In 2009, Practice A’s contact lens bills were 9% of total collected revenues. Practice B’s were 15%. Based on those numbers alone, what would you say about the profitability of each practice? At first glance, it would be logical to think that the 6% saved on the cost of goods sold (COGS) of contact lenses for Practice A fell to the practice’s bottom line and into the practice owner’s pocket. But, closer examination may reveal that this might not be the case. Of course, the big undisclosed variable is how much gross revenues were collected as a result of the difference in contact lens sales. This brings us to the point of this article: When examining your monthly contact lens bills, be a value-conscious purchaser, but don’t manage your practice growth solely by attempting to achieve a lower percentage on your contact lens bills. Let’s take a closer look and figure out why…
Spend More, Make More
Our consulting company has scoured thousands of monthly profit and loss statements and lab bills for our clients, and one consistent theme recurs each month: Practices with higher contact lens bills (as a percentage of total sales) have higher absolute dollar nets each month. What does this mean? They are, on a percentage basis, prescribing more contact lenses (and therefore buying more lenses) than their lower-netting counterparts. Another way to consider this is that practices that spend more for contact lenses also net more. I realize that this formula sounds counterintuitive—since after all, how can you spend more and make more? The short answer is: It depends on what you’re spending your money on.
Let’s set up an example using the above two practices. For simplicity’s sake, let’s say each practice saw 100 patients last year, fit the exact same contact lenses and paid exactly the same amount for each box of lenses. Practice A, with the lower contact lens bill, fit 20 patients with contact lenses; Practice B fit 30. Because of this, Practice B had to buy (and sell) more lenses, so their contact lens bill was higher. However, this practice also had the opportunity to collect extra revenue for both professional fees and for the lenses themselves. That revenue added to the absolute bottom line net.
When I’ve presented this analysis before, I’m often countered with, “OK, but what about the 10 patients in Practice A who did not get contact lenses? What if they bought glasses instead?”
I agree that, in the short term, this would be more profitable. If on the day of the first visit, a patient buys eyeglasses, this purchase can be considered beneficial for the practice, but only for that day. However, don’t dismiss the fact that sooner or later, contact lens patients will also purchase eyeglasses, and don’t neglect the all-important COGS-free professional fee that contact lens patients pay—one that eyeglass wearers don’t.
Generally speaking, when we see a lower-percent COGS for contact lenses, it usually means the practitioners are not proactively promoting contact lenses in their practices; rather, they’re waiting for patients to ask for them. In such a case, with careful purchase patterns and inventory control, a larger bill is better!
While it certainly makes sense to wisely manage your contact lens lab bills and be a smart shopper, there’s much more to the profitability equation than “buy low, sell high.” Instead, try “buy more and sell more.” Data collected from our clients clearly and consistently support the concept that practices with a higher percentage of contact lens wearers are more profitable than those with fewer.There is no question that in the long run, contact lens patients outdistance eyeglass patients in the profit race. The eyeglass hare will invariably lose profits to the contact lens tortoise.