Most optometrists that we speak to agree strongly that Metrics are essential for managing their businesses well. However, they all have the same challenge when it comes to implementation—time.  Managing a practice in between patients is difficult, if not impossible.

While moving to an automated system to generate Key Performance Metrics can save hours of time each month, it is also crucial to have these metrics reviewed and a plan developed based on the results.

As we have written in past articles, it is essential that the practice owner be involved in this process. However, it can also be effective to bring in an office manager or other trusted employee to help with the management and implementation of goals.

One of the metrics that we follow in SIMI Analytics is the mix of patients. For instance, of all the patients seen, what percentage are children, adults and seniors for each owner and each associate? We also follow how many new patients are seen by each OD. As time goes on, the older the practice, the older the patient base. It is essential that ALL ODs have a growing practice, not only the newer associates.

These are relatively easy metrics for staff to have control over and track the types of patients seen and the appointment codes booked. Many software systems allow the practice to colour code specific appointment times. Using this, the staff can create a colour grid to help them achieve their goal of an ideal mix.

Once they have filled, for example, the new patient spot for one doctor that day, they may choose to schedule the next new patient with another doctor to spread out the new patients. Once the doctor has established what their “perfect day” looks like, the team can colour coordinate the schedule to make that the goal. Of course, there will be exceptions, and a filled schedule is preferred to gaps in the day. On a monthly basis, the staff can review the metrics for that month to see how closely they came to achieving the ideal on an average day.

Another metric that staff can have a lot of control over is diagnostic capture rate. While it is the doctor’s recommendation that often influences the patient’s decision to proceed with additional testing, the staff can ensure that someone is always available to conduct the testing. Again, the staff can see the accumulative results on a monthly basis. Whether tied to a bonus system or simply used for intrinsic motivational purposes, staff owning the results can have a large impact on the performance of a practice.

There are a number of metrics that can be tracked in the optical to encourage staff ownership of the results. Progressives sales, sunglass sales and second pairs are all metrics that should be tracked, and preferably by the staff. When individuals track results, there is more likely to be a desire to have an impact on them.

 

CHRISTINA FERRARI

is the co-founder and managing partner of Simple Innovative Management Ideas (SIMI) Inc. and expert Practice Management contributor for Optik magazine. She can be reached at info@simiinc.com


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There are two important metrics that ODs should be monitoring in thedispensary: Optical Capture Rate and Inventory Turnover Rate. We’ve pulled these metrics from a recently published discussion, by VisionWeb, of eight metrics that optometric consultants Gary Gerber, OD, and Steve Sunder, of the VisionWeb team, consider the most useful diagnostic tools for independent ODs. Their e-book, 8 Benchmarks ODs Need to Monitor in Their Practice, comes with a downloadable Excel sheet that does all of the math for you! The e-book can be downloaded HERE.
In order to present the data for these metrics, we have drawn numbers from the Management & Business Academy (MBA) – a research program sponsored by Essilor. Over seven years, MBA gathered performance data from more than 1,800 US optometric practices. It has published the most comprehensive compilation of benchmarks currently available. You can visit mba-ce.com to access the MBA metrics research.
While the first article in this series discussed two key revenue metrics every practice should be keeping track of, this article will present two key metrics ODs should be monitoring in their dispensary.

OPTICAL CAPTURE RATE

Showrooming has become a big problem for many eyecare practices. Patients are coming in and trying on frames in your dispensary, only to go home and make their frame purchase online. Evaluating this metric can help you determine if your practice is falling victim to showrooming.
You can look at this formula two different ways. Adding the results of these two formulas should give you 100 percent of your patients given a prescription. Let’s take a look:
Formula 1: Number of Patients who Filled their Prescription in your office / Number of Patients given a Prescription = Optical Capture Rate.
MBA Example: 44 Filled Prescriptions / 68 Prescriptions Given = 65% Capture Rate

OR
Formula 2: Number of People who didn’t Fill their Prescription / Number of Patients given a Prescription = Walkout Rate
MBA Example: 24 Unfilled Prescriptions / 68 Prescriptions Given = 35% Walkout Rate

Industry data, based on consumer surveys, indicates that independent ECPs perform 68 percent of all exams given, but sell only 44 percent of frame units. That’s how we got to the numbers used in the MBA example above. Close to one in three patients of typical independent ODs take their eyeglass prescription to be filled somewhere else, and this walkout rate represents a large loss of revenue for ECPs.
The MBA surveys also indicated that many ODs grossly underestimate the true walkout ratio of frame purchases by their patients. And relatively few ODs are taking the time to track their capture rate. While it’s uncertain for sure that all patients who don’t purchase frames from you are purchasing from another vendor, you can gain a reasonable estimate by tracking the number of frames dispensed and the number of Rxes given.
Survey data shows that patients take their eyewear Rx elsewhere, usually to a chain provider, for perceived reasons including:
• Lower price
• Better selection
• Better assistance from greater expertise of chain opticians
• More attractive merchandising of frames
• Greater focus of chain retailer on selling eyewear
If you’re unhappy with your practice’s capture rate, these are the areas you should be focusing on in your dispensary.

