BUSINESS

  financial foundations

Your Three Optical Numbers

Monitor and track these for success

DAVID MILLS, O.D., M.B.A.

In many optometric practices, optical sales contribute a significant portion of total collected revenues. Careful monitoring of these three numbers helps ensure you are maximizing these sales to increase net profit:

• Cost of goods sold (COGS) measures the direct costs incurred by the practice related to the sale of optical and contact lens products, and thus, the profitability of the product business segment. Lab invoices and all related employee salaries and benefits are included.

• Inventory levels should be monitored to ensure that quantity levels align with patient demands. Monitor changes in both monetary value and product units.

• Utilization of premium products refers to the dispensing of lens options that directly enhance the patient’s experience of eyewear purchases. Progressive multifocal lenses, AR coatings, high-index materials and photochromic lenses are examples.

How to calculate

• COGS: COGS is determined by adding all optical and contact lens-related expenses for the period (quarterly). To obtain the most accurate number, allocate a portion of the utility, telephone, rent and other related expenses. COGS is represented as a percentage of total collected revenue. The value should be no higher than 30% when contact lenses are included, and slightly lower when just evaluating your optical portion.

• Inventory: I suggest using inventory-tracking software. Your current inventory value is always readily available and can be compared with prior periods to evaluate growth and usage. Another method is to physically count each product unit and assign it a cost.

Most practices with gross collected revenues of $600,000 carry approximately 700 frames. More important than the total number is the product mix. For example, if your practice specializes in pediatric care, a majority of the frames would be targeted to children.

• Premium products: Calculating usage can easily be determined by evaluating patient ledger billing. Your optical lab rep is a great source to not only provide a historical snapshot of your premium product utilization, but also provide benchmark goals for each product segment.

Steps to fix

• COGS: If your COGS is too high (>30%), you have two options: (1) collect more revenue, or (2) lower the expenses. Evaluate your optical lab bills to ensure you’re getting the best pricing. Also, review your product pricing. Most practices use a fixed markup between 2.5 or 3 times the cost. Evaluate the fee schedule whenever your acquisition cost increases.

• Inventory: Speak with your frame reps to determine what the expected turnover rate should be for each product category. Total inventory levels should match revenue volume. If you use a large number of vendors, consider consolidating to achieve better discount levels by purchasing more product from fewer vendors.

• Premium products: If sales are not at expected levels, ensure that your staff is introducing the products, when recommended by the O.D., and as part of the treatment plan. Also, work with your optical lab to develop “packages” to present to patients during eyewear selection. OM

DR. MILLS PRACTICES AT OCEAN STATE EYE CARE IN WARWICK, R.I., AND HOLDS A M.B.A. FROM PROVIDENCE COLLEGE. E-MAIL HIM AT MILLSD@NECO.EDU OR COMMENT AT TINYURL.COM/OMCOMMENT.