Use Metrics in Your Practice
Use Metrics in Your Practice
By consistently measuring the key expenses in your practice, you can successfully manage them, and increase practice revenue.
John Scibal, O.D., Morehead City, N.C.
Do you measure a glaucoma patient's intraocular pressure (IOP), cup-to-disk ratio and visual acuities and compare these numbers to a set of standard values prior to deciding on management? Of course you do. If you didn't, you'd place the patient at risk for progressive disease, which could lead to blindness.
When it comes to managing our practices, however, many of us very seldom measure how much of our key expenses account for our total practice revenue and compare these numbers with a normative database prior to making business decisions. As a result, we place our practices at risk for financial loss.
Using metrics helps you determine your practice's strengths and weaknesses, set goals based on your findings, take action and increase your practice revenue.
Here, I discuss what you should measure, the top expenses for all practices and the key to accomplishing the goals that will improve your practice's bottom line.
What to measure
The Management & Business Academy (MBA), a CIBA Vision/Essilor-sponsored program that maintains a database of key financial data gathered from 1,500 independent optometric practices, has developed expense benchmarks for optometric practice expenses called Key Metrics of Optometric Practice. (The publication reveals norms for key productivity measures and enables you to compare your practice performance to norms for similar-size practices.) Nine key metrics: Cost of goods, which averages 28.8% of gross revenue, Staff salaries/benefits (19.7%), General overhead (7.1%), Occupancy (6.9%), Equipment (2.0%), Marketing (1.6%), Interest (1.0%), Insurance (0.8%) and Repair/maintenance (0.5%).
Treat these metrics and percentages as a reference rather than as the practice metric Bible. The reason: Each practice is different.
For instance, if you run a high-volume, customer-service-oriented practice, a staff expense of less than 20% is unrealistic and even undesirable, as it indicates an understaffed practice that is, therefore, unable to provide adequate levels of service. In other words, it's less important to compare your practice with these numbers than it is to compare it with itself (one year vs. another).
Employ small business bookkeeping software, and set up your chart of accounts to reflect these nine key expense areas. (Software is available that allows you to customize your profit and loss statement to show each expense category as a percentage of sales.)
Use the outcome of all seven measurements to determine the one or two most problematic areas. (Again, comparing your practice with your practice takes precedence over comparing it with these numbers.)
Don't attempt to tackle more than one or two of the most problematic areas, as doing so can be overwhelming, and, as a result, often leads to decision paralysis.
Obviously, an infinite number of measurable items exist in one's practice.
For instance, if you own multiple practices, you may want to measure optometrist revenue per hour and revenue per square foot for each location. The following, however, are often recognized as the top expenses for all practices:
► Revenue per patient. Determine this number by dividing your practice's total revenue by the number of comprehensive exams performed during that year. The MBA 2010 Key Metrics of Optometric Practice lists a median of $306 in gross revenue produced by each complete eye exam (including professional fees and product sales.) A high value is desirable here, indicating you're maximizing the profit potential of each patient without necessarily doing a lot of extra work. A high-volume, low-cost practice would be expected to have a lower value than a high-tech, "high-touch" practice. Such practices depend on volume for profit.
► Revenue per staff hour. Determine revenue per staff hour by dividing your practice's total revenue by the number of staff hours worked during the year. The MBA 2010 Key Metrics of Optometric Practice lists the median hourly revenue generated by staff members as $83. As a rule of thumb, low values may indicate overstaffing, while extremely high values may indicate your practice is understaffed, and, therefore, not able to provide the level of service you would like.
In the latter case, your goal would be to add more staff, and your plan of action for accomplishing this goal would be to begin the hiring process.
► Gross profit margin for eye-wear sales. Eyewear accounts for a significant portion of the typical optometric practice's revenue. To calculate this profit margin, divide the gross profit on eyeglasses (frame and eyeglass lens sales minus frame and eyeglass lens expense) by the total sales of frames and ophthalmic lenses. The MBA 2010 Key Metrics of Optometric Practice lists 61% as the median gross profit margin for eyewear sales.
To calculate this value, you must know both the income specific to this profit center as well as the expenses. Organizing your small business bookkeeping software should permit you to determine your expenses for lenses and frames. Sales specifically from eyewear should be available from your practice management software's production reports.
Aside from knowing the gross profit margin from total eyewear sales, it is of course also possible to dig even deeper, and determine your profit margins on frames and lenses separately.
In either case, the higher the margin, the better. Low margins, however, indicate your pricing is too low, you're overpaying for product, or your premium (e.g. higher margin) items aren't moving well.
The key to accomplishing goals
The key to accomplishing most goals is staff involvement. Therefore, after you've determined the two most problematic expense areas, hold a staff meeting, and share your numbers with the staff. Then, assign each staff member a specific data-collecting job, and schedule a follow-up staff meeting, at which all staff members must present their data.
By making metrics the basis of your staff meetings, you encourage participation and build teamwork. Reviewing the results and arriving at action plans lend themselves for interesting and productive meetings.
For instance, if data reveal that one of the reasons your optical dispensary lost money is because less premium product was dispensed than the year before, you'd want to set the goal of increasing premium product sales, and determine a plan of action to accomplish this goal. An example of a plan of action: Having your optical staff select premium products when asked to assist a patient in frame selection. (If, however, the data reveal multiple problem areas, the team can prioritize them as a group and decide which items to tackle first.)
You don't have to have the practice area-designated staff member report on statistics in that area. In fact, I suggest you rotate staff members to give them responsibility in a different department.
For instance, let your receptionist report on the number of eyeglasses sold, your frame stylist report on contact lens profit margins and your contact lens technician report on the number of new patients for the week. (Setting goals can be done annually or semi-annually. Reviewing your metrics weekly with the entire staff is the best way to make sure you're staying on track with your goal(s.)
Giving staff members something new to focus on reinvigorates job interest, while giving them an appreciation for the work that their co-workers do. In addition, switching staff roles provides an objective view on the area as well as fresh ideas for success. Remember that the purpose of these staff meetings is to encourage and celebrate strong performances and arrive at goals and a plan of action to improve problem areas. It's a team-building exercise. The fastest way to lose a valued team member is to criticize her performance publicly. Therefore, inform staff that this behavior will not be tolerated.
If we didn't measure a glaucoma patient's IOP, cup-to-disk ratio and visual acuities and compare their numbers to a set of standard values prior to making a management decision, we'd place the patient in harm's way. Not measuring how much of your key expenses account for your total practice revenue and comparing those numbers with a normative database before making business decisions places your practice in harm's way. So, it's imperative you measure your success to achieve success. OM
||Dr. Scibal is a practice management consultant at Blackwell & Scibal Consulting (http://optometricappraisalsandsales.com). E-mail him at email@example.com. Or, send comments to firstname.lastname@example.org.|
Optometric Management, Issue: November 2010