In this slowly recovering economy, many eye care professionals are concerned about the number of patients who take their eyeglass prescription to go, seeking a lower priced option elsewhere. The knee-jerk reaction might be to lower lens prices or offer attractive lens package deals. But let's look deeper at that strategy and see if it really makes sense. The dramatic conclusion may surprise you.
Let's make a few assumptions to see how many patients you need to retain in order for a price reduction to create additional profit. Ideally, you will actually measure these variables and draw specific conclusions for your practice, but let's look at a hypothetical situation as a guide.
Assume your practice prescribes 200 pairs of glasses per month. These are actual Rx changes or new Rxs.
Assume you currently have a 70% capture rate, which means you actually sell 140 pairs of glasses per month.
We will ignore multiple sales and outside Rxs for simplicity.
Let's assume all lens sales are single vision and you charge $100 per pair.
You are concerned that more patients are taking their spectacle Rx out to local chain retailers which typically sell single vision lenses for $50 per pair.
You already offer an economy frame option, so we can ignore the frame aspect.
Assume that by lowering your lens prices to $50 to match the competition, you will increase your capture rate to 90%.
A 90% capture rate means you would sell 180 pairs of glasses per month; an increase of 40 pairs.
Gross revenue on lenses with your usual fees would be 140 X $100 or $14,000.
Gross revenue on lenses with the new lower fees would be 180 X $50 or $9,000.
Your lab cost per pair of lenses is the same under either fee structure. Assume your edged and inserted lens cost is $20 per pair. The first scenario has a total lens cost of $2,800 for a profit of $11,200. The second scenario has a lens cost $3,600 for a profit of $5,400.
Lowering your lens prices in this example resulted in a reduction in profit of $5,800 in one month! And you had to order and dispense 40 more pairs of glasses. You would have worked harder and earned less! You can certainly change the assumptions, but the result will be similar. It is highly unlikely that you will increase your number of sales enough to make up for the price cut. You could set the price cut to be less than our example, but then we would expect less of an increase in the capture rate. The conclusion is that you can stand to lose a ton of Rxs before it would make sense to lower your prices. I'd rather have a 70% capture rate with the higher fees than a 90% rate with the low fees.
We should state the obvious that the price lowering strategy is not really available with vision plan patients. Since the prices are fixed by the plans, raising or lowering them has no practical effect. But vision plan patients are probably not the ones you are worried about losing. Typically, there are plenty of low cost options available to the vision plan group, including having a complete pair of basic eyeglasses covered in full in many cases. So we are really focusing on the group of patients who are private pay for glasses. This private pay group is bigger than you may think because it includes the Medicare segment.
Start with some data
To really analyze your Rx capture rate (which is the inverse of the Rx walkout rate), we need to have some measurements. This is a very good idea because what might appear to be a trend could actually be just a random statistical variation. In other words, the number of people wanting to take their Rx out goes up and down over time and if you are sensitized to it at a high point and you are not aware of it very much at the low point (because all is well), you may draw an inaccurate conclusion.
There are various ways to track your Rx retention, but most have some flaw. The method that I like uses a special Rx pad for eyeglass prescriptions when patients want to take the Rx out. This Rx blank is two-part NCR paper and one copy is given to the patient and the other is dropped into a file. The Rx copies are counted each month for the absolute number of Rxs that walk. It is useful to express the Rx walkout number as a ratio by dividing it by the number of refractions performed that month. Of course, not all refractions result in a change in lens prescription, so an Rx walkout rate based on the number of refractions is not the true rate, but refractions are easily counted and, as long as the metric is the same, the data us useful.
Don't change your market strategy in response to the economy. If you have built a reputation as one of the best eye care practices (but not the cheapest), stick with it.
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.