Optical inventory: Out with the old, in with the new

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It is always a good time to evaluate one of your major revenue generators: your optical. The profession of optometry is unique because the services we provide have a retail sector. The optical can produce a large percentage of net revenue; it is a component that is important to the success of private practice.

I pursued private practice with an extensive background as an optician for more than 20 years. This experience enabled me to transition into a practice owner with a thriving optical. In 6 years as a private practice owner, I have met several colleagues who have shared their optical management struggles. After hearing these horror stories, I wanted to make a difference by sharing my optical knowledge with you.

Update inventory annually

Maintaining an accurate inventory is the first key to managing your optical. This will be based on 3 components as follows.

Current sales

It is important to evaluate your sales so that you can determine which frames are selling, which are in inventory, and which need to be replaced. There is nothing worse than having products on your frame boards that just take up space. Having the right product in stock is half the battle.

Data entry

The data you enter in your system are the data that it will produce. It is challenging to have a solid measure of how well your inventory is performing if you are working with skewed data. If your practice struggles with data entry, consider evaluating your procedures and protocols to establish a system that has checks and balances to ensure your data entry can be as accurate as possible.

Inventory restock

Understand which frame lines are selling, which styles are trending, and the amount of stock for each of the lines you carry to optimize your optical inventory.

Utilize last year’s sales report and your current inventory report to identify these keys. After reviewing which lines have sold the best, identify the quantity of each brand you should carry in your inventory. To accomplish this, you will have to calculate your yearly inventory turnover rate.

Turnover rate for the past year

I know what you’re thinking: What is your inventory turnover rate and how can you utilize this number to determine how many frames of each brand to stock? That is a very good question, and I have the answers.

Figure.

Let us start by defining inventory turnover. Inventory turnover refers to the amount of time that passes from the day a company purchases an item until that item is sold. The turnover rate can vary depending on the industry. In the optical industry, the turnover rate is dependent on your optical size (Figure).

The ideal turnover rate for my office is between 1.5 and 2.5. We stock roughly 750 stock-keeping units.

A low turnover rate implies that sales are weak and you have excess inventory of that brand. A high ratio implies either strong sales or you have insufficient inventory of that brand.

If a frame line falls into the low turnover rate category, consider decreasing the amount of inventory of that line or consider replacing the frame line. If a frame line falls into a high turnover rate, consider stocking more inventory of that frame line. If a frame line falls into the ideal turnover rate, you have identified the perfect inventory ratio for your frame line.

I calculate my inventory turnover rate every 3 months. This allows me to pinpoint the performance of each brand before I decide to restock our inventory each quarter.

Filling the holes in your inventory

Now that you have an updated inventory and have run your turnover-rate report, it is time to determine whether you have any holes in your inventory. Here are questions to consider.

Is the inventory count correct?

Do I have a good inventory mix?

Do I have an appropriate price range for my patient base?

Utilize your turnover rate to determine the quantity of each frame line you should carry. Depending on your newfound data, you may need to increase your inventory because of adjusted inventory ratios.

If you are in this position, consider adding another frame line to your inventory mix. Questions to consider in determining the appropriate inventory mix include the following.

What currently sells best?

What is the ratio of metal to plastic frames sold?

Is your patient base trendy or more conservative?

Do you need more frames for men vs for women?

Do you need more colors and funky shapes?

Is there anything missing from your inventory that would appeal to your patient base?

Performing your due diligence when it comes to your inventory will be a reward in itself. If you find that you do not have the right inventory mix, do not be afraid to add a new frame line to fill in the holes in your inventory.

Creating a budget

Benchmarking

Creating a budget can be challenging, but there is an easy way to stay within budget when managing your optical inventory. Evaluate your profit and loss (P&L) statement at the end of the year. Analyze the amount of revenue allocated toward cost of goods (COG). According to Review of Optometric Business, your COG should not be more than 30% of your gross revenue.¹

Your P&L should break down your COG by revenue spent on frames and revenue spent on optical lenses separately. Utilize the COG of your frames to determine your optical inventory budget for the new year. The budget depends on your financial goals and the current market. Make sure when you determine your budget that the numbers are realistic and your goals are attainable.

Price adjustments

Start by evaluating the wholesale cost of all your frame vendors. Since COVID-19, frame companies have increased the cost of their merchandise. Unfortunately, if your frame vendors have increased their prices, then you must also increase your frame prices. Follow the No. 1 rule in sales: If your cost increases, your patients’ cost increases. A wise business owner never allows the profit margin to be impacted negatively. At the end of the day, you want to increase revenue, not lose revenue.

If you cannot implement all the keys at once, implement one at a time. Once the systems are in place, your optical will be ready to maximize your profits for the remainder of the year.

Reference

1. Sorrenson LL. Practice by the numbers: track your key expenses. Review of Optometric Business. Accessed March 26, 2024. https://reviewob.com/practice-by-the-numbers-track-your-key-expenses/