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We haven't talked about in-office finishing labs for a long time and if you dispense eyeglasses and don't already have your own lab, it's time to reconsider. There are many great reasons to have your own in-office finishing lab, such as increased control over the product you dispense and better customer service, but let's forget those for now and just concentrate on the profitability factor. The cost savings that is possible is too significant to overlook.
A finance example
The best way to look at the potential savings from an in-office finishing lab is with an example. Let's suppose we have a typical practice that grosses $600,000 per year. The national norm for cost of goods sold in optometry is 30% or $180,000. Let's assume that $80,000 is from ophthalmic lenses and the rest is frames and contact lenses.
You should analyze your own lab invoices to project how much you can save if you were to buy uncut lenses instead of edged and inserted lenses, but let's say it is 40%. I have an in-office lab in my practice and that figure is quite realistic. Your savings would be $32,000 per year. Your cost of goods sold will decrease and your net will increase by that amount.
I often hear the reason some ECPs reject the idea of an in-office lab is because they have a high volume of patients on vision plans that require the use of specified wholesale labs. When you plug your numbers into our example above you automatically negate that factor because your cost of goods for lenses does not include those optical jobs. That part of your lab bill is paid directly by the vision plan.
A practical look at other associated costs
Of course, you should assign any increased costs such as staff, rent, and equipment to this newfound profit. But if we look at these costs fairly, we find that they are negligible.
Office space. If you can find the small amount of counter space an edger and a few other machines require, and if you are already paying rent, then the actual increased cost of the office space is zero. Sure, you could assign a prorated rent amount to the lab if you were doing a strict cost analysis, but from a practical cash flow standpoint it is zero.
Staff. Technically, the prorated wages and benefits for the amount of time staff members spend actually making lenses should be added to the cost of goods sold. So, if you hire one additional optician and 50% of his time is spent doing lab work, that should be factored in. However, don't forget the added benefits your practice receives from the additional employee because the 50% of time not spent on lab work. Customer service will improve, resulting in better patient loyalty and referrals. Sales should improve because you will take care of patients better without rushing. Delegation will increase because you have someone to delegate to. You will probably actually pay for the additional staff member from the added productivity. On the other hand, many offices do not need to hire any new employees when they buy a lab because the current employees have under-utilized time and lab work can be worked into the non-busy times in the office. Because of all this, I would place the additional staff cost at zero for labs that produce moderate to low work volume.
Equipment. There is a cost to lab equipment and I can't get around that, but look at it as a monthly cost (a lease or a loan payment) rather than the full purchase price. After you project the potential savings that an onsite lab will provide, deduct the monthly payment amount and you should still have a profit left over. Let's assume you have a five year lease at $700 per month. The monthly cost savings in our example above was $2,666 so your net profit is $1966 per month. Still not too shabby. After you pay off the lease or loan amount, your profit will increase.
Electricity, water, lab supplies. Factor it in if you wish but it is negligible.
New opportunities to buy smart
One of the major advantages of owning your own lab is that you are now open to a new world of products. It's like buying wholesale instead of retail. You can work with new vendors that specialize in supplying uncuts and the prices will amaze you. You can gain additional savings when you buy in bulk for your own inventory. Of course, single vision lenses will allow you the biggest savings and you can stock uncut lenses with factory scratch coatings, antireflective and photochromic. You can also save when your lab surfaces progressives or multifocals for you and sends them to you in uncut form.
You can still use the major lens brands if you want to, but you will also become aware of alternative brands that are very high quality but at a lower price.
The decision to own your finishing lab is really as simple as comparing your costs if you do the work in house vs. sending it out.
Lens edging technology has become so easy that any experienced optical staff person in your office can learn to do it in an hour and cut perfect lenses. The edger sales rep will be happy to train your staff.
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.