Optometric Management Tip # 103   -   Wednesday, January 07, 2004
Practice Data, Part 2

Continuing last week's topic of practice data analysis, let's look deeper into how you should define the seven major expense categories, and what the typical percentage of gross revenue is in each category. I suggested last week that you might want to pare down your expense categories to major ones that are more meaningful. Occupancy costs, for example, would include the costs of utilities, maintenance, janitorial expense, facility insurance, taxes, and rent. It could still be helpful, at times, to track your janitorial costs alone, but if we lump all the costs of your facility together, it can give you the big picture.

The "definition" of each expense category is important so that the proper costs are included and the category is accurate. You can then compare your own data month to month, quarter to quarter, or year to year. As long as you don't change the definition, you'll be comparing apples to apples. If you wish to compare your data with other practitioners, or with national standards (such as the AOA may provide), it is critical to know exactly what expenses are included in a category.

Some of the categories have nuances that make them slightly more complex. For example, if you do your own optical lab work in-office, the payroll for the lab staff should be included in cost of goods sold - not in staff compensation! Listed below are the definitions I use for the seven major expense categories. You may decide to define yours differently, and that's fine -- what matters most is that you are consistent with your own definitions. You should discuss these with your CPA. Now that we've defined the categories, here are the percentages of gross that are considered standard in our profession, based on data from the AOA and from other sources, such as management consultants. When calculating an expense as a percentage of gross, we must first define the gross properly. I consider the true gross to be the total fees that are actually collected and deposited in the bank (not the revenue that is simply billed and may be partially written off). Keep in mind that these percentages are only rules of thumb, but they do serve as useful benchmarks.

Best wishes for continued success,

Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management