HOW TO EVALUATE CONSULTING AND BUYING GROUPS
How to Evaluate Consulting and Buying Groups
Answer these questions to determine which group is right for your practice.
ZACK TERTEL, assistant editor
Joining the buying group that best fits your practice’s needs can have a significant impact on your bottom line. At their core, buying groups (also known as consulting groups, purchasing alliances, cooperative networks and practice management service firms, among other designations) give you the ability to obtain discounts on frames, contact lenses, instruments and other services from many of the top vendors in eyecare, says Jeremy Ciano, O.D., of RevolutionEYES in Carmel, Ind.
“With a buying group, you can cut your costs of goods with the same quality of products so that you can be more profitable, which is ultimately what we’re all going after as business owners,” he says.
However, because of the sheer number of buying groups that exist, it can be difficult to distinguish one from another.
Each group has its advantages and disadvantages based on what each individual practice is looking to accomplish, Dr. Ciano says.
“Do your homework on the different buying groups, because different groups will suit different people’s needs,” he says. (See “List of Buying Groups,” Page 54)
By answering the following questions during their research, optometrists can put themselves in position to improve their profitability.
How significant are the groups’ discounts?
Discounts are the most quantifiable example of how an O.D. can profit from a group. Even the most seasoned optometrists may be surprised at how much more they could be saving with their respective vendors for products such as frames and contact lenses, says Derek Hamilton, O.D., at Wells Branch Vision Care in Austin, Texas.
“A lot of private practice doctors who have been doing this for a long time are under the impression that they’ve got the best deals because their reps are telling them that they have the best discounts,” he says. “But the reality is there are deeper discounts you can get on all of this product.”
The savings each group offers vary greatly, as does the selection of vendors with whom they have arrangements. While some buying groups clearly map out the discount offered for each vendor on their website, others require you to contact its representatives to determine the exact savings it can provide.
Also, look at whether a group offers bonus discounts based on the amount billed within a certain period of time. By using recent history, some practices may be eligible to receive an even greater savings by continuing to run their business as usual.
For those looking to simplify the process of determining which group presents the greatest savings, some buying groups conduct an audit of a practice’s historical buying trends. For Dr. Hamilton, he says two of the groups that he considered joining sent representatives to his practice. The reps looked at his previous three months of buying activity and showed an exact number of savings while also breaking it down per vendor.
“The savings were so obvious,” Dr. Hamilton says. “We wondered why we didn’t join sooner.”
As the percentage of discounts differ, the decision comes down to how important it is for you to continue to work with your current vendors. Not every group has deals with every vendor, and some vendors even have exclusive partnerships with a buying group. Some O.D.s may decide that the discounts offered by one group are simply too great to pass up regardless of vendor, says Ted McElroy, O.D., at Vision Source Tifton (Ga.).
“You may have a vendor you’ve been working with for 20 years and suddenly they’re no longer in the picture because they aren’t able to offer the pricing you can get from other vendors,” he says.
However, other O.D.s may feel that maintaining relationships with their current vendors is crucial to their success and not worth dismissing based only on a greater percentage of savings, especially when patents have grown accustomed to specific products and vendors.
|Selected List of Buying Groups
|ADO Buying Group
|Block Buying Group
|HMI Buying Group
|The Newton Group
|Primary Eyecare Network
“If you start bouncing around and cutting or severing your local ties to try to save 15 to 20 cents and jeopardize not only your relationship but also the confidence your patients have in you because you’re trying to squeeze a couple nickels out of a stone, I don’t think that’s a sound long-term business model,” Dr. Ciano says.
What practice management tools are available?
Assistance in practice management can lead to additional profitability if utilized correctly, in some cases even more so than the discounts offered. Many optometrists could benefit from the support, says Dr. Ciano.
“As our profession is starting to get into the medical model, we’re really losing sight of our grassroots as small business owners,” he says.
Many groups provide more ways to assist your practice than just discounts. One key way is networking opportunities with peers and industry leaders. This can come in many forms such as meetings, online discussion boards, blogs and more. Each group is different, but these methods of communicating provide the chance to talk with other members of the group about products they’ve used, ways they’ve marketed their practice, vendor programs, staff management issues and other ways to help optometrists stay on top of industry trends. In particular, Dr. Hamilton credits his group’s annual meetings.
“In my profession I spend hours on end with patients by myself in a dark room in the back of an office, and sometimes you can feel like you are by yourself,” he says. “I love the camaraderie of having other people and getting together once a year and the sense that I’m not in this alone.”
Many groups also present educational opportunities with tips and advice on practice management. Through conferences, webcasts, online courses and newsletters, members can enjoy many benefits that support both the O.D. and staff.
Some buying groups also provide various marketing tools to assist practices that struggle to get people to come through their doors. Some examples include professionally produced advertising spots for broadcast and print media as well as developed branding that can be used for your practice’s logo and front sign. One factor to consider with groups that offer marketing tools is the location of the group’s other members, as Dr. Hamilton notes.
