2 ratios all optometry business owners should know

Whether you own five percent of an optometry practice or 100 percent, running a small business does not have to be overwhelming or difficult to know if it is successful. To help determine the business’ level of success—or if your efforts are even worth it, use these two essential ratios. After all, the last thing you want to do is own or buy into a business that only appears to be making money.

The first ratio is PROFIT MARGINS. This is the net income divided by revenue. This ratio is where optometrists get it wrong. We focus on practice net that does not divide the work of a doctor and the work of a business owner. Doctors should make between 20-24 percent of their net collected production. Traditionally optometry looked at profit margin (practice net) without subtracting an optometrist’s salary. The true “profit margin” of an optometry practice takes out ALL doctors’ pay and benefits as overhead in salaries. Owners are tempted to look at “practice net” because the numbers are an ego-inflating 30-40 percent. However, we should be looking at the margin between what we pay ourselves (say 23 percent of production). So a practice net of 40 percent is actually 17 percent profit margin when a 23 percent of “production” revenue is subtracted to pay the owner optometrist.

The second ratio is RETURN ON EQUITY. Being a landlord and optometry owner are similar. If you have $100,000 invested into your practice and each year you take home $12,000, then the return on equity (ROE) is 12 percent. This is how we can make decisions if owning a practice really makes good business sense. If you can purchase $100,000 of real estate and the ROE is 15 percent, are you really in the right business? If most optometry practices net 32 percent, then the doctor owner is making 23 percent on production and 9 percent on the business.

The old saying of “work smarter, not harder” rings true in today’s environment of managed health care, ACOs, and increasing overhead costs. Don’t get me wrong, owning a successful optometry practice can be extremely rewarding. Working smarter means that you understand what return you are receiving for all the time, stress, and difficulty of small business ownership. If you are not being financially rewarded for all this, you may be working really hard and not seeing the benefits. Obviously there is more to success in business than money, but if you are not making money, optometry is your hobby.

Appalled – The state of unfairly compensating an employed optometrist

Through OptometryCEO, I have had the privilege of coaching hundreds of optometrists in their careers. The most common request for advice comes from employed optometrists looking to buy into or purchase a practice. They want my unbiased opinion of their situation. They have nothing to lose with my opinion and I have nothing to gain, yet I cannot remain emotionally uninvolved.

Our profession appears to be doing a poor job of investing in those who will follow us. Each generation of optometrists have career mile markers that define them. We’ve gone from scope of practice to managed vision plans, from access to patients to employing optometrists. In the years since employing optometrists has become the trend, I’ve had the displeasure of scrutinizing an appalling number of poor compensation models that span the general optometry community.

What is so appalling?
1.  Paying an employed optometrist only 15 percent or less of his or her collections for the practice.
2.  Expecting an optometrist with a family to work six days per week.
3.  Asking your employed OD to see 20-30 patients per day and paying her or him $400 per day, while you pocket more than $1,000.
4.  Asking him or her to be an optometrist, but only supplying a refractor and exam lane. (i.e. – no OCT, no visual field unit, no fundus camera, etc.)
5.  Making promises of future partnerships but never committing. (i.e. – leading them on)
6.  Creating a culture where the employed OD feels inferior to the owner due to unequal doctor compensation. Compensation should be separated, business profits and clinical doctor work.

Creating a culture of “paying it forward” results in a win-win for all parties involved. Employed optometrists who believe they are being treated well results in better care for patients, a willingness to do extra when asked, a positive reputation builder, and many other intangibles.  Give to get.

Patients need confident optometrists not conceited ones

Why do so many Americans watch sporting events when one team is favored highly over the other? We love the possibility of an upset. Upsets occur for many reasons including a highly favored team mentally believing they are “untouchable” and that winning is close to automatic. The same applies in optometry and can lead to poor patient care and in some instances negative litigation. The best care a patient can receive is from an optometrist that is confident in what they know and aware of what they don’t know. Here are questions to help yourself to do a self assessment to determine, confident or conceited?

