By Jay Binkowitz, dba Contributor
Can your business grow profitably? Absolutely! But in order to obtain it, both multi-location retailers as well as large independents can significantly benefit by teaching their staffs how to achieve it.
Let's go straight for the low hanging fruit. If you don't buy at the right price and sell at the right price you will not be profitable. It is important to understand that generating revenue does not always mean generating profit. We have to share this information with our staff to make sure that they understand the impact of their decisions. I have sat through many office meetings at many practices throughout the country and have seen a lot of emphasis on revenue and production numbers. But I have rarely seen meetings about profit.
If you increase the number of exams you do, the number of complete pairs of eyewear you sell and the number of annual contact lenses you supply but you do not increase your profit, then everybody is working hard at making all of your vendors happy. But what about you? How do you teach your staff to correctly monitor cost of goods?
Define and Track Your Cost of Goods
Your cost of goods is the cost of purchasing a product against the cost of selling the same product. It is not the cost of products against total revenue for your practice. For example, if you have gross revenue of $1 million and you have product purchases of $300,000, then your cost of goods is not 30 percent. You need to separate your dispensary sales from your clinic revenue (gross revenue equals $1 million comprised of $500,000 from the clinic and $500,000 from the dispensary.) In this case, your cost of goods is $300,000 divided by $500,000, which equals 60 percent. If your cost of goods is 60 percent, you're out of business! Your dispensary is a value added service and not a profitable business.
Buy Right, Buy Deep
Your frame buyers should never buy just six, eight or 10 of a frame line. Consumers are not impressed with a very limited selection, plus you'll end up with too many brands. It is more productive, and more profitable, to buy 25 or 30 of one particular brand. If you're not comfortable with that number, don't buy that brand. With 600 frames on display, you should have no more than 20 brands, 30 of each. It's that simple. Make sure you and your frame buyers follow this rule. You will have a better turnover rate, and your patients will feel more satisfied when they make a selection. Both of these support profit.
Take Advantage of High Margin Products
There are many frame companies that offer "closeouts" and deeply discounted frames. You're missing out if you don't have at least 20 percent of your board dedicated to these. Teach your staff to stop worrying about warranties and the "myths" about these products. Who cares if the vendors sell it out or you can't exchange or replace it? You made so much more "profit" on all the other sales you can more than afford to make up a new pair of glasses. Forget about the one percent; focus on the 99 percent and make more profit.
Price It Right
Stop worrying about patient pushback. Do you know what would happen if you raised all of your prices by $10 tomorrow? You will still have the same patient pushback, but you will make 10 more dollars! Frames should never be marked up less than three times and should ideally be marked up 3.2 to 3.4 times. At less than this you will not generate a profit with vision plans. Any frame on your board priced at less than $159 cannot make a profit with vision plans. We call this "minimum list price." (Of special note, though, is the fact that there are some frame lines considered luxury that do sell at a markup of 2.8 times.) You and your staff also need to be sure to price high margin products as if you paid full price for them. Just because you employ smart buyers does not mean you have to pass on the savings. Do you think every business you buy from in your life "passes on" the savings when they buy smart?
Use Stock Lenses
A substantial 80 percent of your single vision lens purchases can be stock lenses. This will impact your lab costs by up to 15 percent and more. Train yourself and some of your staff how to edge lenses in-house. Edger suppliers will even provide the training as a part of the purchase price. The cost of having an edger is always offset by the ability to deliver great service, control the manufacturing process and reduce the cost of goods. If you'd prefer not to have your staff edge in-house, there are labs that have stock lenses available and will edge them for you. Your savings will be significant.
Spot Check Profit
Even after you've taught these rules to your staff, keep an eye on them to make sure they are keeping an eye on your goals. Randomly spot check 10 sales per week for profitability. Your goal is to have a cost of goods no higher than 34 percent and ideally 30 percent to 32 percent. With a strong commitment you can achieve less than 30 percent, however this will vary depending on the mix of vision care plan patients you see and how many high end/luxury products you sell.
When you teach your staff to monitor your cost of goods first and combine that with profitable board management strategies and sensible buying habits, profitability will surely improve.
Jay Binkowitz, optometric business consultant, is chief executive officer and president of
GPN, exclusive provider of The EDGE.
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