Optometric Management Tip # 213   -   Wednesday, February 15, 2006
Declare a Moratorium on Discounts in your Office!

I believe most eye care practitioners charge fees that are too low. Couple that with participation in too many vision plans and you have a recipe for a mediocre net income. But let’s put both those problems on the back burner for now and look at a related issue that is much easier to correct… discounts!

Many eye care practices offer all kinds of discounts to patients, which became office policy quite innocently in a (misguided) attempt to increase revenue. Looking for a quick way to increase volume and stimulate business, many business owners look toward discounts. It seems like a basic strategy that works, and it does in many business settings, but not always in professional practices.

How many sales would have happened anyway?

Discounts only work if they create a significant number of sales that would not have happened without the discount. That is the hard part to measure. If you would have sold nearly the same number of items with no discount, at a much higher price, then the discount is a very bad business strategy. It does no good to proclaim a discount is a success because you sold X number of units or Y dollars of a product or service in a month. You must measure how much you would have sold without the discount and reconcile the difference.

The discount on the items you would have sold anyway is a true loss, and it must be deducted from the additional items you sold because you offered a discount. Since the profit margin is already low after the discount, I believe most optometric discounts are actually costing the practice money. There are enough sales happening without the discount that it is not worth giving it to a whole group.

What types of discounts does your practice offer? Why discounts hurt the bottom line

Discounts are very damaging to profits because they fall directly to the bottom line. A 20% discount on services or products becomes a 60% hit to your net!

Let’s look at an example. Let’s suppose you routinely offer 20% off on eyeglasses if a patient purchases a year’s supply of contact lenses. Sounds like a sensible approach that will create an incentive to buy glasses, but let’s look deeper.

Miss Jones has been your patient for 5 years and she wears contacts full time. She decides to replace her 7 year old back-up eyeglasses. Your usual charge for the glasses she selects is $300. You typically net 33% of the gross, so your net after lab bills and overhead costs is $100. You granted a $60 discount to Miss Jones on the glasses, so your new net is now a whopping $40! The $60 discount was 20% off the gross but it is 60% off the net. For a profit of $40, your opticians will perform a lot of services – frame selecting, measuring, verifying, calling, dispensing, adjusting, repairing and so on. It may not be worth it!

Furthermore, and this part really hurts, Miss Jones was ready to buy glasses anyway and would have bought them from you without the discount!

What to say

Usually, you or your staff won’t have to say anything. Just stop offering the discounts. Very few people will even notice. Just total up the fees and state the balance and then be quiet and let the patient indicate how he will pay for the services and products. If a patient does ask about a discount, making reference to receiving it in the past, just answer the question honestly and frankly. Something like: “Unfortunately, our costs have gone up and we can no longer offer that discount program.” You can add more about how your practice has high quality standards which you don’t want to cut – but it is really not needed and it is very easy to start sounding defensive and say too much. Just be sympathetic that the program is no longer available and move on.

One discount exception?

The only discount that I think has merit is a discount when a patient buys two or more complete pairs of glasses at once. This one can work well, but I have an important twist on the usual program offered by most practices. You’ll have to wait for next week for that one – but it’s very good!

Best wishes for continued success,

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