  1. Do you hesitate to review cases that are “easy” and have always been the same?
    • If it has been 5 years or more since you graduated optometry school then there is a good chance that things have changed. Consider reviewing the basics to ensure a strong foundation.
  2. When is the last time that you called a surgeon to discuss complications in patient care?
    • Too often we let our pride get in the way of asking questions to ensure our thinking remains in line with the surgeon that you utilize. It is always a good idea to keep good lines of communication open with your referrals. Ophthalmologists are people too, and people are not perfect. A good working relationship has an optometrist and ophthalmologist acknowledging cases post-op and are each willing to admit they don’t always know what is going on.
  3. Are you unwilling to meet with peers or outside coding/billing experts to do chart reviews?
    • When was the last time that your charts were reviewed by another party?  The longer that you practice the more intimidating it can be to admit that you may not do a good job charting. With the advent of electronic medical records optometrists can assume that charting is good and coding/billing is correct. Do not shy away from a friendly audit as it will make you a better optometrist.
  4. Do you blame yourself for unhappy patients or is it always someone else’s fault?
    • It is easy to explain away the unhappy patient as your staff’s fault or blaming the patient who did not listen and therefore has problems. Many problems arise from poor leadership or poor communication, both of which the optometrist is responsible for. When patients are unhappy, do you take the time to reflect on what you, the optometrist, could have done differently?

The result of routinely asking yourself hard questions leads to a confident optometrist. Having all the answers or getting patient care right all the time does not define a confident optometrist. A confident optometrist lives in the reality that he or she is not perfect nor will ever obtain perfection. Optometrists who continue to strive to be better for the sake of giving better patient care are the ones that do not find themselves in a position where they can’t ask colleagues questions because they have been so conceited for so long. Conceit is a place of loneliness and ultimately leads to poor patient care. Be confident in knowing that smart, wise optometrists are continually asking the hard questions.

What if you could invest $1500 and receive $4500 in return?

Last weekend at Vision Expo West in Las Vegas, I talked with many optometry business owners about their online marketing strategies. It was eye opening. Many optometrists are hesitant to make investments that will grow their business.

An investment of $1,500 per month for online marketing will not only grow your business by adding patients, but it will improve the quality of care that you offer your current patients as well.

Investing online yields these dividends:

  1. New patients. At $300 per patient visit, a practice would need only five new patients each month to pay for investing in online marketing. If your practice is ranked #1 on both organic searches and map searches, you will easily make this goal. Even if your practice is listed somewhere on the first page when a search is done, you will get new patients.
  2. Enhanced patient satisfaction. When you have a website that is easy to navigate and is mobile friendly, you provide a convenient place for existing patients to find answers for questions they may have about eye exams and everything associated with the practice.
  3. Continued dominance of the market. When an optometry practice is ranking high on both organic searches of Google and on the maps, it becomes harder to “dethrone,” because clicks on the optometry office reinforces what Google has found to be a good search. If people click to your website and spend time there, this reinforces that it should be number one. Thinking you can catch up later is a mistake, act now by hiring someone that understands optometry.

Whether you use my favorite optometry website company, iMatrix, or you use a competitor, it’s important that as the owner of your optometry business you invest in the right services and products. Online marketing isn’t a stock that will guarantee a return, but I have found my investment has more than paid for itself and the dividends are new patients coming through the door of the office.

Associate Optometrist and non-OD Staff incentives based on value

As an optometric practice owner, do you find the amount of compensation you are paying out is pushing the high end of absurd?

In his book Good Profits, billionaire businessman Charles Koch writes that incentives should be solely centered on the value an individual adds to the company as a whole. He critiques companies that give increases for non-value added reasons, like Cost-of-Living Adjustment (COLA) raises, automatic bonuses for production increases, and annual beginning-of-the-year wage increases.

If you’re like most optometry practice owners, you give yearly raises based on a staff member or associate OD being with the practice another year. What if you would implement a value-based approach?

Here are some ideas for considering:

  1. Associate Optometrist – An associate optometrist creates a clinical protocol that when executed allows for each doctor to see two more patients per day without compromising care. This results in a more profitable office. However, associate ODs are typically unmotivated to do more than the bare minimum because they don’t have ownership in the business. But what if they are stimulated to invest in positive profitable change because they benefit financially from it?
  2. Office managers – If an office manager reduces frame costs by $1,000 dollars per month, it would be reasonable to reward him or her financially with 10 percent of the savings. Instead of paying office managers a flat salary that continues to increase whether or not they create value, pay them a flat rate and give them 10 percent of the optical profits that they are responsible for implementing. What you will find are highly creative and highly motivated office managers.
  3. Staff – When staff members make mistakes, it costs the business financially and harms patients’ perceptions. What if incentives were based on value that staff added to patient care?. I see many benefits to having a fully trained and competent staff member stay in the position long-term. So if value is based on length of time at the practice, then reward that with built-in incentives. Many offices will award bonuses or give special incentives for sales, which encourages staff to put sales above patient care.

