Practice Metrics

Metrics to Manage By: How to Calculate Chair Cost per Exam

By Thomas F. Steiner

Director of Market Research,

Review of Optometric Business

This is the third article of a three-part ROB series that breaks down the benchmarks featured in VisionWeb’s e-book, 8 Benchmarks ODs Need to Monitor in Their Practice, with benchmarks and performance targets for key areas of practice performance.

SYNOPSIS

Tracking a key expense like chair cost helps you work smarter and optimize profits.

ACTION POINTS

MONITOR CHAIR COST. Annual total OD compensation/profit and cost-of-goods minus gross collected revenue divided by remainder of fixed costs.
BENCHMARK AGAINST OTHERS. The median chair cost per exam for independent ODs practices in the MBA database is $121.
FACTOR IN PRACTICE SIZE. Larger practices have lower ratios for cost-of-goods, occupancy and general overhead expenses, but higher staffing expense ratios.

Thisfinal article of our three-partseries on important benchmarks ODs need to monitor, looks at chair cost and expense ratios. All six benchmarks discussed in this series were pulled from a VisionWeb discussion of eight metrics optometric consultants Gary Gerber, OD, and Steve Sunder, of VisionWeb, deemed as important metrics to be tracked on a regular basis.
When we break down these benchmarks, we look at data drawn from the Management & Business Academy (MBA),a research program sponsored by Essilor. Over seven years, MBA gathered performance data from more than 1,800 optometric practices across the US. It has published the most comprehensive compilation of benchmarks currently available. You can visit mba-ce.com to access the MBA metrics research.

In total, the benchmarks covered in this series have included:
• Gross Revenue per Patient
• Gross Revenue per Staff Hour
• Optical Capture Rate
• Inventory Turnover Ratio
• Chair Cost
• Expense Ratios
If you want to monitor these benchmarks, plus two bonus benchmarks, in your own practice, you can download VisionWeb’s e-book HERE.

Metric 1: Chair Cost

Chair cost is an important metric for independent ODs, providing one basis to establish professional fees and make judgments about which managed care plans to accept. There are a couple different ways to look at chair cost. You can determine chair cost from the total number of annual visits, or total number of annual exams.
Formula 1: Fixed Costs / Complete Annual Exams = Chair Cost per Exam
MBA Example: $260,876* / 2,156 = $121 per Exam
Formula 2: Fixed Costs / Complete Annual Patient Visits = Chair Cost per Visit
MBA Example: $260,876 / 2,598 = $100 per Patient Visit
The first thing you need to do in order to determine your chair cost is to calculate your fixed costs. You can calculate your fixed costs by subtracting your operating expenses, your doctor payroll, and your net, from your gross income. From there, you will divide your fixed costs by the number of complete annual exams, or annual patient visits, to get your chair cost.
MBA norms calculate a chair cost of $100 per patient visit. The most important thing here is making sure that your chair cost is lower than your insurance reimbursement.
*Fixed costs were determined by this formula: Gross revenue minus OD compensation minus Net minus COG.
MBA norms calculate a chair cost of $100 per patient visit. The most important thing here is making sure that your chair cost is lower than your insurance reimbursement.

Metric #2: Expense Ratios

Monitoring expense ratios helps ECPs develop annual budgets and evaluate opportunities to raise net income by reducing expenses. The MBA has published expense ratios for the major expense categories that all independent ODs face.
The Formula: (Expense / Revenue) x 100 percent = Expense Rate to Revenue
MBA Example: (Cost-of-Goods): ($191,323 / $659,736) x $100 = 29% of Revenue

Typical expense ratios vary by practice size. In general, larger practices have somewhat lower ratios for cost-of-goods, occupancy, and general overhead expenses, but somewhat higher staffing ratios. The result is that larger practices, on average, enjoy net income ratios 10-15 percent above the median for all practices.
Thomas F. Steiner, Director of Market Research for ROB, has spent more than 25 years helping eyecare practices succeed, including pioneering the introduction of color contact lenses into optometry. To contact him: tnlsteiner@comcast.net

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