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Inventory RATE

Four components to managing your frame boards

JAY BINKOWITZ

Frame inventory is one of the main ongoing expenses and also one of the largest opportunities to create profit and provide consumers with a lasting impression. Managing inventory requires time, thought and a keen insight.

Lets take a look at four components of managing inventory that I refer to as RATE:

1) Rotate (frequency of product placement rotation)

2) Assess (percentage of styles from a collection that sell the best)

3) Turn (number of units of a collection sold in a certain time)

4) Evaluate (profit for individual sales through time)

1 Rotate

Do your favorite stores always keep the same products in the same place, or do they rotate inventory to showcase new and exciting products? The stores might not have received new products, but because they rotate them, you think they’re new — and that’s all that counts. So, rotate your merchandise at least quarterly to give your customers something new and exciting to see.

2 Assess

When assessing and refining your inventory, the 80/20 rule — 80% of total sales is represented by 20% of your inventory — may prove helpful. For instance, let’s say you purchase 25 units of a collection, in 25 different frame styles. If only 20% of the units sell, roughly five styles will make up your sell through. Is that productive? A better option is to purchase the five or six frame styles in several colors. This maximizes your investment and reduces the amount of time and space you dedicate to supporting the line.

3 Turn

Calculating your inventory’s turn rate can help identify your top sellers and biggest flops. Start by setting a baseline. Calculate the “turnover” rate for your entire inventory by dividing the total number of units by units sold. (You should do this quarterly and annually for the previous year to track your results.) Next, calculate the turnover rate for each collection, and compare your results against the baseline.

A rule of thumb is that your turnover rate should be two. So, every frame you carry should be sold twice per year. Keep in mind, some luxury or niche lines may realize less than two sales annually, but you still need to carry them to provide a robust selection.

I recommend not including kids, highly specialized frames, such as extreme oversized collections or plano sunwear. These categories should be assessed on their own, as they will likely skew your results.

4 Evaluate

A great turnover rate does not always equal profit. To ensure the right pricing strategy, evaluate the net results of individual transactions, broken down into two categories: Private pay and vision plan pay.

To calculate net profit, look at the total sales of a particular collection for a period of time (from two weeks to a month): Net profit = revenue from patient + product revenue/dispensing fees from plan - net cost of goods after discount.

Aim for 2.5 to 3 times the cost of goods for plans vs. 3+ times for private pay. For example, if the net cost of a frame and lenses is $125, aim for a net profit of $312.50 for vision plan pay and $375 for private pay.

Get started

Now you have the knowledge to maximize your financial investment in your inventory as well as the time to dedicate to it. Every dollar and every minute counts. Get your team behind you, and make every day profitable. OM

MR. BINKOWITZ IS THE PRESIDENT OF GPN, AN OPTOMETRIC CONSULTING COMPANY BASED IN HUNTINGTON, N.Y. HE HAS HAD EXTENSIVE EXPERIENCE IN RETAIL OPERATIONS, MERCHANDISING AND MARKETING. E-MAIL HIM AT JAY@GATEWAYPN.COM, OR TO COMMENT ON THIS ARTICLE, VISIT TINYURL.COM/OMCOMMENT.