5 steps to maximize your optical profit

February 21, 2018

Article

The key to optical success lies with the OD's involvement, according to Nazanin Galehdari, OD. She offers 5 steps to improve optical profitability.

Industry benchmarks suggest that product sales (eyewear and contact lenses) account for 61 percent of an optometric practice’s gross revenue; eyewear sales alone are 43 percent. What’s more, median gross profit margin on eyewear sales is 61 percent.¹

With these statistics in mind, ODs must pay attention to acquisition costs of goods to have a healthy optical profit margin. No matter how much ODs want to leave buying and selling optical goods to their staffs, ODs must be active participants in the optical to maximize profits. ODs are busy managing their practices and seeing patients, but abandoning optical frame buying to a staffer might be a huge financial mistake.

Consider that delegating frame buying to a team member means spending thousands of your dollars to purchase an inventory based on what frame sales representatives are telling your buyer you need. Remember, frame reps have a job-to sell you frames-and they make sales commissions based on how much you buy. Frames reps bring value to the equation to be sure, but forgetting that ultimately they are there to sell you as much product as they can is naivetÃ©.

Remember that your buyer will typically receive a free frame or spiff from the frame rep for placing the several thousand-dollar order. It’s a win-win for the frame rep and your buyer…but is it a win for you, the OD?

If the doctor is not an active participant in her own optical, how will she know which frames sell the best? The “number-one selling frame in the country,” which usually means large markets such as California or New York, might be a loser in your practice.

Use the frame-buying strategies below to help amplify net profit from eyewear sales.

1. Know demographics of your practice patient base

ODs must be familiar with the fashion and optical needs of their patient base and ensure the optical inventories frames that are appropriate for the type of patients they have in their practice. Know if your patient base likes outdoor sports, high-end designers, or the latest trends. This information will drive your frame purchases.

The doctor needs to take the time to talk to patients, asking what kind of frames they are looking for (zyl, metal, rimless, drilled, lots of color, more conservative, avant garde, etc.) and then ensure these types of frames are available in the optical.

Consider this: If your optician leaves the practice for another job, you will know what types of frames your patients want, what types of frames sell well in your practice, and where to purchase those frames, but only if you are actively involved.

Now that you know what your patients want, it’s time to go shopping. One strategy to buying frames is stocking up at optical trade shows, such as Vison Expo. This is my preferred way of shopping.

2. Concentrate your frame-buying dollars with only a few vendors

Such a move will make your account stand out because of higher sales volume. In other words, if you are willing to spend a lot in one order, you can negotiate deeper discounts with frame manufacturers beyond their normal discounts. For your money to make the biggest impression with frame vendors, concentrate optical purchases with only a few, select frame vendors.

For this strategy to work, be willing to spend $15,000+ in a single order and know that it is acceptable on bigger orders to demand deeper discounts than what is being offered.

Ask for more favorable payment terms, such as 30-60-90-120 days. Sometimes a vendor will offer a discount, such as 50 percent off list price, without payment terms. Other times, 180-day terms are offered with a lesser discount, such as 30 percent. Successful negotiators have forged relationships with regional sales managers of frame manufacturers, and this will help obtain the best deal possible.

Buying in bulk requires several hours with a frame vendor, so it is best to schedule these appointments in advance of the trade show. Your local frame rep should be able to put you in touch with the right person.

Regional sales managers usually attend trade shows, and I find more success working directly with them in placing bulk orders. Bulk buying does not occur on the exhibit hall floor; instead, sales take place in designated suites on- or off-site. Arrive prepared to spend money, and don’t be afraid to ask for deeper discounts and terms than what is offered.

No one will care more than you about saving the last dollar on the order. Every dollar saved on frame acquisition costs will translate into a higher profit margin on optical sales.

Don’t forget small, independent eyewear manufacturers when considering frame selections for your optical. Many times smaller, independent vendors have high quality and fashion designs at much lower prices.

