By Thomas F. Steiner
Review of Optometric Business
Director of Market Research,
This is the second of a three-article ROB series that breaks down each of 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.
Eyewear sales are the largest revenue source in most practices. Your optical capture rate is a key metric to know, track and manage by.
MONITOR CAPTURE RATE. Optical sales comprise two-thirds of revenues in most practices. Track how many sales you capture–and compare with national average.
MONITOR FRAME INVENTORY TURNOVER. Use this key tool to fine-tune your frames selection and weed out non-sellers.
MAINTAIN ADEQUATE INVENTORY. A small inventory tuns off consumers, who flee to larger retailers at the mall.
There are two important metrics that ODs should be monitoring in thedispensary: Optical Capture Rate and Inventory Turnover Rate. We’ve pulled these metrics from a recently published discussion, by VisionWeb, of eight metrics that optometric consultants Gary Gerber, OD, and Steve Sunder, of the VisionWeb team, consider the most useful diagnostic tools for independent ODs. Their e-book, 8 Benchmarks ODs Need to Monitor in Their Practice, comes with a downloadable Excel sheet that does all of the math for you! The e-book can be downloaded HERE.
In order to present the data for these metrics, we have drawn numbers from the Management & Business Academy (MBA) – a research program sponsored by Essilor. Over seven years, MBA gathered performance data from more than 1,800 US optometric practices. It has published the most comprehensive compilation of benchmarks currently available. You can visit mba-ce.com to access the MBA metrics research.
While the first article in this series discussed two key revenue metrics every practice should be keeping track of, this article will present two key metrics ODs should be monitoring in their dispensary.
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Optical Capture Rate
Showrooming has become a big problem for many eyecare practices. Patients are coming in and trying on frames in your dispensary, only to go home and make their frame purchase online. Evaluating this metric can help you determine if your practice is falling victim to showrooming.
You can look at this formula two different ways. Adding the results of these two formulas should give you 100 percent of your patients given a prescription. Let’s take a look:
Formula 1: Number of Patients who Filled their Prescription in your office / Number of Patients given a Prescription = Optical Capture Rate.
MBA Example: 44 Filled Prescriptions / 68 Prescriptions Given = 65% Capture Rate
Formula 2: Number of People who didn’t Fill their Prescription / Number of Patients given a Prescription = Walkout Rate
MBA Example: 24 Unfilled Prescriptions / 68 Prescriptions Given = 35% Walkout Rate
Industry data, based on consumer surveys, indicates that independent ECPs perform 68 percent of all exams given, but sell only 44 percent of frame units. That’s how we got to the numbers used in the MBA example above. Close to one in three patients of typical independent ODs take their eyeglass prescription to be filled somewhere else, and this walkout rate represents a large loss of revenue for ECPs.
The MBA surveys also indicated that many ODs grossly underestimate the true walkout ratio of frame purchases by their patients. And relatively few ODs are taking the time to track their capture rate. While it’s uncertain for sure that all patients who don’t purchase frames from you are purchasing from another vendor, you can gain a reasonable estimate by tracking the number of frames dispensed and the number of Rxes given.
Survey data shows that patients take their eyewear Rx elsewhere, usually to a chain provider, for perceived reasons including:
• Lower price
• Better selection
• Better assistance from greater expertise of chain opticians
• More attractive merchandising of frames
• Greater focus of chain retailer on selling eyewear
If you’re unhappy with your practice’s capture rate, these are the areas you should be focusing on in your dispensary.
Metric #2: Inventory Turnover Rate
Measuring inventory turnover rate in your dispensary is a simple metric to monitor, as most practices have easy access to the variables: number of frame sales in units and number of frames in inventory over the same period.
The Formula: Annual Frame Unit Sales / Number of Frames in Inventory Annually = Inventory Turnover Rate
*MBA Example: 1,603 / 890 = 1.8 Inventory Turnover Rate
Inventory turnover is highly correlated with practice size, so a single benchmark for all practices can be hard to determine. The median practice, measured by MBA, has an annual inventory turnover rate of 1.8, while practices grossing over $3 million had an annual turnover of three or more.
Larger practices have a higher turnover because a majority operate single locations and are able to offer patients more choices without increasing the number in inventory proportional to their volume differential, over smaller practices.
Keep in mind, a high frame turnover is not always a desirable goal. Frame turnover can be kept high if you have limited options available, which might be the case for higher-end dispensaries. But, having lower inventory can lower your eyewear capture rate. Typical ECPs carry 5-10 percent fewer frame options than they should to optimize patient selection.
Action Points to Fine-Tune Frames Inventory
Assuming your practice offers sufficient selection, a higher turnover can be achieved by:
• Regularly monitoring turnover of each frame and frame brand, and eliminating the number of frames with no unit sales in 12 months and slow-moving brands.
• Eliminating duplicative product lines.
• Limiting the amount of frames in storage and not on display to less than 5 percent of total inventory.
Next article in this series: Key metrics related to chair costs and expense ratios.
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: firstname.lastname@example.org