By Michael Cymbor, OD
April 11, 2018
Our practice generates over $1 million annually in contact lens sales. That large of a contact lens practice requires strategic thinking, especially in how we manage our contact lens inventory.
An essential part of management is our use of a year-end contact lens report. This report is provided by our contact lens distributor, and gives us detailed information about our selling patterns, so we know which contact lens products we should invest in as inventory, and which we should just order for our patients as needed. I estimate that our contact lens profits have increased by 3-5 percent, thanks to use of this report.
We have four locations and 10 ODs in our practice in Pennsylvania, and we maintain an inventory of seven different contact lens brands. In dollars, we have $50,000-$60,000 invested, at any given time, in contact lens inventory. We expect any individual box from the seven brands we purchase from to sell three-to-four times a year. Here are the key contact lens inventory and sales numbers we track, and why.
Percentage of Units Sold
We consider every box a “unit,” so we’re looking to see, per company from which we purchase, the percentage of boxes re-selling from company X versus company Y. This measurement is tied into the percentage of dollars from each contact lens manufacturer we purchase from.
If there is a company with a high-unit percentage, but a small dollar percentage, that could mean we’re purchasing and selling lower-priced products from that company, such as selling a contact lens with an older technology. Conversely, if the percent units are low, and the percent dollars are high, it might mean we are buying and selling premium products from that company.
These sales and profitability numbers give us an idea, not just of where our greatest profits are coming from in contact lenses, but our prescribing patterns. If we notice we sell a high volume of a contact lens with an older technology, we may have an opportunity to put more of our patients in a premium lens.
These numbers also alert us to manufacturers, from which we are buying in such volume, that we may have leverage in negotiating inventory pricing. We can approach these companies, from which we purchase heavily, and say, “We’ve noticed we’ve done this much business with you,” and they are sometimes apt to negotiate pricing or rebates with us.
If you understand historic percent unit and percent dollars sold, and you see those changing, that could be a reflection that there has been inventory pricing increases of which you were unaware. So, that would tip you off that a contact lens you had previously inventoried may no longer make sense financially to inventory.
Average Realized Price
Before we began using a year-end contact lens report, a contact lens company rep would come in and say they have a big inventory deal for us. For example, they may say, “we’ll give you 400 boxes for $20 a box,” and we would automatically say yes because we had been paying $25 per box. Our end-of-year report, though, shows us what we’re really paying per box averaged out. If $25 is our baseline, and we think we’re doing pretty well, we can look at our average realized price (ARP) for the year and see how much money we’re actually making from selling the product.
ARP may be influenced by returns. If your contact lens supplier has an overly-restrictive return policy, the ARP will increase if you are not receiving credit for the returned boxes.
If we’re paying $25 per box, and a company says they can do an inventory deal once, twice, or three times a year, we can look at the average realized price for that box, and ask ourselves if it even makes sense for us to inventory that product. If my base price was $25, and my average realized price turned out to be $24, does that product make sense to keep inventorying going forward? Even with the special deal on pricing being offered, is there enough of a savings to justify the inconvenience and cost to the practice of inventorying the product, the needed staff time to inventory and sell the product, and the space it will take up in the office?
In the past we inventoried about 20 percent of our contact lens products. We recently made changes to decrease that inventory, and now we inventory about 15 percent of the contact lenses we sell.
Top CL this Year Compared to Last Year
We look at the top 10 contact lenses we sold for the year and compare it to the previous year. We then look at how the pricing to purchase that product might have also changed year-to-year. Comparing the pricing on our top sellers allows us to make sure we are moving in the right direction from a profitability standpoint. It allows us to see where the market is in pricing of specific lenses, and whether we’re in line with what the market bears for each of those lenses.
If we have two lenses in the same category–technologically the same, or very similar, so that they are equally beneficial to patients–we will look at our profitability for those two lenses. If the first lens’s pricing to us increased, and the market price decreased, we are less motivated to continue fitting that lens in our practice. If the second lens has a lower cost to us, but a higher market price, then that allows us to improve our profitability.
All this is done with the primary goal of putting the best contact lens on any particular patient. But if two lenses are equal in clinical performance, and patient comfort, then we will invest more heavily in the one that is more profitable to our practice.
One metric, which we track on our own, is patient contact lens sales from outside online-order companies. This is a measure of the percentage of our patients who are taking prescriptions we write, and buying contacts online instead of from us. We track this by online lens company, lens type and doctor in our practice.
This tells us from where our online competition is coming. If there is one online seller, from which 60 percent of all patients, who purchase one type of contact lens, are purchasing, we see if we could be more competitive with the pricing of that product.
We’ve been able to identify which lenses are most likely to be filled online. Usually these lenses are based on older technology, and are no longer the best lens for the patient.
We also educate our patients of the value of our services–that we will provide them extra lenses in an emergency, return unopened boxes and get prescription adjustments as needed. Our patients know we can provide a higher level of service than our competitors.