Be more profitable in Optical: 5 things you need to consider NOW! - E11
Let's be honest with ourselves, in private practice we run a business. We love seeing patients and being positive influences on the communities in which we work, but we have to run a profitable business to continue to do what we love. In addition, regardless of our feelings for it, our opticals account for 40-50% of our revenues. It would behoove each and everyone of us to maximize our optical profit. I am going to outline some simple ways to do just that.
Cash is king and the more you have on hand the healthier your office will be. Frame inventory eats up that cash and if you are not careful, you will be “frame” rich and cash poor. This can be incredibly detrimental in times of need (say a pandemic). When you look at advice from so-called experts the perfect number of frames can range from 300-1000 for a single doctor location. Think about an average frame cost of $100 and that is 30k-100k of inventory just sitting there collecting dust. We need frames to make money, but you need to be smart about how many you have and consider options such as consignment frames to fill up your boards. Having a good idea what is selling and what is just taking up space is a must.
This brings us to the concept of turn rate. Simply put, turn rate is the number of frames sold in a certain time period divided by the total number of frames you have. This will let you know if you have too much or too little inventory. Again this metric will vary amongst the experts, but a good rule of thumb is to shoot for a turn rate of 3. If you are below 3 you have a slow turn rate and most likely too many frames. On the other hand, if your turn rate is 4 or more, you probably have too few frames and may want to invest in a few new frames lines to beef up your offerings. I suggest exchanging the frames that are taking up space for the ones that are selling.
The point here is you need to know your numbers and use the data to eliminate what is not moving and ensure you do not have duplicate lines on your board. If they look identical and just have different brand names, you have excess inventory.
Now that we have calculated the perfect number of frames for your office, you need to consider your price distribution. I advise a bell curve distribution so you have low, medium, and high priced frames. 70-80% are going to fall in that middle portion. 10-15% low end and 10-15% high end. You never want too many low end frames and you want your high end frames to pull the middle towards them, that is, make the middle move to the right of the curve vs the left.
Loss Leaders/ Wow frames
As we were discussing the pricing distribution, you may ask why we do not want a ton of high end frames. The answer is simple, the more high end frames you have the more inventory cost you will have. Now if their turn rate is over 3, go for it, but in most offices the purpose of the high end frame is to be a loss leader. If the Jimmy Choo frame is $500, your middle of the road frame for $275 looks a lot more affordable. The name brands and high end stuff get people excited and in the office, but they move a little less frequently than your core stuff and that is fine. Additionally, you need to make your optical memorable with some unique frames. Have crazy shapes, colors, and sizes, just do not go overboard. These are the frames people love to talk about, come into the office to see, but they are not the bread and butter of profitability.
Lastly in the world of managed care, you need to mark up your frames 3.5-4x the wholesale cost. The days of 2.5-3x have come and gone. Make sure you keep a small contingency that is covered or only $10-15 dollars after the patients allowance as there are a handful who do not want to spend a penny more than their coverage, however; in my experience, that is the exception rather than the rule. Most people will buy a frame they like and skimp on the lenses, so make sure you make the desirable frames worth it for you!
There you have it, 5 easy ways to increase your optical revenue. Make these changes and thank me later!
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