Practice Metrics

To Understand Profitability, Differentiate Clinical vs. Optical Revenues

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By Brandon Blaker, OD

Jan. 29, 2020

Practice profitability is best measured by revenue per patient exam, but this key performance indicator (KPI) has two aspects, revenue from the exam and revenue from the optical. To truly know if you are profitable, you need to differentiate these two and drill down into each one.

Short of doing that, you may fool yourself into thinking you are profitable when, in fact, one side carries the other. Further, by segmenting these two revenue streams, you can easily spot where performance improvements can be made.

Our practice has five locations in South Texas, some separated by a two-hours’ drive. When we added EDGEPro by GPN Technologies and gained the ability to segment our data, it was a game changer. Now we can see all of our practices as a whole, separate each practice, then really drill down to see how the clinical side and the optical sides of each location contribute to our profits and overall practice value.

Define Capture Rate
We define capture rate as the number of routine eye exams that require a refraction, compared to complete pairs of eyewear bought.

On the optical side, computing optical revenue per exam is a pretty straightforward process.

On the clinical side, it’s more complicated, as we compute contact lens exams compared with contact lens sales, and especially, annual supply sales. We remove medical exams, visual field testing and dry eye treatment from this calculation since there is no eyewear sales component.

Rather, we measure utilization rates, such as Optos screenings and retinal photography, and include that in clinical revenues. We also measure and include the number of visual fields, OCT and LipiFlow procedures being done.

All of our doctors are compensated according to performance–so being able to track the delivery of clinical services is critical. Many of our doctors are increasing the medical services they provide, such as LipiFlow and use of the OCT. If their capture rates here are good, the revenue will be there, and most ODs in our practice do very well in that regard.

But on both sides, tracking and improving capture rate is critical. Even small incremental improvements in capture rate drive sales and increase the value of the practice.

Analyze Optical Capture Rate
Increasing capture requires an overall awareness of where you stand. If you don’t know what you are, and aren’t, doing well, you have no idea how you’re really doing. Once you have objective numbers, you can benchmark and set improvement goals. Next, you need to engage the whole team in the task of improving performance, and having numbers helps with that.

Without data, we easily can operate on faulty assumptions. When we adopted EDGEPro three years ago, we examined areas where we thought we were strong, but we found we had considerable room for improvement:

  • Turnover rate for eyewear brands: Our opticians had no firm idea of this.
  • Frame selection: Our opticians showed us what they thought were best-selling frames (ones they liked), but the data showed only two pairs sold in the last month.
  • Premium products: We looked at how we priced premium PALs, but we found we were leaving money on the table.

In these competitive times, you cannot use anecdotal references to run a business. You need to understand what products are selling, and if some are selling at higher margin, bring more of that into the optical.

Further, data empowers you. When you measure, and take specific averages of lenses, you can use your buying power to negotiate with vendors and bring down your cost of goods, which in turn improves your earnings.

One other advantage with EDGEPro: you can spot things that may have fallen between the cracks. When we dig into details with EDGEPro, we notice things like frame utilization, product utilization, turnover rate over time, margins and net revenues. You can find this manually, but with a dashboard management system these challenge areas pop out—along with revenue opportunities you can leverage if you make improvements.

Another powerful tool: you can sort by insurance plans. You can look at  X, Y or Z frame and see how much profit you net selling that frame to a Medicare patient vs. an EyeMed or VSP patient. As a result, you can re-examine your frame board and can skew it toward more profitable products.

Share the Numbers, Tie Compensation to Them
We share our performance numbers with staff; everyone has access. They are not interested in every metric, but capture rate is a critical one they all want to know. And for good reason: compensation is tied to performance.

Every OD in our five locations is set up with compensation tied to performance. If they are not communicating the benefits of premium products, their compensation suffers and they see it. But most of our professional staff does well because they are motivated.

Our opticians are well trained in reading sales metrics. They call every week and ask, for example, “Where is my AR at?”

Further, data provides a useful tool for negotiating compensation. An optician requests a raise, for example. They feel they deserve it for exemplary performance. But we pull the numbers and find they’re performing in the middle. This provides a pathway: we say, “See the numbers? If you produce three AR coatings per day, you will be making the equivalent of $5 more per hour.” The discussion now is numbers-based and objective, and we can project numbers to show how the staff member can achieve their goal by stepping up their performance.

Focus on Building Blocks
Not every staff member is in a position to sell more premium products, but everyone contributes to the patient experience, to good office flow, and to the building blocks that drive profits and practice value.

So, we focus on increasing these building blocks: second-pair sales, AR coating, blue light lenses and Transitions. All build revenue, and then growth happens automatically.

If we see dips in revenues, we examine areas across the board where we may be dropping the ball. We examine the cadence of the patient journey, we look at the experience for each patient, and we examine the critical juncture where they transitioned from exam into a sales presentation.

We identify where our team may be losing patients and optical sales in a particular office and we address it. 

Use Data for Training In the Optical
Capture rate is a powerful tool in the staff training process. For example, our average AR capture rate may be 40 percent. But some opticians reach 80 percent, while others are at only 20 percent. What’s going on? We can segment and find that some opticians work better with some ODs. In cases where that falls down, is the OD mentioning AR, so the optician is reinforcing the doctor’s recommendation? Or does scripting need to be improved? By segmenting with EDGEPro, we can identify each optician’s AR capture rate and tailor-train the individuals who are bringing the average down. We can have the best opticians mentor those who are struggling, and help them perform better.

To recap, If you don’t know what you are, and aren’t, doing well, you have no idea how you’re really doing. And knowing your numbers and differentiating your revenue streams is essential to knowing the ultimate value of your practice. 

 

Brandon Blaker, OD, is founder of Hill Country Vision Center, with five locations in South Texas. Contact: bblaker575@yahoo.com.

 

 

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