By D. Penn Moody, OD
The right pricing strategy makes the difference between reaching profitability or falling short of practice revenue goals.
Optical pricing is critical to profitability, and it is an important if often misunderstood part of a practice.
Uncertainty on pricing is reflective of an OD’s unresolved identity. On the one hand, ODs seek to create loyal patients and patrons of their optical shop by offering good deals on products. On the other hand, the doctor as practice owner must think like a business person and consider how the goods need to be priced to not just break even and provide products patients need to enhance their vision, but also to turn a profit.
I’ve heardmany ofthe well-known practice management consultants speak on this topic. It seems that every consultant has his or her own favorite pricing formula. Here is they way we do it. Our formula at Moody Eyes, a three-OD practice located in a suburb of Indianapolis, is shown below in six steps. Like any system, it isn’t foolproof. But it hasn’t failed us yet in calculating the necessary pricing to ensure profitability.
Know Your Practice’s Demographics
…and Set Pricing Accordingly
The per-capita annual income in the main drawing area of Moody Eyes varies between $34,000 to $37,000.
This works out to about $711 per week before taxes.
If you figure a patient would not want to spend more than 0.5-1.0 week’s income on eyewear, our pricing should be in the $200-300 range.
Statistics I’ve read say 70 percent of eyeglasses sold in the US are below $200 retail.
Thus, our demographics information combined with pricing on the majority of eyewear in the US, show that my practice’s prime price ranges are in the $150-$300 category. –D. Penn Moody, OD
OUR PROCESS–AND OUR RESULTS
We looked at thedemographics surrounding our practice.
The personal per capita Income in the zip codes from which we draw most of our patients.
This places our patients squarely in the middle income bracket.
Evaluate cost of living when considering incomes.
We looked at our patient base from a vision insurance perspective.
It’s no secret that most independent ODs have a large percentage of patients using vision insurance.
We tracked our revenue and numbers from the various plans for which we participate.
Our two largest carriers are each about 40 percent of our patients and revenue.
We looked the typical co-payments for each of these insurances.
We also reviewed how much the most common plans reimburse and their strategies for reimbursement.
From this data we began to formulate a cost of goods strategy.
We looked at wholesale frame costs considering both covered items and co-payments.
We looked at lens cost with the same considerations.
We reviewed the types of frames, brands of frames and retail pricing that has sold historically in our practice.
We started tracking patients who took their prescriptions with them and why they did this.
From all of this information we developed criteria for the following:
What product mix were we going to display?
(How many frames, what styles and what materials for each price point.)
What frame lines were we going to carry?
ACTIONS TAKEN
Fewer frames. We made the decision to focus on a limited number of vendors, and we told these vendors we would order repeatedly from them.
Fewer vendors. The other vendors were told we were eliminating them for now.
Less time with reps. Visits with sales reps can take up an enormous amount of time. Your practice should have a strategy for controlling this time to your benefit, not theirs.
We divided our frame displays into two groups–the “non-branded” and the “brands.” This helps the patient decide where to look. Many patients look at both, but some limit themselves to one or the other. We then group our frames into two groups–“non-branded” and “designer brands.” We have the sunglasses in a separate display area. Prices are not on the frames; pricing is determined in tiers.
I believe that, regardless of your pricing strategy, an analytical approach will yield better profits, a more productive staff and happier patients.
D. Penn Moody, OD, is the owner of Moody Eyes, in Indianapolis, Ind. To contact him: penn@moodyeyes.com.