METRIC #2: INVENTORY TURNOVER RATE

Measuring inventory turnover rate in your dispensary is a simple metric to monitor, as most practices have easy access to the variables: number of frame sales in units and number of frames in inventory over the same period.
The Formula: Annual Frame Unit Sales / Number of Frames in Inventory Annually = Inventory Turnover Rate
*MBA Example: 1,603 / 890 = 1.8 Inventory Turnover Rate

Inventory turnover is highly correlated with practice size, so a single benchmark for all practices can be hard to determine. The median practice, measured by MBA, has an annual inventory turnover rate of 1.8, while practices grossing over $3 million had an annual turnover of three or more.

Larger practices have a higher turnover because a majority operate single locations and are able to offer patients more choices without increasing the number in inventory proportional to their volume differential, over smaller practices.
Keep in mind, a high frame turnover is not always a desirable goal. Frame turnover can be kept high if you have limited options available, which might be the case for higher-end dispensaries. But, having lower inventory can lower your eyewear capture rate. Typical ECPs carry 5-10 percent fewer frame options than they should to optimize patient selection.

Action Points to Fine-Tune Frames Inventory

Assuming your practice offers sufficient selection, a higher turnover can be achieved by:
• Regularly monitoring turnover of each frame and frame brand, and eliminating the number of frames with no unit sales in 12 months and slow-moving brands.

• Eliminating duplicative product lines.

• Limiting the amount of frames in storage and not on display to less than 5 percent of total inventory.

 

Related Review of OptometryArticles

Key Benchmarks to Track for Practice Profitability

Key Revenue Metrics for Independent ODs: Revenue Per Patient & Revenue Per Staff Hour

Top Metric to Track: Eyewear Rxes per 100 Complete Exams

THOMAS F. STEINER

Thomas F. Steiner, Director of Market Research for ROB, has spent more than 25 years helping eyecare practices succeed, including pioneering the introduction of color contact lenses into optometry. To contact him: tnlsteiner@comcast.net


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One of the most important management tasks in any eyecare practice is routinely tracking practice performance. Keeping a close eye on key metrics can reveal the successes, failures and opportunities. As CEO of your practice, you need to be on top of the financial health of your practice, and take corrective action to improve the areas of your business that may be falling behind compared to others. This is where key metric monitoring comes in.
VisionWeb produced an e-book, authored by Gary Gerber, OD, of the Power Practice;and Steve Sunder of VisionWeb, that includes eight key metrics deemed the most helpful in measuring the performance of independent optical practices. Their eBook, 8 Benchmarks ODs Need to Monitor in Their Practice, comes with a downloadable excel sheet that does all of the math for you! The eBook can be downloaded HERE.

METRIC 1: REVENUE PER PATIENT

Revenue per patient is calculated in a few different ways, depending on if you want to determine revenue per comprehensive exam patient, or revenue per all patients (including medical eyecare treatment patients). Let’s take a look at both formulas below:
The Formula: Gross Annual Revenue / # of Annual Exams Performed = Revenue/Patient
*MBA Example: $659,736 / 2,156** = $306
OR
The Formula: Gross Annual Revenue / # Total Patient Visits = Revenue/Patient
MBA Example: $659,736 / 2,598*** = $254

The national performance of ODs on this metric is very slowly increasing, through inflation and the gradual increase in dispensing of new technology products. On top of that, there is considerable variation in gross revenue per exam across practices. The most productive 10 percentof practices see revenue per exam nearly two thirds higher than the median (see table below).

*MBA example numbers are based off MBA norms. MBA has not directly measured gross revenue per medical eyecare visit, but available data suggests that the average revenue per medical eyecare visit is roughly comparable to that from an eye exam visit.
**Assumes 1.1 complete exams per hour for ODs working 1,960 hours annually (49 weeks at 40 hours per week).
***Assumes 2,156 complete exams and 442 medical eye care visits (17 percent of total visits).

