Photo courtesy of Erich Mattei, who is seen in the photo with with Samantha Rao, OD, FAAO, FSLS, founder, Bright Eyes Milford in Milford, Connecticut, at a Business Builder by Akrinos practice management workshop.
Growing revenue
Part two of three-part article on the financials of cold-starting or buying a new practice. Click HERE to read part one
By Erich H. Mattei, MBA
May 14, 2025
Revenue modeling is pivotal to practice planning. It allows you to identify multi-year targets across the areas that will prove foundational to your practice’s income.
You must align your revenue model with your practice’s vision, scope of care and the patient experience you’re aiming to create.
This article details how to build that revenue model, along with an expenses model, so you know how much your revenues will be impacted by costs.
Identify Revenue Streams
Examine various income sources such as eye care services, eyewear sales, contact lens services, medical services and any specialty services or products you plan to introduce.
Set Realistic Pricing
Craft pricing that reflects market standards and your competitive analysis findings. Consider the value, quality and customer perception you aim to deliver. Your pricing should strike a balance between competitiveness and profitability.
Important Consideration
For practices accepting managed care plans, it’s crucial to work with an average collected revenue figure. Even if the list price for an exam is $130, factor in the likely managed care reimbursement rate to determine a more realistic average collection per exam.
Estimate Revenue
To estimate your practice’s revenue potential, itemize and forecast the key performance indicators (KPIs) that drive revenue at four different stages: upon your grand opening and at the end of years one, two and three. Variables may include doctor coverage and exam volume, service and material fees collection, patient conversions (“capture”) and more.
Here is a sample revenue model for year one for a cold-start vs. purchase. Note the differences between each, specifically regarding patient volume and conversion rates.
By diligently compiling these analytics and setting these benchmarks, you can clearly evaluate the viability and potential profitability of your practice for yourself, lenders and landlords.
These figures will become the basis for your production objectives in the crucial first 36 months of your new venture.
Other Articles to Explore
Building Your Expense Model
Whether cold-starting or purchasing a practice, expense forecasting is a crucial step in business planning, allowing you to anticipate and manage the operational costs of your business.
Optometry’s 7-Point Expense Model
- COGS (Cost of Goods Sold)
Includes cost of goods sold across optical, contact lenses, medical device disposables and over-the-counter (OTC) products.
- Payroll (Non-Doctor)
Covers all non-doctor payroll expenses including wages, benefits, worker’s comp and payroll taxes. (Note: Doctor salaries are considered separately, paid from the practice’s net operating income)
- Overhead
Accounts for technology, utilities and other general overhead costs.
- Occupancy
Encompasses rent and triple net costs (taxes, insurance, maintenance).
- Equipment
Includes expenses for purchasing and maintaining equipment.
- Marketing
All marketing endeavors, such as advertising, sponsorships and online activities.
- Interest
Reflects the cost of financing and borrowed funds.
Explore Optometry’s Expense Ratio Benchmarks based on industry sources and Akrinos data-on-file:
Adjusting Expense Ratios
As your practice grows, regularly monitor your expense ratios and be proactive in making business decisions to maintain financial health and agility in response to market changes.
Expense Modeling Through Various Stages
Grand Opening: Start with conservative expense projections, accommodating for the initial outlay and a gradually growing patient base.
End of Year 1: Refine your model with actual figures from the first year and consider increasing investment in marketing and equipment as your practice develops.
End of Year 2: With a firmer grasp of your practice’s financial landscape, adjust your model to reflect any operational changes or service expansions.
End of Year 3: Your practice’s expenses should now be more predictable, allowing you to optimize each category according to historical data and forward-looking strategies.
Projecting Profit Margins
Established practices typically see profit margins between 28-40%, a key metric of financial viability and endurance.
Expense forecasting is an indispensable part of your practice’s economic strategy. By monitoring these benchmarks, and adjusting them as your practice matures, you’ll lay a solid financial groundwork for your business.
Regular revisions and updates to your expense model are vital to enduring success.
Read more about practice metrics in ROB sister publication Independent Strong
