CONSIDER TRACKING EXPENSES AS SUBCATEGORIES OF REVENUE STREAMS

ALL EXPENSES are attributable to the creation of revenue through one of four sources (clinical, optical, contact lens and other), discussed in last month’s column. To determine the profitability of each part of your business, consider tracking your expenses as subcategories of these revenue sources. For example, in most practices, we look at cost of goods (COG) as an expense.

After analyzing the real profitability of each revenue stream, you can develop a game plan to make every part of your business more profitable.

ANALYZE REAL PROFIT

Use the profit and loss statement from last month’s column. Now, we’ll do the math!

Operating expenses are those associated with the main activity of the business. As such, these expenses, such as brand marketing, may not be specifically attributable to any one revenue source, however, the value could be — and should be — divided equally among the revenue sources. To help some of you ease in to this way of thinking, we can use those “old” categories, such as administrative, as subcategories of revenue. For example, take labor costs. Calculate what percentage of your labor costs support clinical services, optical services, contact lens services and other services. Do the same for each subcategory you were tracking. Some categories are easier to quantify than others — for example, occupancy, which you can assign to each revenue source per percentage of occupied square footage.

Now, outline both sales revenue and expenses for each revenue stream. (See chart for an example.)

With this method, you now know whether your optical is profitable, indicated by a positive number as a result of total optical revenue – total optical expenses. If it is a negative number, your optical is not profitable. By repeating the same process for each of the other revenue sources, you can identify the profitable parts of the practice and start strategizing to improve each area. OM

MR. BINKOWITZ is president and CEO of Gateway Professional Network, a technology and business management services company. Mr. Binkowitz has extensive experience in retail operations, merchandising, marketing, manufacturing, distribution, technology development, national sales and on-site interactive consulting. Email him at AskJay@GatewayPN.com.