When it comes to improving profitability and performance of optical shops, key indicators are worth watching. Inventory, capturing, cost of goods, net profit, and the Durable Medical Equipment Resource Center (DMERC) are among the most common areas where optical dispensaries encounter problems, according to Carolyn Salvato, ABOM, director of optical consulting, BSM Consulting Group, St. Louis.Salvato and Kirk A. Mack, COMT, CPC, COE, made a presentation recently, titled "Improving optical profitability and navigating the DMERC maze."
When it comes to improving profitability and performance of optical shops, key indicators are worth watching.
Inventory, capturing, cost of goods, net profit, and the Durable Medical Equipment Resource Center (DMERC) are among the most common areas where optical dispensaries encounter problems, according to Carolyn Salvato, ABOM, director of optical consulting, BSM Consulting Group, St. Louis.
Salvato and Kirk A. Mack, COMT, CPC, COE, made a presentation recently, titled "Improving optical profitability and navigating the DMERC maze." Mack is a senior consultant with Corcoran Consulting Group, a San Bernardino, CA-based practice-management consulting firm.
Inventory and its management is the biggest problem facing optical dispensaries, Salvato said. Completing a thorough inventory is paramount to setting up and managing an optical shop. Salvato recommended a minimum quarterly inventory check, including reviewing the utilization history of each vendor and line to make data-driven decisions rather than emotional decisions.
The number of spectacle frames an optical shop should have on hand is based on the retention benchmark. If a practice writes, for example, 5,000 prescriptions annually, multiply that by 60%, the capture benchmark, and the sales target is 3,000 pairs of frames. Add to that the expectation to sell eyewear to 75%, or 2,250, of those patients. Dividing 2,250 by three gives the optimum frames an optical shop should have on hand, which, in this case, is 750 units.
"Capture rate is critical and should be monitored monthly," Salvato said. "A lot of decisions you make about inventory and staff are based on volume and capture rate." The key to achieving a successful capture rate, she added, is keeping the staff updated on the optical side of the business. Ophthalmologists must be comfortable that they're referring patients to a competent optical dispensary that provides good service.
Once the optimum number of frames is determined, it's time to focus on vendors. Consolidating vendors to a maximum of six to eight ensures that dollars are dispersed to fewer people, creating a better opportunity to hit minimum buy-in requirements to earn the maximum discounts.
"You want reps who consistently come in and help you manage the account. They should have reasonable return and exchange policies," she said. "Be careful about the vendors you choose."
Once a preferred vendor list is established, create an inventory budget. Chart the preferred vendors, the lines that will be carried, the quantity of frames projected, the number of in-stock frames, the average cost of each frame, and the calculated discount. That formula sets up the budget per vendor.
Now it's time to transition the inventory. Determine what's staying, what's going, and what will be deleted. Work with outgoing vendors to exchange eligible products to keep frames that are selling on the frameboards. As those exchanged items sell, don't reorder from that vendor. At the same time, work with preferred vendors to exchange specific lines that are going to be depleted. For items that just won't sell, consider a 25% markdown, followed by a 50% markdown.
"Explain to the patient [that he or she is] getting a great deal because those are closeouts, but there is no warranty on the product," Salvato said. "By that time, most of the product has been discontinued."
All vendors carry utilization reports and can identify trends. Salvato recommended that, as utilization numbers trend down on a frame style, get rid of it. Transitioning can take anywhere from 2 months to more than 1 year depending on how overstocked a dispensary is at the time.
"As frames sell, monitor the wholesale cost of the product, and reinvest the profit into a product line you want to bring to the office," Salvato said. "Transition is the most grueling part, but once you go through it, it's a whole lot easier to manage."