As the nation’s health is increasingly protected by vaccination, it is perhaps tempting for independent practices to think their financial health is also secure. After all, conversion rates and average dispensing values have risen as more patients choose more expensive eyewear.
This is being noticed by optical suppliers. Julian Wiles, UK manager of Younger Optics, which supplies independent laboratories, says: ‘Some are now reporting very strong demand. They all have one thing in common. The lenses being ordered are of much higher value.’
His view of the market is echoed at Norville, now part of the Inspecs Group, which has an account with mostly independent practices. Paul Jones, head of sales and marketing at the company, has seen an increase in demand for higher specification lenses.
Julian Wiles, UK manager of Younger Optics
‘Social distancing means practitioners are spending more time with their patients,’ he says. ‘Many people have unspent savings and are treating themselves to a better pair of spectacles. Independent opticians are getting busier, albeit with reduced appointment capacity.’
But being busy is not the same as being financially healthy. So are your current profit levels really sufficient and sustainable?
Paul Jones, head of sales and marketing at Inspecs
Last month’s management article looked at the results of a research project into the profitability of independent opticians. It identified 10 key elements that typically affect their profit levels and which could be improved with appropriate strategies. Readers of Optician can now obtain a free report on this project’s insights (see end of article).
This month’s article discusses one of the most important elements in generating better and sustainable profits. That is an audit of your practice’s business performance, followed by the use of a profit action plan. At its centre are Key Performance Indicators, or KPIs.
KPIs are vital for identifying those aspects of your business where profitability needs to be, and could be, improved. Unless you know what is really happening commercially (rather than assuming or guessing) you will not be able to optimise profits.
Your practice management software should be able to supply all the necessary KPIs in an easy-to-use format. It is recommended you look at the following on a monthly and quarterly basis:
- Total income, cost-of-goods, gross profit, GP%, overhead costs, operating profit, number of tests, income per test, number of dispenses, dispensing income, average value per dispense, conversion rate and number of new patients.
This may seem a lot to do, but analysing KPIs really is the key to unlocking better practice profitability. An hour each month is a small price to pay for a significant amount of extra profit each year.
Because of the commercial distortions caused by Covid-19, it is best to compare your current KPI figures to the last ‘normal’ year of 2019 and to the current year’s budget.
A detailed budget is a valuable tool for improving profitability. The very act of creating it makes you think about key aspects of your business. A budget also provides a useful benchmark against which to measure practice performance.
As such, it can flag up warning signs if things start to go wrong. The sooner you know there is a potential problem, the sooner you can take action to rectify it.
Once a KPI analysis is done, you should be able to identify specific areas where profitability needs to be improved. For example, this could be the average dispense value, the conversion rate or the number of appointments – or a mixture of all three. You can then adopt an appropriate strategy to increase your profit in each area.
Here it is important to prioritise those elements that will have the most impact. They should become the focus of your action plan because you cannot do everything at once.
An effective plan should be as specific and realistic as possible. It needs to have clear objectives, such as increasing the average dispense value from £220 to £245. It must have a strategy for achieving its goals, such as offering better quality lenses and frames. It should also have a timetable for its implementation.
Then, of course, you must take action if you want to achieve anything. This may seem self-evident, but it is too easy to postpone things or only partly apply a plan when you are busy.
It is also essential to measure your progress on a regular basis (eg quarterly) and make changes where necessary. That way your practice will benefit from a virtuous loop of KPI analysis, planning, implementation and profit.
All this might appear rather daunting if you are short of time or not sure what methods to use for improving your profitability.
Practical guidance and support can be found in a new profit-growth programme being introduced in June. It enables independent opticians to produce and implement a professional profit action plan. Further details – plus a free Profitability Research Report – are available now from www.opticalmarketing.co.uk/profits.
- Graham Hutchison is managing director of the Independent Marketing Partnership, a consultancy specialising in patient communications and practice profitability. Contact via graham@opticalmarketing.co.uk.