How does your team of doctors and staff create lasting value for your optometry office? What gets rewarded will get repeated and what is repeated is what builds a culture or destroys a culture. Do you give your team members incentives based on the value they create? Or do you base your rewards on the fact that they survived another year or sold an extra pair of frames?

Should you remodel your optical?

Over the past decade, remodeling has become entertainment. Shows on HGTV and other networks show dramatic transformations, and may make you think it might be time for your optical to get a face-lift. However, the improved space always comes at a price. For example, if I was remodeling my home, HGTV would probably set my budget at $150,000 to $200,000, which seems absurd.

The experts will charge thousands of dollars to design and contract a team of local or company run experts to put a new face on your optical. You will be told that the more you invest, the more return on your dollars. This is necessarily true and needs to be considered. The most likely reason to remodel is to keep up with competitors.*

But before you commit, you need to make sure an extensive optical remodel fits in your strategic plan for growing your business. A remodel may not be necessary to keep patients purchasing frames from your practice. As managed vision plans decrease, patients aren’t as free to shop around. Then investing core dollars in patient service becomes most important.

So should you, or not?

It’s time to remodel if:

  • Your optical has been unchanged for over 10 years.
  • A competitive optometry office set up within a three-mile radius and is pulling patients away from your office.
  • At least 10 percent of your patients are new each week.

Forego remodeling if:

  • You net over 40 percent and you are continuing to grow.
  • Your average demographic patients do not remodel their homes. If you serve socioeconomic patients in middle-to-lower class, they may perceive it as a waste of resources.
  • Frame turnover rate is greater than 3x.

When was the last time you left a retail establishment because they had not remodeled in the past 10 years? I doubt you can think of an example. However, I suspect you can think of a time when you vowed to never return to a business due to poor service or lack of cleanliness. As doctors we tend to have higher expectations, but what if most of your patients are not doctors or professionals? Spend money to keep the practice looking nice, but consider carefully before you spend a significant amount.



Work smarter not harder – Maximize high demand seasons

A wise person once asked, “Who makes the best business partner?”

  1. Dumb, lazy person.
  2. Dumb, hard worker.
  3. Smart, lazy person.
  4. Smart, hard worker.

Most of us would pick the smart, hard worker. However the wise person will choose a smart, lazy person any day. The smart, lazy person will figure out a way to get the work done right with half of the effort.

This principal holds true as you manage your optometry schedule. Many optometrists are working 4.5 days to 5.5 days per week. They wonder why they are burning out and feeling controlled by the practice.

The typical optometry schedule has ebb and flow. There are seasons where the schedule is so packed you can’t get all of your patients in, and there are slow seasons that have a higher number of cancellations and no shows. Use these ways to work smarter by reducing clinical hours without reducing production.

  • Pick the four slowest production months of the year and reduce your time in clinic by a day per week. (February, May, September, December)
  • Pick your three busiest months and work an extra half day in clinic. When people are wanting to be seen and your clinic doesn’t have time available, they start looking elsewhere (March, July, August)
  • Find the month with the highest no show rates/cancellations and reduce clinic days by a half or full day. (May)
  • Open the office longer for high demand seasons (March, July, August) and in return take more time off during other months of the year.

Of course, the suggestions above will vary depending on your practice setting. Keep in mind the principal is to work smarter by scheduling smarter and maximizing the high demand times of the year so you can work less at other times of the year. This approach makes for a much more enjoyable and sustaining career and can avoid burnout.

Does your optometry office struggle to keep staff?

Cheerful co-workers taking self portraitManaging the optometric practice is one of the most difficult pieces of the CEO puzzle. The people you are trying to manage are sometimes emotional, unpredictable, and fickle. Sometimes they leave. At times people leave for good reasons, or situations that are out of the CEO’s control. However, to build a solid optometric business you must retain a loyal staff, and that starts with you. If you have employees looking for similar jobs elsewhere they might be satisfied with your business, but they are not loyal. Building loyal staff depends on your relational abilities and leadership. If your staff is committed to the practice and the patients, you most likely are investing in people. If this is not occurring, invest in staff by practicing these three Important loyalty builders:

  1. Skillful Listening – Successful clinical optometrists are successful because they have learned to listen to the patient and discern the chief complaint. This is crucial because a patient’s view of good clinical care depends on solving the chief complaint. Skillfully listening to staff members shows them that you truly care about them and builds relationships. For a great resource on becoming a better listener read Powerful Listening. Powerful Influence. Work Better. Live Better. Love Better.: by Mastering the Art of Skillful Listening by Tim Hast
  2. Financial CompensationCompensate staff fairly. When you pay staff above the averages they most likely will not be looking around to just look around. Check current wages for your area yearly to verify your staff is well compensated. Don’t wait for them to look for another job before you offer them more money.
  3. Family Environment – If you are a small office, which most optometry offices are, you truly are a small family. Most of the week is spent at the office. Creating an environment that encourages and nurtures these relationships makes the staff members want to stick together over the long haul. Regular events like eating out together give staff and doctors time to build relationships. This time is invaluable and returns more on your investment than a bonus or raise. It also requires you as the owner to be active and involved in the family.

