BUSINESS

  BUSINESS STRATEGIES

WATCH YOUR PRODUCT PRICES

MAINTAIN HEALTHY MARGINS SO YOUR PRACTICE ISN’T RUNNING ON FUMES

GARY GERBER, O.D.

A FEW MONTHS ago, N.J. Governor Chris Christie signed a bill that increases tax on gasoline by $0.23 per gallon. On the day the law went into effect, gas prices jumped $0.23. If he signed a bill for a tax increase, why did prices increase? Here’s one answer for you: Because gas station owners don’t run their businesses the same as optometrists run their businesses. I know what you’re thinking: “Why would they? There’s no link between gas stations and optometry practices.” Actually, there is.

THE CONNECTION

Both gas stations and optometry practices have to deal with products and profit margins. However, we, as optometrists, customarily deal with them very differently.

Even before the tax increase, gas prices were known, and, at this point, expected to vary nearly day-to-day. This is because the price of gas charged to dealers changes frequently. As it changes, owners most likely have a fixed profit margin they want to maintain. The owner thinks, “If I have to pay more, so do you. If I get taxed $0.23 per gallon, you’re paying for that increase, not me.”

In optometry practices, that is rarely the case. In fact, product pricing for most O.D.s is not only rock-solid stable, it’s profit-sucking stagnant. When we are faced with a price increase from a frame, lens or contact lens vendor, few of us pass it along to the patient. Instead, we customarily “eat it.” Perhaps what is more disconcerting is that in my consulting experience, these price increases are rarely even known to practice owners.

PRICE MONITORING

Maintaining constant product pricing to patients isn’t necessarily an incorrect or bad business practice, but you need to be aware that it’s happening and understand its effect on your bottom line. With so many assorted product vendors in our practices — from frames to laser printer toner — a seemingly 1% to 2% increase in overall costs, that is not passed along to patients, comes directly off a practice’s bottom line.

In real dollars, compounded through a few years, a hypothetical practice that grosses $600,000 per year, (assuming no growth) with a 28% net, that doesn’t keep an eye on creeping wholesale pricing increases of say 2% per year for five years, will lose $48,000 bottom line net dollars. What about when wholesale prices fall? Yes. From time to time, the prices you pay may fall due to manufacturer pricing changes or special promotions.

For reasons I’ve never quite figured out, many owners are quick to “pass along the savings” to patients. Should you do this, make sure you continually monitor pricing so that when it creeps back up — which invariably it always does — you readjust patient pricing to maintain your profit margins.

PROFIT MARGINS

There’s nothing wrong with providing value to your patients. But keep in mind, value isn’t only a function of price. The quality of the products you provide and the experience patients receive when they get those products is also important. Watch your pricing carefully to maintain sustainable and healthy practice margins. OM

DR. GERBER is the president of the Power Practice, a company specializing in making optometrists more profitable. Learn more at www.powerpractice.com, or call Dr. Gerber at (888) 356-4447.