Last month’s article issue looked at the financial future faced by independent practices, especially given the pandemic. Covid-19 has meant reduced appointment capacity and therefore a need to generate more revenue per patient.
But it is the intense competition from the multiple groups and online suppliers that poses the greatest challenge to the prosperity and commercial viability of many independent opticians. So what can realistically be done to minimise and even negate this threat?
The starting point is to find out why some practices are very profitable while others struggle to make a proper financial return. Such information will help the independent sector adopt the most effective and proven profitability techniques. As Benjamin Franklin, author of the United States Declaration of Independence, said: ‘an investment in knowledge pays the best interest.’
A two-year project on independent practice profitability has recently been completed by the Independent Marketing Partnership. Its research involved a detailed analysis of patient prices, dispense values, conversion rates, overheads and product costs. Also investigated was the effectiveness of practice communications, particularly those used during the patient recall, handover and dispensing process.
This research focused on 10 key elements that affect the profits of independent practices:
- Understanding where and how profit is generated. There were considerable variations in opticians’ knowledge about profitability techniques, including the use of key performance indicators to measure performance. Some practices did not know where their most and least profitable business areas were – and their causes – which meant they could not take appropriate measures to improve them.
- Reducing the cost of goods:
Lowering the cost of buying optical products is an obvious way to increase profitability. The research found this was not done as much as might be expected. Nor was it carried out in a systematic way. Many practices did not review their net eyewear costs regularly and instead relied on percentage discounts they received from supplier price lists.
- Reducing overheads:
Understandably, the project found overheads were difficult to cut because the largest fixed costs are personnel and property. However, relatively small cost savings in utilities, accountancy fees, printing and postage did have a worthwhile cumulative effect. Some practices regarded marketing as an overhead cost that should be kept as low as possible. This was mainly due to its perceived lack of effectiveness.
- Increasing the average income per patient:
Everyone was aware of the importance of increasing their average dispensing values, although they were uncertain about how best to achieve this. Few practices had specific strategies or processes for upgrading patients to better quality eyewear or selling additional pairs.
- Increasing patient conversions:
The research found significant variations in patient conversion rates. The average was 56%, but some practices achieved over 70% (while one had 32%). Improving the conversion rate is one of the best ways to increase profitability because it requires no extra appointments. But it is not easy to do unless specific patient communication methods are used. The role of the optometrist as well as the dispensing optician is important here.
- Using a monthly payment plan:
A small number of practices offered their patients an eyewear discount scheme based on a monthly direct debit subscription. The research found this strategy took time to produce results but was financially very beneficial when implemented properly.
- Increasing income by raising prices:
Optimal pricing was found to be another successful way to increase profitability. Extra revenue automatically becomes extra profit because most costs remain the same. But higher prices need to be linked to better product benefits. Many independents were cautious about raising their prices and tended to rely on a pre-determined percentage mark-up on their product costs.
- Increasing appointments:
More patient appointments should lead to more dispenses and revenue. Because social distancing has meant a reduction in capacity, it is more important than ever that appointments are filled by patients who are most likely to buy eyewear. This requires more targeted patient recalls and other communications.
- Better marketing:
Marketing has the potential to increase profit by generating more patients and demand for higher quality eyewear, but only if that expenditure is not wasted. It was found that most independent opticians are uncertain how to implement effective marketing. Some partially try it, and then conclude that it does not work.
- Using a profit growth plan:
Even when independent opticians saw a need to improve their profitability, many did not know how to achieve it and where to start. Being too busy in their practices was often the reason. Yet having a planned process increases the chances of success. As the saying goes: ‘If you fail to plan, you plan to fail.’
The research project found that a typical independent practice could increase its profits by around £34,000 a year if these 10 elements were addressed. How to achieve this will be discussed in the next management issue of Optician.
- Graham Hutchison is managing director of consultancy the Independent Marketing Partnership. Full details of the profitability project will be available in May. Contact via graham@opticalmarketing.co.uk.