Great patient care requires a supporting staff that is loyal and dedicated to the success of the practice. Great staff begins with you creating a great culture.

Hire the best….Future optometrists

Right now we have two staff members who have decided to make optometry their life profession and are applying to optometry school. These future ODs are excited, and their excitement is contagious to the rest of the staff, even the sometimes complacent and burned out OD who has been practicing for years. When you employ a future optometrist you benefit from his or her hopes and dreams and it makes your practice better.

Future optometrists upgrade your practice in 3 ways:

  1. Positive, contagious attitude – Future ODs want to learn and do the best they can. Doctors naturally respond positively to this passion that future ODs bring to the practice, and other staff members will take note. If your practice has a culture that needs change, hire an aspiring optometrist to infuse it with positivity.
  2. Capacity – There is a capacity rule that many CEOs have seen in the various staff members they have employed. Typically, higher-paid individuals have a capacity to rise to the increasing demands of the office and can manage multiple tasks. A future optometrist has the mental capacity to manage higher-level demands and learn new things at a quicker pace. This is obviously not a hard-and-fast rule, but typically aspiring future ODs have a high capacity for performance.
  3. Increase the bottom line – Prior to school, I worked for an optometrist and didn’t really care what I was getting paid. I knew my employment was temporary and I didn’t have a long history of employment, so I wasn’t too picky, I was just happy to be getting real-life experience in my chosen field. Future ODs, if they were around for a long period of time, would warrant higher hourly compensation. However, since they are usually only around for a year or two, they do not demand a high hourly wage. Their benefit is the experience they are gaining by working at your office. Pay them fairly but don’t expect to pay them like a 5-plus year employee.

Hiring employees is always difficult. You strive to find someone who will fit nicely into the practice culture, and will also put patients first. Future optometrists are some of the best people you can hire. Managing a successful optometry practice begins with putting the right individuals on the team, and future ODs are a great choice.

What the experts don’t say about Managed Vision Care Plans

Game ChangerAs a practicing OD who sees patients 3.5 days a week and manages a large multi-location practice with one other owner, I find my primary job is making decisions. As owners, my partner and I have the responsibility to make key decisions that will impact the health of the practice immediately and for years to come. One decision that is never easy involves Managed Vision Care Plans. We balance what the experts in our field are recommending with what we predict will be the impact on the practice. Analyzing the financial costs is simple math. What is trickier is determining how it will affect working and interacting with our patients.

Three easily-overlooked aspects of Managed Vision Care Plans.

  1. Relationships – Optometrists are one of a few types of doctors who develop relationships that transcend the patient-doctor interaction. Sit one day with a doctor who has practiced for more than 20 years and you will quickly realize he is as much a psychologist or family friend as he is an optometrist. Our patients view us as friends. They have chosen to come to us for over 20 years and have shared their children, marriages, job changes and personal struggles. When a new MVCP starts at the beginning of the year and cuts the optometrist’s reimbursement in half, keeping the patient no longer makes sense financially. But what about relationally?
  2. Your Brand – Strong brands are consistent and weather the storms of competition and poor profit margins. For my brand, Wichita Optometry, to be strong for decades, our team must adapt to MVCPs and learn to be profitable through the changes.
  3. The WHY behind YOU – Optometrists and people in general have a difficult time defining the life-long question of WHY they do what they do. Let’s face it, when we decide to say “No” to a low reimbursing MVCP, we are trying to keep our yearly take-home pay from shrinking. The truth is we want to have successful businesses that make lots of money. ODs who have giving hearts and care for patients no matter the cost will have less angst about MVCPs than others.

Deciding to take or drop MVCPs is a task that owners wish was not a yearly decision. Unfortunately, we are in a culture of health care that changes quickly and often. In the past, successful practices have stood arm in arm and said no to MVCPs. Today, optometry practices are embracing the changes. Instead of complaining, successful practices are fighting MVCPs by becoming better business managers and actively adjusting the systems within to stay competitive.