’s say that not everybody is ready for surgery yet – so of the 100 new leads you got, maybe you converted 40% of them. That’s 40 new surgeries for $5,000 – a CPA of $200.
Now let’s assume you want to double your patients next month. What do you do?
Assuming everything else stays constant, you could double your ad spend to $10,000. That would double your patients.
But maybe you’re not in the financial position to double your ad spend – you don’t just have $10,000 lying around. What else could you do?
Well, if you can increase your conversion rate at any part of the process, even the smallest metric, your metrics will improve dramatically.
What if we could make our ads twice as effective with attention-grabbing headlines so that twice as many people clicked on them? It’s a small change, but 2x the number of clicks equals 2x the number of leads equals 2x the number of booked surgeries.
What if we could bid on certain keywords that had a lower Cost per Click, that would influence metrics, too. If our CPC went from $5 to $2.50, that would double the amount of clicks to the website: double the number of clicks equals double the number of leads equals double the number of booked surgeries.
You get the picture. As we said before, if you can increase your conversion rate at any part of the process in your digital advertising, your metrics will improve dramatically.
I’ll let you in on a little secret: when we talk about what you can expect from various “levels” of spending on Google Ads, it’s not all about the spending. It’s about how effective you can make your campaigns.
If you can make a campaign twice as effective as your competitors, you can get the same results as they do – for half the cost. And if you can increase your ad spend to match theirs, you’ll grow twice as fast.
So while the question of “How much should I spend on Google Ads?” is still important, maybe the real question should be “What can I do to make my advertising as effective as possible?”
So, let’s recap what we’ve learned today:
There are three main components of a Google Ads account: Campaigns, Keywords, and Ads.
- Remember the Effective Advertising Formula: (Revenue – Cost of Goods Sold) / Cost of Goods Sold. As long as this formula returns a positive ROI, you can reinvest money into Google Ads and scale up growth much faster than you’d be able to organically.
- Remember, if you can increase your conversion rate at any part of the process in your digital advertising, your metrics will improve dramatically.
That’s all for today’s episode of the Medical Marketing Podcast. If you liked this episode, please subscribe to the show on your favorite podcast platform and leave us a review on Apple Podcasts. It helps us grow and reach new listeners, so if you don’t mind taking 30 seconds, we’d really appreciate it.
Next week, we’ll explore the concept of bidding on your own name on Google Ads. Is it a waste of money, or a valuable tactic?
If you have questions about healthcare marketing, or if you have an idea for an episode, we’re all ears – you can always shoot us an email with your ideas and feedback at email@example.com and we’ll see if we can include it in a future episode.
As always, we’ll have a link to the show notes in the description, and don’t forget to browse our website at www.messenger.md – we’ve got tons of great resources on how to improve your practice marketing, grow revenue, and take your patient experience to the next level.
For Messenger, I’m Crawford Ifland – see you next week!