3. Consider small, independent manufacturers

While big vendors such as Luxottica, Safilo, or Marchon have the glitziest booths and offer the best food, drinks, and freebies at trade shows, don’t forget to browse among the smaller independent booths in the back.

One of the most successful purchasing decisions that I made recently was making a connection with a small independent manufacturer at Vision Expo West. This very small booth consisted only of a table with frames laid out. Only one sales representative and the company owner manned the booth.

Here, I found a budget frame line for my optical at a price point that is difficult to fill because frames at lower than $20 wholesale (which retail for $119 to $159) are usually inferior in quality and style. However, taking the time to look at these small, independent manufacturers has allowed me to offer my patients a budget frame collection that has high quality with depth (many different colors, materials, styles, and sizes).

Even better, I have found that service from smaller vendors is more personal and relationships are more readily forged because of the lack of the management layers. You know the owner, and the owner knows you. Pricing and terms are easier to negotiate because you are working directly with the owner of the company.

While big dollar amount purchases will usually afford the greatest discounts and offers, you can still make the frame purchase transaction work in your favor if you learn to ask your reps for deals, such as closeouts, markdowns, and discontinued frames.

4. Purchase non-current frames

Ask your frame reps to show you discontinued, close-out, marked down product. This is the dirty, little secret in the optical industry, but it shouldn’t be.

There is nothing wrong with purchasing close-out or discontinued frames-frames for which the manufacturer has limited stock remaining or has discontinued. These frames once wholesaled for $60 to $240 and now can be had for up to 75 percent off wholesale price.

Usually, these frames do not carry a manufacturer’s warranty and are non-returnable. However, with prices this low, a warranty can be offered in-house by your optical if necessary. If you choose to warranty in-house, buy multiples of each frame so you have another frame on hand.

Keep in mind that frame reps work on commission. The more they sell, the more they make. Of course, they prefer to show you new product with a higher list price than discontinued or marked-down product. This is why it is important to finesse your inquiry about highly discounted frames.

My approach is to order current frames, then at the end of the visit, ask to see the close-outs as well. Some reps will say that their company does not offer close-outs, but that is likely not true for most vendors-you have to build the relationship with your rep so that she won’t think her sales will be jeopardized by showing you discounted products.

Be prepared to buy larger numbers (30 to 40 units) in one order to get close-out deals. Keep in that that such offers are extended only to accounts with excellent credit (no late payments, low return rates).

Another strategy for optimizing frame costs is joining national or regional buying groups.

5. Join a buying group

Maximize your optical frame dollars by joining a buying group. An advantage of this strategy is that the group has negotiated the frame discounts for you, so you are afforded a higher discount than what you might be able to negotiate on your own. In addition, some buying groups pay quarterly incentives on purchases made through the group.

Typically, this discount strategy is minimal (perhaps an additional 3 to 5 percent discount on top of normal discounts offered by vendors), and there is a cost involved. Buying groups have membership dues that can range from a few hundred dollars to thousands of dollars per year, so this decreases your net effective discount, depending on how much you are using the group.

ODs must stay involved

In each of the five steps outlined above, the key is the OD’s active participation in frame buying. If you don’t know your patient base or what they want, you can’t purchase the right mix of frames for your practice.

Paying attention to acquisition frame cost and keeping costs as low as possible will make your optical profits explode. The notion of buy low, sell high may at first sound childishly simplistic, but it is true. Every dollar saved on the cost of the frame translates directly to a higher percentage of profit for your practice.

With these tools in mind, I encourage ODs to embrace the optical side of the business and look at it as the profit center that it is. Time spent in the optical is money back in your pocket.

Reference

1. Management & Business Academy. Key Metrics: Assessing Optometric Practice Performance. Available at: http://ecpu.com/media/wysiwyg/docs/paa_keymetrics_0415.pdf. Accessed 2/27/18.