Optometric Management Tip # 541 - Wednesday, July 18, 2012
Four Steps to Higher Frame Profits
Most optometrists don't pay much attention to the pricing of frames that are carried in their practice's optical department. This is an area that is usually on auto-pilot. A frame mark-up formula was created many years ago, and that is how frames are priced. If that describes your practice, you are missing out on some profits.
Here are four tips on how to improve your profitability of ophthalmic frames:
A modern frame mark-up formula
Let's review your mark-up formula and be sure it is up to date. Chances are your pricing system has not been revised in many years. While some consumers will shop around for frame prices, the vast majority of patients who visit independent private practices want to obtain their eyeglasses there. And many of these patients have vision plans covering the majority of the frame cost. Given these trends, the frame price is not that price sensitive. The old method of something like 2.5X plus $30 is outdated. Many successful practices today use a sliding scale that starts at a 3X mark-up for frames with a higher wholesale cost and shifts to a 4X markup on frames with a lower wholesale cost.
Mark-up formulas work well for most frames in your office because it lets staff know how to price most frames without special decisions or input from the owner.
Go off the mark-up formula
While the general pricing formula works for most frames, there are times when it is smart to go off your system. For example, I believe in offering a budget line of frames (although we don't promote it and we keep it separate from the main frame lines). These frames are purchased at a very low price, possibly as low as $5 to $10. Obviously, these frames can't be sold at $15 or $20. There are too many services and overhead costs that go with the sale of a pair of glasses to support that low of a price. These frames could easily retail at $90 or more.
Another opportunity exists to simply set a price based on the quality and the public's perception of the frame, without a direct relation to the wholesale cost. You could buy a frame at a very low price, often much lower than the price published in the Frames Data list, which is used to determine the price covered by vision plans. There are several frame lines that offer such pricing. This frame line could be priced any way you wish. There is nothing wrong with having some frame lines that provide a much higher profit margin. Having a higher retail price on these lines creates a higher frame overage after the vision plan allowance is calculated.
You may be able to buy some close-out frames in very popular designer brands at a very low price and mark them up based on the usual wholesale price. You may need to change your buying habits with this type of frame, such as buying ten pairs of the exact same model, size and color. You may not be able to get other colors or sizes for patients to view and you may not be able to order replacement parts for repairs, but you can increase profits very nicely with close-outs.
Move price points up
Here is a smart way to analyze your frame inventory: count the numbers of frames you have on display in price ranges similar to this: Below $150; $150 to $250; $250 to $350; $350 to $450; $450 to $550; over $550. This creates six price points. Convert the number of frames into percentages of the entire inventory. Examine these percentages and try to decrease the number in the lower price points and increase the higher price points. You will still have all prices available, but more choices in the higher range will result in a higher average sale.
Explore your true high-end
Test your market by bringing in a frame line that is much higher price than anything you carry now. Many practice owners have a preconceived notion of what is the high end of what local consumers will spend for frames. For many ODs, that upper end might be $600. What if you brought in an exclusive high end frame brand that retailed at $1200 and what if it sold very well? We would have proven that the initial assumption was wrong. I experienced this scenario in my practice about 15 years ago. We have been selling high end frames ever since.
Be aware that some exclusive frame lines may operate with different rules than we are used to. There may be an expensive buy in. You may not be able to return frames that don't sell well. There may not be a discount. Don't let these different policies scare you off and prevent you from investing in a brand that would be good for your practice. There is always some risk in business strategies and this one is relatively small.
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management