When I consult with optometrists, I often find that many of them do not look at financial reports very often. In this article, I will cover some financial data points that seem simple, but have some confusing details that I’m often asked about. I’ll cover additional metrics and reports in future tip articles.
The key data points below should be easily available from the reports in your office management software and you can do some simple math to obtain the ratios indicated below. These metrics will show you how your practice is performing compared to national statistics and they can show you if the practice is growing.
Collected gross revenue
Years ago, optometrists simply tracked the total of their usual and customary fees generated over some period of time and called it “gross revenue”. It was simple and accurate. You can still track this number for historical comparison, but it is fairly meaningless today due to our managed care environment. The only number that is used now by practice management consultants and national organizations is “collected gross revenue” or gross revenue after insurance adjustments. This is your true gross and it is also the total of your bank deposits from your practice. It is the total payments received, not the fees that were entered.
I have found that for many optometric practices, collected gross revenue is often around 60% of usual and customary fees. Of course, this percentage can vary widely based on the fee structure and if the practice accepts a large number of insurance plans. The insurance write-off amount is generally growing as managed care grows in our practices.
Here are some key points about collected gross revenue (CGR):
This metric tells us how the practice is doing as a business, but we need more information as shown below.
What time period is covered? It could be daily, monthly, quarterly or annually.
Is it for a single or multiple locations?
Does it include single or multiple doctors?
Within a practice, I like to compare this metric to the same month of the previous year to see if it is growing. Divide the difference by the previous year amount to obtain the growth as a percentage.
Collected gross revenue per OD
This one really tells us how the practice is doing, because it takes into account a part-time doctor and multiple doctors. Let’s assume it is for a single office location.
Determine the full time equivalent (FTE) for optometrists. Add up the hours worked per week seeing patients and divide by 40.
If you are the only doctor and you only see patients 24 hours per week, you are an FTE of .6. If your CGR is $300,000 per year, your gross revenue per OD is actually $500,000 per year.
The national average according to the AOA and the Management and Business Academy is about $680,000 per year. The maximum production one OD can produce is hard to determine because there can be some unique factors, but $1,000,000 per full time OD is certainly achievable and is a good goal.
Collected gross revenue per exam
This metric tells us how each OD is doing if there are multiple doctors. It also tells us how much revenue your practice produces for each exam.
We typically use comprehensive eye exams only for this data point. That number should be on your office software report, but you may have to add a few items together.
All sources of revenue contribute to this stat; the fees do not have to literally be generated by an exam.
Divide your CGR by the number of exams in any time period. The national average is about $308 and many practices achieve around $500 per exam.
Collected gross revenue per staff member
This stat can help indicate if the practice is overstaffed or understaffed. It is a general rule of thumb and it does not replace direct observation of the practice operations.
Determine your FTE for non-OD staff as described above. Divide your CGR by this figure.
On an annual basis, I like to see $135,000 CGR per staff FTE. Some experts put the number at $150,000, so that is a good range. Having a higher number does not mean your staff is just more productive, it may mean you are understaffed which can lead to stress and poor customer service. It may also mean you don’t delegate enough.
What about the net?
Of course, the net income is what really matters since that is what you get to keep. But the fastest way to increase your net is to increase your gross. You can cut some expenses to increase the net, but that strategy may be short-sighted because it could lead to reduced service or quality.
The national benchmark for net income is about 30% of CGR.
The net includes all doctor compensation, even employed ODs. Include all employment benefits.
Reallocate your expense categories to move personal items to your net. Depreciation is an expense on paper only, so it should be added to your net.
Develop a system to track these key metrics on a regular basis in your practice. We tend to improve what we measure!
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Editor, Optometric Management Tip of the Week
Dr. Gailmard's new book, Practice Management in Optometry: A Blueprint for Success Based on the Optometric Management Tip of the Week, is now available on Amazon.