Using measurement as the first step toward positive change

April 9, 2016

Don’t you love practice management software? Review the following categories and pick the one or two where your reports reveal you are most deficient and set improvement goals.

Editor’s Note: Welcome to “Eye Catching: Let's Chat,” a blog series featuring contributions from members of the ophthalmic community. These blogs are an opportunity for ophthalmic bloggers to engage with readers with about a topic that is top of mind, whether it is practice management, experiences with patients, the industry, medicine in general, or healthcare reform. The series continues with this blog by Donna Suter, president of Suter Consulting Group. The views expressed in these blogs are those of their respective contributors and do not represent the views of Ophthalmology Times or UBM Medica.

Don’t you love practice management software? I love it because a robust program has optical interfaces that can make the optician’s job easier. The floor optician can pull over patient demographics as well as prescription details from the clinic side and save time.

From a management perspective, I like the reports that can be generated from optical sale information. If the administrator and optical manager discuss the following analytics quarterly, realistic productivity goals can be set. Forward-thinking practices that take the time to benchmark key optical metrics are able to identify the relative strengths and weaknesses of their dispensary operation and greater profitability can be achieved.

Review the following categories and pick the one or two where your reports reveal you are most deficient and set improvement goals.

Optical Gross Revenue Per Eye Examination with Refraction Change

This is perhaps the single most useful measure of optical performance, calculated simply by dividing your optical gross receipts by the number of exams with refraction change performed. I recommend this to be calculated monthly and for aggressive goals of process improvement to be updated and published every six months.

This metric is important because it reveals the effectiveness of your fee strategies, success in selling high-performance eyewear, capture rate of eyewear purchases of the patients you examine, and the success of your opticians in making multiple product sales.

Optical gross revenue per eye examination with refractive change is very much dependent on the internal processes of the practice and can be immediately and significantly improved by your actions. Trade publications report a very large range of productivity.

Because of this, compare your optical against optometric practices. The top quintile of private optometric practices post median gross per exam with change as high as $425 with the bottom quintile reporting only $204. That’s a very large range of productivity and reflects the complexity of the process.

Net collections

 

Net Collections

How much does the optical contribute to the practice’s net income? The benchmark for a general ophthalmology practice (no retina, no ASC, no glaucoma) is 20-25%. If you are under that number, look at operating expense ratio and determine if an expense is out of balance.

General Operating Expense Ratio

These are optical expenses made up of payroll and overhead. Overhead includes a pro-rated expense for that robust software package mentioned earlier as well as a reasonable portion of typical line items that make up general office overhead. The two most common ways to allocate operating expenses to this profit center are by square footage or the same percentage as the optical’s contribution to net collections. General Operating Expense does not include cost of goods sold (frames, lenses, cases, etc.). A healthy range is 33-38%.

Net Income Ratio

This is used to determine the profitability of an optical shop. Naturally, the higher the number, the more net income the optical collects. I have seen this percentage range as high as 50% and as low as 10%. Because the ratio is often controlled by the amount of general operating expense assigned to the optical, it’s difficult to give a healthy range without looking at both the practice’s and the optical’s profit and loss statements.

Payroll ratio

 

Payroll Ratio

The percentage benchmark is 21-24%. To get this ratio to closer to 21%, sales would have to increase or payroll would have to decrease. This ratio often leads to conversations about branding. Branding often controls how many floor opticians the practice employs. The more important customer service is to the practice, the greater the number of opticians on the optical floor.

Average Selling Price of Each Job Sold

This is one of those metrics that is heavily influenced by the source cited. There is an extremely wide variation among published sources. The recommended range for ophthalmic practices is $245 to $275. When compared against optometric practices, this is on the low side. If you have an optometrist that exams healthy eyes, I recommend using the optometric benchmark. That metric widens to $204 to $425. This wide range indicates that consumer demand is not the primary driver of an optical’s average sale. If that were so, the range would be much narrower. The doctor’s recommendation habits, rather than consumer demand appear to be the primary determinant of optical sales. Naturally, other factors either support the sale or are internal barriers to success.

Remake percentage

 

Remake Percentage

Anything less than 10% is good. It shows a well-trained staff, labs that provide quality work, and good communications with the doctors to avoid unneeded fitting or RX changes.

Frame Inventory Turn Ratio

This number represents the times the inventory does a full “refresh” in a year. On average, an optical shop should move its entire inventory 3 to 5 times a year. If any frame is sitting there longer (a lower number), it does not have the interest of the patient, and could make it harder to return the longer it sits.

Complete Pair Ratio

This represents what percentage of the jobs sold that are complete pairs (frame and lenses vs. ‘lenses only’ in patient’s frame). The benchmark is 75%. This means that 25% of your spectacle Rxs involve re-use of a pair of frames that has been previously worn. This is a higher re-use ratio than the published norms of the overall optical industry. To establish goals for this category, seek to achieve an increase of 2% per quarter.

SMART Goals

 

SMART Goals

Are you now as excited about the power of practice management software reports as I am? The next step is to chart a course toward permanent and positive change. This is done by setting specific goals tied back to the benchmark you are seeking to improve. Last month’s blog was filled with ideas on how this might be done. Let me know how you are doing!

To The Future and Beyond!