By Thomas Pinkston, OD
May 11, 2022
The average optometric private practice spends 28-32 percent of gross revenue on all cost of goods sold (COGS) yearly. For a $1,000,000 practice this means that $280,000-$320,000 will be spent on all goods purchased to sell. What if we could lower this by 1 percent, or even by as much as 4 percent? What could your practice do with an extra $10,000-$40,000 in profit?
One of the simplest and easiest ways to reduce COGS is to start by looking at your contact lens strategy. Here are a few changes my practice made that significantly reduced COGS related to contact lenses and allowed our office to keep our total COGS for 2020 and 2021 just below 25 percent.
Utilize Strategic Fitting
For the first few years while in private practice I took an a la carte approach to fitting contact lenses. A patient would present for a fitting, or with issues, and based on my discussion with them, their symptoms and the randomness of the day I would choose a contact lens. In addition to their history, my lens choice was based on my thoughts that day, which rep I saw most recently or what article I had just read. I had the opinion I was doing the best for my patients. What I didn’t realize is that my carefree attitude toward fitting was drastically hurting my bottom line. While this approach did not cause any issues for patients, it was far from the most entrepreneurial system.
This haphazard approach came with three negative silent costs:
1. Lost profit for our office due to increased cost of goods.
2. Increased cost to our patients when purchasing from us due to poor pricing we were obtaining from vendors.
3. Unseen lost revenue due to poor contact lens sales.
As our office grew, it became clear we needed to have a strategy for fitting our patients. To be clear, we always do what is best for the patient in comfort, vision and health. At no point we will sacrifice a patient’s vision, health or comfort for our business–ever. If all things are equal, though, we asked ourselves if we could fit patients in a systematized manner to improve contact lens outcomes, increase our contact lens sales and decrease cost for the patient.
With some thought and analysis of our most favorable lenses, my partner and I implemented a systematized approach to fitting patients based on modality, vision and comfort issues and each patient’s presentation. In addition, we structured our approach to partner with strategic brands and fit the portfolio of lenses offered by a smaller selection of contact lens companies.
This structured approach allows our entire team of technicians and doctors to confidently select and recommend a lens to our patient, increases the success for the patient and also benefits the practice. If our team is aligned to utilize each lens company, we can structure our buying power to be more effective. We were able to further lower COGS and make the patient’s contact lens purchase as easy as possible.
Understanding Vendor Rebates & Bulk Ordering
Contact lens reps are probably among the most underutilized partners in your practice. How often do you sit down with your reps to truly understand your rebate programs? To be honest, for a while these programs felt overwhelming to me.
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As a new practice owner I felt overwhelmed by these complex and nuanced programs. While these programs seem daunting and overly complicated, they are important. Utilizing your contact lens representative on a repeatable and regular basis to not only understand, but utilize pricing programs, is critical to lowering your COGS and increasing your profit.
At first, I didn’t understand the details and how to utilize my fitting patterns to improve my business. Once we sat down with our reps to understand our metrics and change small details of our fitting process, we began to realize the profit that was leaving our practice. Understanding each program with each individual company, in addition to our fitting habits, allowed us to determine which companies we felt confident partnering with and which were most beneficial to our practice.
Proper understanding of your rebate programs could save your office tens of thousands of dollars each year. These rebates lower your costs and can be utilized to strategically price your contact lenses to position your practice to aggressively compete on price with other local and online competitors.
Lower COGS Means Better Pricing
Once we systematized our fitting approach, maximized pricing and understood our rebate systems, we were able to obtain better pricing from each contact lens vendor, enabling us offer our patients better pricing. We are now able to pass on the benefits of our lower COGS to our patients through more competitive pricing. Using price comparison technology, we are able to openly and honestly discuss with patients why we should earn their contact lens business compared to other local or online competitors. As a result, we not only lowered our cost of contact lenses, but increased our sales simultaneously.
Our goal is to create an easy and confident contact lens buying experience for our patients. We want our patients to leave our office feeling they were fit in a great quality lens that meets their needs. We also want them to feel confident, and have no hesitation that the price they are paying is fair and competitive to their other options.
Before we began an ongoing analysis of fitting patterns and gained an understanding of vendor rebates, our office was losing out on potential profit and not serving our patients to the best of our ability. We now feel confident that our patients are getting the best products and pricing, and we are maximizing our profitability.