Cost
Problems
Marketing at 5% of Production: Spend Problem or Volume Problem?
Greg Hudnall
Problems · 5 min read
A marketing line at 5% of production is not too high or too low on its own. What matters is whether new patients moved when the spending moved, and that answer is in your books and your practice software.
Marketing at 5% of production tells you nothing until you know which half of the fraction moved. If spending went up and new patients came with it, the 5% is buying something. If spending went up and new patients did not, you have a spend problem. If spending stayed flat and the percentage still climbed, production fell, and you have a volume problem that cutting the marketing budget can make worse. Those three call for different decisions, and the percentage alone cannot tell them apart.
The Benchmark Everyone Quotes and Who Benefits From It
Search for how much a dental practice should spend on marketing and you will find a percentage, and every one we traced back was published by a firm that is paid out of the budget it is sizing. That does not make the number dishonest. It makes it a seller's estimate, and a seller's estimate is a starting point for a negotiation, not a benchmark.
We went looking for a measured figure in our post on what dental practices spend on marketing. No association or government dataset we could check publishes a production-based range. The one measured number comes from IRS tax data: advertising ran 1.18% of business receipts for dental sole proprietorships in tax year 2023 (IRS Statistics of Income, sole proprietorship Table 2). That covers only the advertising line of the return, so a marketing coordinator's wages and capitalized signage are not in it. It covers only sole proprietorships, so S corporations, partnerships and C corporations are left out. And it is measured against receipts rather than production, so it is not a target either.
A percentage target has a bigger problem than its source: the ratio moves when production moves. Take a practice spending $60,000 a year on marketing against $1.2 million of net production. That is 5%. If production slips to $1 million and the marketing does not change, the same $60,000 is now 6%. Nothing about the marketing changed. A rule that says "keep marketing under 5%" would tell this owner to cut it.
Spend Problem or Volume Problem: The Test
You need two numbers for each of the last 12 months: the dollar amount of marketing spend from your P&L, and new patients from your practice software. Put them side by side. Read the trend over the year, not month to month, because a campaign paid for in one month brings patients in over the months that follow.
| What you see | What it means | What to do |
|---|---|---|
| Spend up, new patients up with it | Marketing is buying patients | Check what each one cost before adding more |
| Spend up, new patients flat | A spend problem | Cut or redirect the channel that grew |
| Spend flat, new patients flat, marketing % rising | A volume problem: production fell | Look at the schedule, not the marketing budget |
| Spend down, new patients flat | The spend may not have been what brought patients in | Watch the next few months, then check referral source to see what is bringing them in |
The third row is the easiest one to misread, because the percentage looks exactly like overspending. It is the same arithmetic that makes overhead rise when the schedule thins out. Fixed costs stay put while the production under them shrinks, and our post on total overhead shows how quickly that moves the ratio. Overhead is one of the numbers that does have a sourced range, and our free Dental Practice Benchmark Scorecard lets you check it against healthy dental ranges in about two minutes. Cutting marketing in that situation saves a little money and removes one of the few things pushing new patients in the door.
The test only works if the marketing line means the same thing every month. A coordinator's salary belongs in payroll, and a sponsorship with no advertising behind it is a donation. Patient referral gifts can stay in marketing on the books, since they are spent to bring in patients, but on the tax return they are business gifts, deductible up to $25 per person per year (IRS Publication 463). Keeping marketing in its own section of your dental chart of accounts, split by channel if you use more than one, keeps the number stable, so a change in it means a change in spending.
Read Marketing Against New Patients, Not Production
Dividing marketing by production compares a cost to everything the practice produced, including the work done for patients who have been coming for 20 years. Dividing marketing by new patients compares the cost to the thing it was supposed to buy. Leave out recall and reactivation spending aimed at patients you already have, since it was never meant to buy a new one.
The result is a dollar amount per new patient, and it is the number to watch. If it holds steady while spend rises, the marketing is scaling. If it climbs, each additional dollar is buying fewer patients than the last one, and the next increase is likely to buy fewer still.
Use the same new patient report from your practice software every month. Different systems define a new patient differently, by first visit or by first completed procedure, so a count pulled from two different reports is not one series.
When the Answer Is Neither
Sometimes spend and new patients both look healthy and the practice still feels slow. That points away from marketing altogether.
New patients up but production flat can mean new patients are arriving and not staying, or that existing patients are leaving as fast as new ones arrive. Either way it is a recall and reappointment question. Hygiene is the place to look, and our post on hygiene production covers how to read it. New patients up and gross production up, but net production and collections not keeping pace, can mean the new patients are coming in on plans with deeper write-offs, which is a payer mix question. Neither is solved by changing the marketing budget, and both are visible in the same monthly reports.
What a Referral-Heavy Practice Should Expect
A practice that fills mostly through referrals will show a marketing percentage that looks too low by any published standard. That is fine, as long as the new patients keep coming.
What it should track is referral source. The ADA lists the number of patients by referral source among the KPIs a practice can track (ADA), and practice software such as Open Dental has a field for it. If the front desk fills it in for every new patient, you can see whether referrals are holding up. If they start to slip, that is the time to spend on marketing, and the spend-and-patients test above will tell you whether it is working.
P.S. Reciprocity Accounting closes dental practice books by the 10th of every month, so last month's marketing spend is in front of you before you decide this month's. See how we can help your practice.
Frequently Asked Questions
Is 5% of production too much to spend on dental marketing?
Not on its own. No production-based benchmark exists for dental marketing spend, and the one measured figure, from IRS sole proprietor data, is about 1.18% of receipts, counts only the advertising line, and is not a target. Whether 5% is too much depends on whether new patients moved with the spending, which your own books and practice software can show.
Why did my marketing percentage go up when I did not spend more?
Because production went down. The percentage is marketing divided by production, so a smaller denominator raises it with no change in spending. That is a volume problem, not a spend problem.
Should I cut marketing when production drops?
Not before you check whether new patients dropped too. If spending held steady and new patients held steady, the marketing is not the cause, and cutting it can make the volume problem worse.
How do I know whether my marketing is working?
Track marketing spend and new patients side by side for 12 months and divide one by the other. A steady cost per new patient while spending grows means it is working. A rising one means each dollar is buying less.
Does a referral-based practice need to spend on marketing?
Not necessarily. Track new patients by referral source. If referrals hold steady, a small marketing line is a sign of strength. If they slip, that is when added spend earns its keep.