Shown above in the chart are MBA (US data) norms: The median is $306, but the goal to aim for is the higher amount achieved by the75th percentile of all OD practices in the database. The highest percentile achieves an even higher revenue figure.

Improving Your Gross Revenue per Exam

If your practice is falling below the median, there are opportunities to increase revenue per exam with little or no cash outlay through office practice changes. Many variables can impact gross revenue per exam, but ODs should focus on the following to help increase revenue per exam:
• Average eyewear sale/dispensing ratios for premium lenses and frames
• Eyewear capture rate
• Professional fees
• Eyewear retail pricing
• Multiple eyewear purchase ratio

METRIC 2: REVENUE PER STAFF HOUR

Monitoring revenue per staff hour will help you evaluate the efficiency of patient management by your staff, and can signal if your office is over- or under-staffed. The median staff hours and revenue in this calculation can vary depending on the time period you want to measure. Here we look at annual hours and revenue, but you could also measure this on a monthly basis.
The Formula: Gross Revenue / Annual Median Staff Hours = Median Revenue/Staff Hour
MBA Example: $659,736 / 7,949**** = $83

****Equivalent to four full-time staff members.

Revenue per staff hour is weakly correlated with practice size, and the norm for this benchmark hasn’t changed in over seven years of measurement! Sixty percent of practices have a revenue per staff hour ratio between $70 – $100. If you’re getting a revenue per staff hour over $100 you should review your workflow and determine if staff additions would improve patient service. On the other hand, if your practice is suffering from a low performance on this benchmark, it could be from:

• Over-staffing
• Low revenue per complete exam
• Active patient base too small to support staff
• Staff hours to OD hours ratio of five or more – indicative of an inefficient patient service process

Related ROB Articles

Top Metric to Track: Eyewear Rxes per 100 Complete Exams

Top Metric to Track: Complete Exams per OD Hour

Top Metric to Track: Gross Revenue per Complete Exam

THOMAS F. STEINER

Thomas F. Steiner, Director of Market Research for ROB, has spent more than 25 years helping eyecare practices succeed, including pioneering the introduction of color contact lenses into optometry. To contact him: tnlsteiner@comcast.net


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This final article of our three-part series on important benchmarks ODs need to monitor, looks at chair cost and expense ratios. All six benchmarks discussed in this series were pulled from a VisionWeb discussion of eight metrics optometric consultants Gary Gerber, OD, and Steve Sunder, of VisionWeb, deemed as important metrics to be tracked on a regular basis.

When we break down these benchmarks, we look at data drawn from the Management & Business Academy (MBA),a research program sponsored by Essilor. Over seven years, MBA gathered performance data from more than 1,800 optometric practices across the US. It has published the most comprehensive compilation of benchmarks currently available. You can visit mba-ce.com to access the MBA metrics research.

In total, the benchmarks covered in this series have included:
• Gross Revenue per Patient
• Gross Revenue per Staff Hour
• Optical Capture Rate
• Inventory Turnover Ratio
• Chair Cost
• Expense Ratios
If you want to monitor these benchmarks, plus two bonus benchmarks, in your own practice, you can download VisionWeb’s e-book HERE.

Chair cost is an important metric for independent ODs, providing one basis to establish professional fees and make judgments about which managed care plans to accept. There are a couple different ways to look at chair cost. You can determine chair cost from the total number of annual visits, or total number of annual exams.
Formula 1: Fixed Costs / Complete Annual Exams = Chair Cost per Exam
MBA Example: $260,876* / 2,156 = $121 per Exam
Formula 2: Fixed Costs / Complete Annual Patient Visits = Chair Cost per Visit
MBA Example: $260,876 / 2,598 = $100 per Patient Visit

The first thing you need to do in order to determine your chair cost is to calculate your fixed costs. You can calculate your fixed costs by subtracting your operating expenses, your doctor payroll, and your net, from your gross income. From there, you will divide your fixed costs by the number of complete annual exams, or annual patient visits, to get your chair cost.
MBA norms calculate a chair cost of $100 per patient visit. The most important thing here is making sure that your chair cost is lower than your insurance reimbursement.
*Fixed costs were determined by this formula: Gross revenue minus OD compensation minus Net minus COG.
MBA norms calculate a chair cost of $100 per patient visit. The most important thing here is making sure that your chair cost is lower than your insurance reimbursement.

