Article Date: 9/1/2011

The Good, Better, Best System
business advisor

The Good, Better, Best System

Use this proven system to improve patient care and increase revenue.

Jerry Hayes, O.D.

One of the key metrics I urge every practice owner to closely monitor is average revenue per comprehensive exam. The median revenue per exam for an O.D. practice is $304, based on surveys of more than 1,000 optometric practices attending the CIBA Vision-Essilor MBA program.

Calculating the average

We can calculate the average revenue per exam by dividing total practice revenues from all sources by the number of complete eye exams performed. For example:

$600,000 collected gross revenue ÷ 2,000 full exams = $300

This number is important because raising your average revenue per patient is the single fastest way to grow revenues and profits. In other words, put just as much effort in serving the patients you see now at higher levels as you do into trying to attract new patients.

A closer look

Let's take a close look at the numbers. Say you perform 2,000 exams in a year and generate collected gross revenues of $500,000. That means your average revenue per patient is:

$500,000 ÷ 2,000 = $250

We see that $250 is a little low when compared to the MBA group. But what if you averaged $300 revenue on those same patients? Well, $300 x 2,000 = $600,000.

With an average net of 30%, your before-tax net income would increase from $150,000 ($500,000 x 30%) to $180,000 ($600,000 x 30%). That's why revenue per patient is such an extremely important number to monitor.

A proven way to increase per patient revenue

As anyone older than age 40 remembers, the dominant retailer during most of the 20th century was not WalMart, but Sears Roebuck and Co.

Founded in 1887 by Richard Sears and Alvah Roebuck, Sears employed two key strategies to become the WalMart of its day. One, it pioneered the concept of marketing products through widespread distribution of a high-quality catalog. And two, Sears popularized the technique of upselling by offering many items in three versions: good, better and best.

You can employ this same good, better, best concept to improve your dispensary sales by adding a high-end brand of frames and top-quality lenses.

For example, if the most expensive frame you carry now is $500, put in a line that retails for $1,000. Don't expect your most expensive offering to become your best seller. It's not supposed to. The idea is to “bracket” your best-selling line of frames and lenses with both a lower price and a higher price option. Its like buying a house, a car or a shirt. We need a frame of reference to determine our comfort level with different price ranges.

While it's a mistake to overwhelm consumers with too many choices, giving patients price options makes your frame stylist's selling job easier. About 20% of your patients will choose the least expensive option, and about 20% will choose the most expense option. This means, of course, 60% will choose in the middle, says the 80/20 rule.

Move some of your low-end patients to the middle and some of your mid-range patients to the upper end. Not only will a broad offering expand your patients' options, it will also expand their view of your practice. It's all about giving your patients high-quality care and choice in their eyewear. OM


Optometric Management, Issue: September 2011