Optometric Management Tip # 308   -   Wednesday, December 19, 2007
Frame Pricing Strategies

When is the last time you reviewed your pricing strategy and price points for ophthalmic frames? If you're like most eye care professionals (ECPs), frame pricing is not reviewed as frequently as other products or as professional fees because frame prices are usually based on a mark-up formula. Mark-up formulas work well because the price you set is based on the current cost and if the cost goes up, your price goes up proportionately. Your pricing stays current. Other products and services that have a flat fee may be reviewed more often, but we still need to review and modify the frame pricing strategy at times.

The mark-up formula

The exact formula that works best varies with each practice and is influenced by the practice philosophy and the local market economy. Most pricing formulas in the United States have a mark-up of 2X to 4X the wholesale frame book cost, with figures often taken to tenths after the decimal point. Generally, any discount granted by the supplier is not considered in the formula, so the profit margin is actually better than it appears. Occasionally, some pricing systems use a mark-up factor plus a dollar amount, like 2.5X plus $30.

I like a sliding scale mark-up that uses a greater multiplier for less expensive frames and a lower multiplier for high priced frames. It helps even out the profit margin; giving you enough profit to make it worthwhile to carry cheaper frames while keeping high-end frames more affordable to the patient. Consider that a 2.5 mark-up across the board will yield a $45 profit on a frame that costs $30 and a $150 profit on a frame with a $100 cost. Since it takes the same amount of space and overhead in either case (a frame is a frame) and even the dispensing work is similar, it's hard to justify why one should earn much more than profit than the other.

Don't forget to review your mark-up formula and consider raising the multiplier once in awhile. Some practices have not increased the formula for 20 or 30 years. While the mark-up factor keeps up with price increases on the frames, it does not keep up with other costs of doing business.

Your mix of price points

I think it's smart to offer a wide range of frame prices to appeal to a variety of budgets. There are times when a patient wants an economical frame, which may be in the $75 price range in many practices today, and there is definitely a market for very expensive frames that offer unique design, fashion or quality. I think some ECPs may do well to reevaluate the number of frames on display at each major price point and consider increasing the quantity in the higher prices and decreasing the quantity in the lower prices.

As an exercise, write down the number of frames you currently have in stock in each of the following price categories. Convert the whole numbers into percentages of the total inventory number. The price mix may surprise you, but at the very least it will be educational. Decide if the mix of price points mirrors your desired pricing philosophy.
< $100
$600 is the new $400

What defines the term "high end" when it comes to frame lines? It will certainly vary with practices and communities, but be aware that it's constantly changing. What used to be high end last year may be average this year. What's the new high end? I don't think you can know the answer unless you test your market. You find it by trial and error. There are some absolutely beautiful luxury frame lines available. They generally have brand names that you have never heard of, and the companies like it that way, because they want to remain exclusive and selective. Many of the mainstream frame manufacturers are offering high end lines as well. Don't be confined by conventional thinking. Push your traditional price ceilings and see if there is better acceptance than you may have thought. There is always a market for the best.

My practice is fairly traditional and we thought we carried some nice high end lines in our optical, but to test the market I recently gave our optical manager approval to bring in a frame that would sell for over $1,000. When the frame arrived, it somehow priced out at $1,770. It sold in less than thirty days. We have more of that type now.

Best wishes for continued success,

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