METRIC #2: EXPENSE RATIOS

Monitoring expense ratios helps ECPs develop annual budgets and evaluate opportunities to raise net income by reducing expenses. The MBA has published expense ratios for the major expense categories that all independent ODs face.
The Formula: (Expense / Revenue) x 100 percent = Expense Rate to Revenue
MBA Example: (Cost-of-Goods): ($191,323 / $659,736) x $100 = 29% of Revenue

Typical expense ratios vary by practice size. In general, larger practices have somewhat lower ratios for cost-of-goods, occupancy, and general overhead expenses, but somewhat higher staffing ratios. The result is that larger practices, on average, enjoy net income ratios 10-15 percent above the median for all practices.

THOMAS F. STEINER

Thomas F. Steiner, Director of Market Research for ROB, has spent more than 25 years helping eyecare practices succeed, including pioneering the introduction of color contact lenses into optometry. To contact him: tnlsteiner@comcast.net


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One of my favorite expressions is “measure twice and cut once!” These words of wisdom have been a mainstay of the construction industry for years. If you double-check your measurements, it is less likely that errors will occur and the business will be more profitable.
This business philosophy can also apply to an optometry practice. It is important to measure the financial key metrics of a practice in order to maximize the NET income and ensure an efficiently run business.
Here are the Hayes Center for Practice Excellence’s 7 Key Financial Metrics and how my practice has benefited from measuring and monitoring these financial benchmarks.
How do you measure the 7 Key Metrics?
The use of a computer financial software program has made the reporting of financial metrics much easier. We use QuickBooks by Intuit for all of our bill paying and deposits. At the end of each reporting period, my business manager generates a profit and loss statement with “percentages of gross income” selected in the reporting criteria section. Some initial work is required to set up the categories in QuickBooks based on deposits and payments to vendors and suppliers during the reporting period.

IDENTIFY KEY METRICS

 

ET SPENDING GOALS

Cost of Goods Sold COGS (26 percent-32 percent) – The Cost of Goods sold category is always the highest single expense in a traditional optometry practice. The following items should always be included in your Cost of Goods:
• Lab bills, blanks, uncut lens blanks
• Frames and cases
• Fair allocation for lab floor space
• Lab equipment, edger, surfacing equipment, dye unit
• Pro rata share of optician’s salary (excluding labor as a COGS is a common mistake)
Staff Expenses (18 percent-24 percent) – The second largest expense for traditional practices is what it costs to employ and support your staff. Staff expenses does not include the salaries paid to employed ODs; that goes under Doctors’ Net Income. Staff expenses also does not include wages for lab employees who cut, edge or surface lenses. Those wages go under the Cost of Goods category. Staff Expenses includes the following:
• Salaries
• Payroll taxes
• Uniforms
• Insurance
• Continuing education and other training
Occupancy Costs (5 percent-8 percent) – If you own your building, treat yourself as the landlord and your practice as the tenant who rents from you. Be sure the practice pays you fair market rent even if the building is paid off. Otherwise, you will be personally subsidizing the overhead of your practice in our profitability model.
While rent and interest are tax deductible, principal payments are not. The total you are spending to occupy your office is what counts, not how much you write off. The following are all considered occupancy costs:
• Rent
• Property taxes
• Utilities
• Maintenance
• Janitorial
• Insurance (property)
Examination Equipment (3 percent-5 percent) – Your examination equipment includes not only the equipment, but also the expenses associated with the equipment such as:
• Leases
• Interest on Loans
• Depreciation
• Service Contracts
• Maintenance
Marketing and Promotion (1 percent-2 percent) – Marketing expenses are highly discretionary. Interestingly, low-netting practices tend to spend more on marketing than high-netting practices. However, this does not mean that low-budget advertising is the way to go. The effectiveness of low-budget advertising is questionable. Things you should include in marketing and promotion are:
• TV, radio, and newspaper advertising
• Direct mail advertising
• Yellow Pages listings (However, this cost is often lumped in with the phone bill.)
• Web site
• Recall Services
• Web Review Site fees (Yelp, etc.)
General Office Overhead (6 percent-9 percent) – This category will include all other expenses you have for running your practice. It should include things such as the following:
• Front office equipment
• Phone
• Postage
• Legal fees
• Accounting fees
• Dues
• Subscriptions
• Insurance
• Office Supplies
Doctor’s Compensation (30 percent+) – The last item on the Hayes Seven Key Expenses is doctor’s compensation. Hopefully, this will be your largest percent of gross. This compensation would include:
• Salaries for the owner and any employed ODs
• Heath Insurance and Other Benefits
• Corporate Profits
• Pension and Profit Sharing
• Personal automobiles
• Cell Phone

