Pay attention to payroll percentage

In my work, I often am asked to review optical dispensary financial statements. These documents tell a lot about how efficiently a dispensary runs as a business. Under expenses, the largest cost is for cost of goods sold; that is, for the merchandise purchased at wholesale that will be sold to customers at retail.

The second largest cost, however, is the payroll expense. After all, personnel is expensive and opticians are professionals.

I'm usually comfortable with a payroll percentage of 18% of net sales. Notice I did not say collections. That is because during any given measurement period, payroll needs to be calculated against the sales for the same period, otherwise you will obtain a false picture of payroll efficiency. Of course, the error would tend to moderate itself over a long period, but optical industry executives want to be able to react to an accurate payroll percentage on at least a monthly basis. You should, too.

If payroll goes much higher, say 20%, it would indicate that there may be too much staff and that payroll dollars are being wasted.

What modifies the 18% benchmark?

A number of factors will mitigate the 18% benchmark.

Conclusion

Determining what your payroll percentage should be can be challenging because the computation can be affected by a number of factors. It will help if you to do the research suggested above and adjust the benchmark accordingly. You also should consider requiring your opticians to complete a comprehensive sales training course. This should increase demonstrably your average unit sale, second-pair sales, and closing rate.

Arthur De Gennaro is president of Arthur De Gennaro & Associates LLC, an ophthalmic practice management firm that specializes in optical dispensary issues. De Gennaro is the author of the book The Dispensing Ophthalmologist. He can be reached at 803/359-7887, arthur@adegennaro.com
, or through the company's Web site, http://www.adegennaro.com/. He maintains a blog at http://www.adgablog.wordpress.com/.