“This branding is particularly useful if the group has developed brand recognition in the prospective practice’s market,” he says. “However, if an optometrist is going to be the first member of a buying group in a geographical location where there is little or no brand recognition, then this type of marketing may not be useful.”
For some, buying into a complete branding strategy can be a distinct advantage, though this may not be included in the cost of membership (see “Read the Fine Print,” below).
The cost-of-goods savings these groups provide often pay for the annual membership dues, those interviewed say. Therefore, the more practice management assistance you can receive (for many groups at no additional cost), the more beneficial membership can be for your practice.
“You have to look at what the programs can bring back to the table for you, and you have to figure out what your expenses will be for getting into it and whether or not they offset each other,” Dr. McElroy says.
Specifically, Dr. McElroy recalls walking into his first meeting with his buying group and sitting with “some of the top professionals in the optometry business.” He says the ideas that he gleaned from just this one meeting led to an extra $20,000 in revenue for his practice.
|Read the Fine Print
Don’t sign a buying group’s contract without considering the following, say those interviewed:
► Length of the deal
► Control of your practice being surrendered, such as your website and naming rights
► Hidden fees
► How easy it is to get out of the contract
► What an attorney has to say about it
When considering the commitment involved, knowing your exact obligations is vital.
“It’s been one of the more important business decisions I’ve made over the past couple years, and I think just knowing what I’m getting out of it for what I’m paying into it and knowing what my obligations are is worthwhile to spend money on counsel,” Dr. Hamilton says. “It’s a personal decision, but to me it makes sense.”
“Those are the things you can’t put a number on, because you don’t know what they’ll be at the front end,” Dr. McElroy says.
If practice management assistance is a motivational factor for joining, research these potential costs, and compare them with everything offered by the group as a whole to decide whether this makes the group more favorable than others, say those interviewed.
What is the membership cost?
There can be quite a disparity in the costs to be a member of a buying group. When Dr. Hamilton decided between the two companies that conducted an audit on his practice, he says that while he found the savings to be nearly identical, the cost of one greatly outweighed the other, making the decision for him quite obvious.
Consider that some of these costs go beyond simply determining the group’s membership fee, especially since some groups tout that their membership is “free,” say those interviewed. Remember: additional royalty costs can be present in addition to separate fees for any other tools or services for which the group charges. For this reason, Dr. Ciano cautions against choosing a group solely because it offers the most significant discounts.
“Some optometrists are so enamored at cutting their cost of goods percentage that they lose sight at what their net profitability is,” he says.
What do your peers think of the group?
Rather than taking the word of a buying group’s representative, treat the process the same as any other critical business decision and reach out to your colleagues and friends in the industry for their advice, say those interviewed.
“You’re going to need to be able to speak with some of the other members within the network and ask which programs or tools or vendors they are using that are giving them the most bang for their buck,” Dr. McElroy says.
Also, tap the buying group for information, such as retention rates and references, as these are the types of reviews on which Dr. Ciano says he put a lot of weight.
“Everyone can get suckered into a bad buy, but I want to know who decided to stick with it,” Dr. Ciano says.
In addition, ask the buying group for five optometrists who have opted out of the group to discuss why they left, recommends Dr. Ciano. He says that these are the opinions he would value the most, and that groups that may be hesitant to provide such information may not be worth joining.
“Talking with people and getting their experience is always a good way to go,” he says. “That is not hard to do. You can always find someone who is in the buying group or has gotten out of the buying group.”
Does it add up?
After determining the discounts the group offers, compare these numbers by conducting a cost vs. savings analysis, which Dr. McElroy says he did when he looked to become a member of a buying group roughly 10 years ago.
“When I decided I was going to join, I looked at my current cost of goods and the savings I was going to be able to get on that cost of goods, and if that savings turned out to be better, then it was going to be a good choice,” Dr. McElroy says.
If the savings outweigh the costs, examine the importance of all additional factors mentioned. While some O.D.s may find certain benefits tip the scale in the direction of one buying group vs. another, every service may or may not be important to practice.
For example, those who are not looking for practice management tools from a buying group may want to look at one that does not provide such services (or one that does not mandate them), as Dr. Hamilton says was the case for his practice.
“We didn’t feel like we needed that,” says Dr. Hamilton. “We didn’t feel like we had a problem getting people to come through our doors. We were really just looking for a competitive edge in terms of wholesale purchasing.”
If the savings and benefits are significant enough to outweigh the costs and the buying group offers the services you feel can be utilized in your practice, this could be the group for you. If the group allows you the ability to run a more profitable practice, the decision to sign on the dotted line can be a no-brainer, says Dr. Hamilton.
“After reviewing the contract, the cost, the savings and the culture of the group, I didn’t feel like I was going to have to change myself or how I practice all that much and I was still going to reap a whole lot of benefits,” he says. OM
Optometric Management, Volume: 47 , Issue: November 2012, page(s): 53 - 57