Article Date: 1/1/2006

business advisor
O.D. Income: Groups Do Better
According to the 2005 AOA economic survey, larger practices fair best.
JERRY HAYES, O.D.

I recently spoke with Dr. Richard Edlow, chair of the AOA information and data committee, regarding the 2005 AOA economic survey (September 5 issue of the AOA news). One of the findings he pointed out was that optometrists who practice in groups of three to five reported the highest reported median (the hypothetical midpoint) net income at $184,500 per year. As you can see from the chart below, that beats the pants off all the other categories, especially solo O.D.s and optical chain franchise owners.

Economic analysis

Dr. Edlow feels a major reason larger practices are more profitable is that they enjoy greater economies of scale in purchasing power, staff, marketing and office space. I agree, but if you own a small practice, you have to wonder what other factors must come into play to grow a practice to be large enough to support three, four, or even five optometrists? Let's look inside the numbers.

Single O.D.s

Solo optometrists reported seeing 1,920 eye exams per year in 2005 and generating median gross revenues of $374,000 per year, with a median net income of $110,000. That translates to a net profit of 29.4% ($110,000/ $374,000 = 29.4), but average revenues were only $195 per exam ($374,000/1,920=$195).

Group practice

O.D.s in large groups reported seeing a median of 2,150 eye exams annually, which means a five-doctor practice would attract 10,750 patients per year! While total revenues for multi-doctor practices were not specified, I would expect those high-income practices to gross at least $500,000 per O.D. or $2.5 million in total. Therefore, the average revenue per patient for larger practices would be $232 versus $195 for solo practices.

Other factors

While large-practice doctors are very good in the exam room, I see few cases where clinical expertise is a strong differentiator in optometry. However, high-earning practice owners do tend to spend more time on planning and budgeting.

While the founders of large practices are aggressive in their approach to practice marketing through community involvement, they are rarely heavy media advertisers. In fact, the vast majority of high-earning group practices have beautiful offices and shun the discount route. That raises another interesting question. If generating patient volume is all about advertising and discounts, why are optical franchise owners last on the earnings list?

Maybe the real key: high-earning, large practice owners do a good job of hiring, training and managing staff. The more I try to identify the secrets of success in private practice optometry, the more I realize how important it is to have a friendly, caring and knowledgeable staff.

In closing, I can still make a pretty good argument for the advantages of solo practice. You don't have to deal with partners and you can run the office exactly the way you want to. But the data is pretty clear; optometrists in groups tend to make the most money.

THE FOUNDER OF KNOWYOURSTAFF.COM AND HAYES CONSULTING, DR. HAYES IS A REGULAR CONTRIBUTOR TO OPTOMETRIC MANAGEMENT MAGAZINE. REACH HIM AT JHAYES@HAYESCONSULTING.COM.

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Optometric Management, Issue: January 2006