The Price is Right
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The Price is Right
Are your frame prices hurting sales?
GARY GERBER, O.D.
If you're like most practitioners, you have a formula for pricing eyeglass frames either in your head or written down on a dog-eared piece of paper. That formula reads something like, "Mark up the price 2.8 times on those frames that cost us $100 or less. For those that cost more than $100, mark them up 2.2 times." Your actual numbers may vary, but in our consulting company's experience, this concept and these numbers are close to the norm.
The problem with formulas
Is there a problem with this formula? Yes and no. If you want to maximize profitability without regard for sales, then no. However, just as some practitioners use the phrase "leaving money on the table" in reference to setting professional fees with regard to insurance-company reimbursements, the same concept exists in pricing your frames.
If frame X sells well at $159, how do you know you wouldn't sell twice as many at $149? For that matter, if you raised the price to $229, how do you know patients wouldn't perceive the frame as higher quality than other $159 frames, causing this frame to outsell the other by a ratio of four to one? The answer is you don't know and never will know if you leave the price at $159.
The two problems with frame pricing formulas: First, they are entirely arbitrary and based for the most part, on history. Practitioners have nearly always marked up frames about 2.5 times for midrange frames (more for lower wholesale priced ones and less for higher priced ones). It's been that way for roughly the last 30 years. That doesn't make it wrong, but it isn't proof positive that we can't do better.
|A frame with hot sales this quarter might be icy cold the next.|
The second problem with the formula approach is that it's static. Pricing in nearly every other retail venue rarely is. That's because most other retailers recognize the fluidity and fickleness of their customers. Our patients are no different. A frame with hot sales this quarter may be ice cold the next. Yet, we typically fix our frame pricing.
A different approach to price
Here's a different pricing approach that's easy to implement and nearly instantly adds to your bottom line.
Start with your current formula, whatever it may be. If a frame doesn't sell well, mark down the price until it starts selling. Once you find that price point, gradually boost it back up until sales fall again. Then, drop back the price one notch, and you've probably arrived at the optimal price.
So for example, if frame X only sold once during the last two months and its price was $159, lower the price to $129, and track sales. If it now sells eight times in two months, raise the frame's price to $139. If it stays at eight sales, try $149. If that puts the brakes on sales, your price point should be $139. Once you've determined the best selling price, you can look back on what your "formula" should be for similar looking and featured frames.
Alternatively, if you price a frame at $239 that sells well, do the opposite of above. Raise the price until it stops selling. Try marking it at $289, and carefully track your sales results. If sales fall off precipitously, back the price down to $269. Once you find a price that gives you similar sales to the $239 price, stop and leave it there — but of course, keep your eye on sales, as they will nearly never be constant month to month.
The above examples don't take into account the cost of the frames. What you certainly should be focused on is the profit differential from changing your prices. This means that while you'd probably sell a lot more frames priced at $1 than $1,000, you'd also lose your shirt. This relates to the concept of the price-volume curve that you must also consider when pricing your frames. OM
DR. GERBER IS THE PRESIDENT OF THE POWER PRACTICE, A COMPANY SPECIALIZING IN MAKING OPTOMETRISTS MORE PROFITABLE. LEARN MORE AT WWW.POWERPRACTICE.COM, OR CALL DR. GERBER AT (800) 867-9303.
Optometric Management, Issue: July 2008