Finances

Keys to Creating & Implementing a Budget for Your Optical

By Steve Sunder

Sept. 5, 2018

The optical shop is an essential part of most practices’ profitability, often accounting for as much as 60 percent of practice revenues. I’ve found that it’s important to plan, and carefully track, expenditures and profits, and to budget, specifically for this segment of the practice. Here are tips to ensure you are effectively budgeting for your optical.

The Key Elements of an Optical Budget
A budget is needed to calculate your inventory pieces, sales projections by capture rate and inventory turnover objective. Let’s look at the mathematics in calculating the inventory stocking level of frames:
• Rx’s written per year = 2,800
• Optical eyewear capture rate = 65%
• Rx eyewear sales = 2,800 x .65 = 1,820
• Frame inventory turnover objective = 3-4 times
• Rx eyewear sales divided by your frame inventory turnover objective of 3 = 1,820 / 3 = 606 frames needed in inventory
• The cost of goods for optical should be 35 percent, or lower. Or, the reverse of cost of goods is gross profit where this percentage of gross income should be 65 percent, or higher. Your monthly profit-and-loss statement for the optical is the financial report that will show you the results of your purchasing controls or, lack thereof.

Use an Automated System to Input your Optical Budget Data
The budget and P&L statement must be run monthly for monthly profit, as well as assessment of cost of goods and expenses and analyzed by percent of revenue. The best tool for creation and use is an accounting system such as QuickBooks. Monthly reporting helps in spotting variance trends for a proactive adjustment.

Factor in Optician Staffing Costs Into Your Optical Budgeting
The national staffing cost rate is 21-24 percent, according to BSM Consulting. We can also use a calculation to determine a fairly accurate level of optician staffing. The typical average annual revenue generation per optician is around $225,000, which is a baseline line to calculate the number of opticians required. For example, if optical sales are $725,000,  then I would need 3.2 opticians (725,000/225,000) to meet this sales volume.

There are two ways to calculate staffing levels. One way is by taking annual sales generated by an optician, and the other way is based on average Rx sale per optician.

Let’s look at the example of Rx eyewear sales from the previous formula where we saw 1,820 eyewear sales, and we assume an average sale of $225 times 1,820 = $409,500. The number of opticians needed to meet this sales demand would be 1.82 (409,500/225,000). If you average Rx sales is higher than $225 or lower, then your staffing level would change accordingly.

To calculate the profit we use the profit and loss statement and the cost of sales or the inverse, gross profit. For example, total annual Rx eyewear sales from the above example of $409,500 times cost of sales of 35% = $143,325. Then subtract the cost of sales from the gross sales = $266,175.00 of gross profit of 65 percent.

Include Your Optical P&L in Your Overall Practice P&L
Once you have your optical profit and loss statement down, you then also need to see how it fits into your practice’s larger profits and losses.

Click HERE to download a PDF of a hypothetical profit and loss statement for a practice, with the optical-related expenses highlighted.

These articles may also interest you:

Staffing: When It’s Time to Add More & How to Do It

How to Tell if Your Staff is Productive

Key Performance Indicators: What They Are & How to Use Them

 

 

Steve Sunder is a health-care consultant with over 20 years experience in the eyecare industry at a multi-location practice, and as a consultant to other practices. To contact him: steve@sundervisionsolutions.com

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