Road Map To Success: Growing Optical in an Uncertain Economy
By Bob Teale, BBA; COE
Many practices have optical shops. In fact, about 60% of all ophthalmology practices I call on have them.
Given today’s challenging practice environment in which carriers like Medicare are looking to reduce fees to doctors, why not take advantage of this ideal business opportunity? Your efforts might just reveal the “magic bullet” that will significantly increase practice revenue. Many practices have optical shops. In fact, about 60% of all ophthalmology practices I call on have them.
However, few of these shops are hitting appropriate, established benchmarks when compared to industry standards. The truth is that many physicians often overlook the possibility of turning their optical into a viable business opportunity. Many say, “Oh, the optical is just here for the convenience of my patients.” This is a major mistake.
All too often, an in-depth analysis of an optical shop income statement will uncover an underperforming asset that is operating as a liability within the practice. And, more than likely, the doctor is not aware that the optical shop is on the wrong side of the profit/loss statement. The good news is that it does not take much analysis to recognize what’s working in an optical shop and what’s not.
Ophthalmology benchmarks have long been viewed as valuable tools for doctors to “temperature check” their financial interests compared to “best practices.” For example: Do you know that optical shop total revenue should be about 25% of a clinic’s revenue over the same period of time? (i.e., Annual Clinic Revenue is $1,000,000. Optical Revenue should be $250,000 if benchmarks are in line. Total Practice Revenue: $1,250,000) Knowing this benchmark, and others found in the accompanying table, can give doctors the guidance needed to improve optical shop performance relatively quickly.
|Cost of Goods Ratio (COG)
Frames, lenses, and optical lab fees divided by net collections.*
w/Finishing Lab: 30–32%
|Operating Expense Ratio (OE)
Rent, utilities, phone, optician payroll, etc. divided by net collections.*
Number of prescriptions written by practice doctors divided by the number of prescriptions filled in the practice optical shop.
|60% (MD practice)
80% (OD practice)
|Net Collections per FTE Optician
Net collections* divided by the number of FTE opticians.
|Net Income Ratio
Net collections* minus OE minus COG divided by net collections.*
Gross payroll of opticians divided by net collections.*
|* Net collections is defined as all money received by the optical shop for frames, lenses, and accessories, net of patient refunds.|
Simply understanding that these benchmarks exist and are being achieved by acknowledged “best practices” can provide practices with a road map to success when evaluating their optical shop.
If you are interested in having an analysis of your optical shop performed, please call me at 703-350-9191 or email me at [email protected].
About the author: Bob Teale, COE, OCS, is a Senior Eye Care Business Advisor with MMC, and can be contacted at [email protected].