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Based on my observations, the optical pricing strategy used by most eye care practitioners (ECPs) is usually not very well thought out. Most practice owners use a markup formula for frames and lenses that was devised many years ago, or was handed down from previous owners and it's often based on weak business assumptions. It's ironic, really, how such little attention is given to something so important to practice success. Setting the right price for frames, lenses, and lens options can have a very positive effect on your practice net income.
By the way, I know that many professionals prefer the term fee, rather than price, but that's really only applicable to services. When we speak of products sold on a retail basis, the word price is perfectly fine.
The typical thought process
Most ECPs want to set their prices for optical products at a level that will produce a profit, but will not scare away the consumers (patients). The problem is that no one really knows what that price point is, so prices are kept very low out of fear. Typically, the ECP will call a few other offices and optical shops and find out what everyone else is charging and use that range as a guide to pricing strategy. The markup formulas for frames, lenses and lens options are usually based on a factor of two to three times the wholesale cost, or sometimes a little more.
The flaw in the philosophy above is that ignores the issue of price sensitivity – how important is price in the decision to buy eyeglasses? The answer depends largely on what segment of the market is being served. Within most professional eye care practices, the decision is not nearly as price sensitive as the ECP thinks. Most patients choose these doctors because of their professional reputation or based on a referral. Price must be within reason, but it's not the primary factor. Of course, if the practice is positioned as a low-price provider and marketing efforts are centered on cost, then price could be the primary driver. Interestingly, the savvy professional ECP can design an office and develop techniques in a way that minimizes price sensitivity all the more.
I often remind ECPs that maximizing profit is the primary goal of all businesses, and there is nothing wrong with that. Prices should be set as high as possible before reaching the tipping point where a significant number of buyers are motivated to take their business elsewhere. Often the best way to find the optimum pricing level is to experiment. One of the great advantages of small business is the ability to test new strategies and change them back if they don't work.
A major oversight
I think ECPs price optical products too low because they overlook a very important element that goes with every pair of eyeglasses: service. A 100% markup may be fine on a sweater or on an appliance, but eyeglasses are different because they have professional services built in.
These services include:
Professional guidance on frame selection for proper fit.
Lens design for visual function, such as progressive, AR, and high index.
Writing the lab order.
Verification of parameters on the completed job.
Adjustment and fitting of eyeglasses.
Future repairs and adjustments (generally for life).
That's a lot of service! Should it be free?
We charge for our other services, like eye exams and contact lens evaluations and fittings, but that practice never caught on with optical dispensing. The public prefers to have those services built into the product cost. Let's not forget to do so!
Price matters with vision plans, too
It's true that vision care plans may control the price for eyeglasses as a covered benefit, but don't dismiss the concept of pricing just because you have many vision plan patients. Your pricing strategy is still extremely important. Consider these factors:
Vision plan patients still make some purchases out of pocket. Many people buy additional pairs of glasses or obtain other non-covered goods and services.
You usual price for a frame may have an effect on the frame overage calculation. Run some test calculations to see how different price points result in different patient charges.
Some vision plans simply require a discount off your usual and customary pricing.
Some vision plans don't control the price of non-covered lens options.
Next week: Pricing strategy for contact lens products and services.
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.