By Thomas F. Steiner
Director of Market Research,
Review of Optometric Business
This is the first in a series of articles on leading metrics that should be tracked by all independent OD practices. These are keys to influencing the financial performance and general success of a practice.
BENCHMARK IT. Compare MBA medians to your practice performance in critical areas.
TRACK IT. Office process and revenues that are tracked tend to improve because of it.
IMPROVE IT. Calculate your revenue gains if you reach the MBA 75th percentile.
Editor’s Note: APPLYING MBA METRICS: Beginning in 2005, the Management & Business Academy (MBA), sponsored by Essilor, has assessed the financial performance of more than 1,800 independent optometric practices. The aggregate data from these assessments comprise the vast MBA database, that can explored at MBA-ce.com, a site open to all. A central resource that can be downloaded from the site: Key Metrics: Assessing Optometric Practice Performance.
Among the most revealing metrics of OD practice productivity is gross revenue per complete exam – a useful indicator of the average revenue generated by a patient visit. Gross revenue per complete exam is calculated simply by dividing gross collected receipts by the number of comprehensive exams performed in the same time frame.
This metric reveals the productivity of a practice’s patient education process, a practice’s capture rate of patients’ eyewear and contact lens purchases and the effectiveness of a practice’s product mix and pricing strategies. Gross revenue per complete exam is primarily influenced by the internal processes of the practice, and can be immediately and significantly improved by staff and doctor actions.
For all independent OD practices participating in the MBA research program, the median gross revenue per exam is $306. The top 10 percent of practices achieve a median gross per exam of $500, the bottom 10 percent just $159 — a very large range of productivity. The 5 percent of practices that generate the very highest revenue per patient produce $529 per complete exam. This production value represents the upper limit of what is feasible to achieve.
There is only a weak positive correlation between practice size and revenue per exam, so the best comparative benchmark is that for all practices.
Every well-managed practice should track this productivity measure monthly and share the findings with staff. A practice with multiple locations should calculate gross revenue per exam separately for each location. The ratio should also be calculated separately for each OD in the practice.
Any practice with a revenue per exam ratio below the 75th performance percentile ($371) has an opportunity to increase practice revenue with office process changes. Improving average revenue per exam has a big impact on financial results. Increasing average revenue per exam from the median of $306 to $371 (75th percentile performance) produces a 21 percent increase in gross revenue, which in the median practice translates to a gain of $143,000.
Four steps to uncover the sources of deficiency and develop an action plan:
Examine current product presentation process
Many practices with average or below revenue per exam use an unscripted, haphazard or passive product presentation process. Such approaches to product presentation encourage patients to re-purchase the same satisfactory, but unexceptional, products year-after-year, and never to be educated about the latest high performance options. An objective self-appraisal of the current product presentation process should focus on the frequency and effectiveness of the doctor’s eyewear recommendations, the hand-off process from exam room to dispensary and education of managed care patients about their benefit limits.
Compare current product sales mix to industry norms
Based on the latest 12-month sales history, calculate the percentage of total units dispensed for major categories of eyewear and contact lenses. Compare these dispensing ratios to national market data to identify premium product categories for which the practice’s ratio is below industry averages. Select a limited number of categories and establish quantitative goals for improvement of the sales mix ratios. Discuss product presentation changes with staff that are needed to improve the ratios. Decide on preferred methods and use them consistently.
Compare fees and retail prices to industry norms
Practices which charge patients below average fees and retail prices are likely to have deficient gross revenue per exam. In the experience of most optometric consultants, independents are able to command a modest price premium for products compared to commercial providers and a larger fee premium without business loss.
Evaluate the patient appeal of the dispensary
In some practices, the major problem driving down revenue per patient exam is a low eyewear capture rate, caused by ineffective merchandising. When patients conclude that their eyewear choices are limited at a practice or that the staff is unlikely to provide expert advice during a complex eyewear selection process, they may take their business elsewhere.
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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