SET PERFORMANCE GOALS

What made you change the way you look at your practice finances?
One of my job responsibilities at Southern College of Optometry is Director of the Hayes Center for Practice Excellence. I teach current and future optometrists the business side of practice. This provided me with the opportunity to enter into a Master of Business Administration program at a local university. My practice was struggling with its profitability and I was also looking for answers. The completion of the MBA degree taught me how to better manage the business side of my own practice. I can now share this knowledge and my experiences with students and fellow practitioners.
What are some of the variables that can affect the key metric percentages?
The first variable to look at is your fee structure. If fees currently charged for professional services, as well as materials, are too low, then the resultant key metric percentages will be significantly affected. This may signal the need to raise fees to compensate for increasing costs and expenses. Our practice had gotten complacent over a 3-4 year period and did not raise fees. This resulted in a steady decline in our NET income. We initiated a review of our current fee schedule and raised our professional service fees over a two-year period. Ophthalmic material fees were also adjusted where needed.
The other variable to examine is expenses. As mentioned in the breakdown of the Hayes 7 Key expenses, Costs of Goods sold and staff expenses are the two biggest expense categories. I personally feel that a staff that is efficient and productive should be well compensated, so I don’t have a problem with staff expenses being on the high side of the 18-24 percent range. Our staff expenses are 24 percent and they are very dedicated and hard working! Assuming the practitioner is doing a good job managing their operating expenses such as occupancy costs and equipment expenses, COGS is the category that deserves the most attention and can have the greatest impact on your bottom line.
What about Managed Care?
There is no doubt the increase in the number of managed care vision plans has affected the profitability of many optometry practices. Lower reimbursements can translate into lower collected gross receipts and lower NET income for the doctor. There are ways to battle this giant! Increased use of staff delegation and improvement in patient flow through the office can result in improved efficiency, and thus, more patients can be seen during the work day. But other changes may be needed to maximize the practice NET income. Better optical material purchasing decisions along with policies controlling other office expenses need to be in place. We scrutinize all purchases in the office and compare prices before a decision is made. We also use a manageable amount of good debt when purchasing major equipment and make lease hold improvements. By measuring the key financial expenses regularly and running your practice like a business, managed care can be beneficial to many optometry practices.

How did measuring your practice improve the bottom line?
After setting up our QuickBooks accounts and measuring the expense categories, we found our COGs percentages were significantly out of line with the Hayes Key Metric suggested goals. We made a change in our office manager and frame buyer and empowered a new trusted employee to correct the COGS problem. By doing this, our office reduced the COGS percentage in a short period of time. Our new office manager/buyer was given a budget and began the task of reorganizing the frame inventory and examining the ophthalmic lens and contact lens expenses. She eliminated some of the frame companies that had poor customer policies and this allowed us to increase our bargaining buying power. Our new office manager also attended education courses on frame board management and merchandising. Negotiations with ophthalmic lens suppliers also helped with margins. Contact lens purchases were more closely monitored and product returns expedited in a timely manner. In other words, the entire practice mentality changed and resulted in a significant increase in the net income.
How was your new office manger compensated?
Part of the new office managers/buyers salary compensation package was a merit-based bonus based on the improvement in the NET income. As a result she received a sizeable bonus, but more importantly, the doctor’s NET income was significantly improved.
Improve YOUR Practice’ s Profitability
I would make a couple of suggestions to my colleagues. Enroll in a business course at a local college or university. This additional course may provide a fresh new way to look at the financial health of your practice.
Another helpful change I made in my practice was joining an optometry peer group. It allows for the sharing of practice ideas and additional practice management education. I would strongly recommend a practitioner join one of these groups.
But the most important suggestion I can make is measure and measure again! Take the time to set up a financial software program and begin to measure the Hayes 7 Key Financial Metrics. You may discover an expense category that needs addressing or maybe that fees need to be increased. You won’t know this unless you take the time to measure the metrics and evaluate them!
If you measure these key metrics, you may be surprised to find out how successful or problematic your practice may be. Even if your efforts increase the practice NET income by 1 percent, the profitability of an average $600,000 practice will increase by $6,000….and no one would be upset about that!

Related Review of Optometry Articles

Advice for New and Experienced ODs: Understand Essential Business Concepts
Getting There: Planning a Successful Optometric Career
Practice By the Numbers: Track Your Key Expenses

GERALD A. EISENSTATT, OD, MBA,

GERALD A. EISENSTATT, is director, Hayes Center for Practice Excellence, at the Southern College of Optometry. Dr. Eisenstattalso is the owner of his own independent practice, Memphis Family Vision in Memphis, Tenn. To contact him: geisenst@sco.edu


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