business advisor
Is Your Advertising Paying Off?
If you pay for advertising but you don't know whether it's working, then it's time to start paying attention.
Jerry Hayes, O.D.

If you're like many optometrists, you spend thousands of dollars every year on yellow page advertising with no clear idea of your return on investment. In fact, I find that few O.D.s can tell me how profitable any of their advertising is because they aren't doing two important things:

1. Tracking their responses

2. Calculating their payback.

If you're in the same boat, then, here's what you should do:

Track your results

There's no way to know if your yellow page ad is paying off if you don't take the time to track your response rates. Most advertisers don't do this is because they don't know how. After all, who's to say that a new patient came to your office because of your yellow page ad or the sign on your building? You can find out one of two ways:

1. For some reason, most new patients won't volunteer why they chose you as an optometrist rather than your colleague down the street unless you ask them directly. To do so, you pretty much have to give them a multiple-choice option such as: referred by a friend, yellow pages ad, sign on the building, radio spot, etc.

2. A better way is to put what's known as a source code in your ad such as, "Free LASIK Screening, just ask for offer # YP05." When someone comes in asking for YP05, you know they read your ad in the 2005 yellow pages. Or, you can offer a free report on presbyopia. Just write it yourself and you'll likewise know that anyone asking for that is responding to a specific ad. Some advertisers make part of their ad a coupon that people have to bring in to get the free service or discount. These are all time-honored little tricks that successful marketers use because they know how important it is to measure response rates.

Your break-even point

So regardless of how you do it, it's absolutely mandatory that you make some effort to track the effectiveness of your ad. Otherwise, you won't be able to calculate how profitable it is. And I can tell you from firsthand experience that a lot of yellow page advertising doesn't generate a profitable response.

Determining ad worthiness

Let's say that you spent $1,000 each month ($12,000 for the year) on a yellow page advertisement in 2004 that generated almost two patients each week for a total of 100 patients for the year. Let's also assume that you grossed an average of $240 each (or a total of $24,000) on those 100 patients. Sounds pretty good until we subtract your cost of goods -- we'll use the industry average of 33% -- and end up with $24,000 -$8,000 cost of goods -$12,000 yellow page ad = $4,000. Mind you, that's gross profit, not net.

We'd have to know a few things about the practice situation (i.e., number of years in practice, growth rate, annual gross revenue and net percent of profit) to determine whether that figure is good or bad. But if you have an established practice grossing $600,000 and you're spending 2% of your gross on a yellow page advertisement that yields only $4,000 in gross profit, I'd say that's probably not money well spent. And that's exactly why you need to track your response rates and calculate your profitability.

A frequent writer and speaker on practice management issues, Dr. Hayes is the founder and director of Hayes Consulting.  You can reach him at (800) 588-9636 or JHAYES@HAYESCONSULTING.NET.