The Financial Success Guide for Optometrists - ECONOLOGICS FINANCIAL ADVISORS

How do you ensure your optometry business plan is results-based? Chapter 2 Excerpt

Prosperity in Your Optometric Practice— 6 Fundamental Metrics to Measure the Productivity and Profitability of Your Clinic

Is your practice prosperous? It’s a question we should be asking more often. The question is not: is your practice surviving? It’s not a matter of your practice breaking even. If you are only surviving and/or breaking even, you can be doing better. And if you are doing well, you can always do better.

Prosperity is a goal for all, but for many of us it may feel like an unreachable goal. This chapter addresses six simple things you can start measuring to ensure that your practice isn’t just surviving, but prospering.

You can’t manage what you don’t measure. When running an optometry practice there are certain rules- of-thumb, or metrics, one should be using to determine how well the practice is performing.

But before we dig into specific metrics regarding practice performance, we must look at how a practice should be operating if it was affluent and expanding and at the top of its class—the elite practice.

While we can certainly write a whole book answering that one question about practice prosperity, for the sake of simplicity we will look at the major areas that will make you or break you as far as gross income and profit is concerned.

Marketing

This is a critical control point in your income because you want your current and new patients to bond to your practice. Marketing is such an important part of your practice, and if done correctly, can create a fortune for the owner. A proper understanding and application of these tools is necessary for success.

The elite practice:

  • Would be visible to its public and participating in community activities.
  • Maintains a database of both current and prospective patients and sends regular mailings to them.
  • Routinely collects emails from all patients and a monthly e-newsletter is consistently sent.
  • Has an increasing internet presence through the use of interactive websites, additional email marketing programs, social media and patient reviews.
  • Has one person assigned marketing manager responsibilities and spends no less than 5 hours a week promoting the practice.
  • Creates promotional and branding materials for new and repeat business based on patient surveys and
  • Has an abundance of new and returning patients coming into the practice on a weekly basis.
  • Has the source of all new patients tracked and that information would be used to create promotional programs for new patients.

Patient Treatment

The quality of your patient care and how effectively you sell treatment plans determines your success in this area of your practice. Your Revenue Per Exam (RPE) rises when you are successful in selling treatment plans. However, as you gain more patients, your selling time is typically overwhelmed by patient treatment, causing a lowered RPE and viability issues. This is handled by the proper organization of your group for improved profitability.

The optimal practice:

  • Would have superlative patient
  • Experiences very low cancellation rates (< 5%).
  • Has virtually all patients accepting the recommended treatment plans for their eye care services and seeing them through to completion.
  • Has the staff using time to improve their technical skills or promoting the practice when cancellations do occur.
  • Objectively measures each clinician’s technical performance and holding it to a very high
  • Has patients who happily return for their annual eye exam and who acquire the recommended
  • Would be making quality control follow-up calls to gain feedback on patient services.
  • Has the doctor and staff improving quality of care through continuing education.
  • Has a dedicated person who completes the financial arrangements of the treatment plan.

Patient Scheduling

Scheduling control is the area that will make or break your practice. Significant lost income can be recovered by a standard scheduling protocol. Improving your control over this area can have a significant impact on the profitability of your practice, especially in solving the problem of who does the scheduling and how.

The elite clinic:

  • Would be in total control of patient scheduling, ensuring that holes in the schedule are filled.
  • Has the staff aggressively making sure that patients are keeping their appointments and the receptionist always confirming the next appointment of each patient as they leave the practice.
  • Has a policy of re-confirming those patients that miss appointments.
  • Knows exactly what the cancellation rate is and how much money is lost per week due to those
  • Provides necessary resources within the practice to handle the increased patient load as the schedule gets busier with higher patient visits.
  • Consistently has staff doctors on time for their patient appointments.
  • Enjoys a smooth schedule—one not subject to the roller-coaster effect.
  • Has a precise and coordinated activation program in place to ensure that an optimum number of patients are scheduled for recommended

Billing and Collections: Planning for Future Income

This is an area which is usually deficient in a typical optometry practice. Proactive business planning for future income is the hallmark of any successful professional practice. The truth is that all income is made because it was planned for, even if it seems like your income is the result of unpredictable events. Much can be done in this area to create a greater gross income for the practice and a greater profit margin for the owners such as getting control over billing and collections actions and intelligent investment in money-making assets.

The successful practice:

  • Would have an extremely efficient system of working out the financial arrangements before treatment is performed and accounts would be followed up to ensure payment is
  • Would know exactly how much is invoiced and collected each week.
  • Would have a high level of prediction of future income and would not be experiencing any cash flow problems while paying the owners a consistent salary or draw.
  • Accounts receivable would always be declining or non-existent.
  • Has correct and readily available financial statements for the practice owner at any
  • Has proper coding for maximum reimbursement and minimal denials with an effective system for refiling claims, if needed.
  • Would collect all co-pays and deductibles without exception on the day of visit.
  • Experiences a constantly improving Revenue Per Exam statistic, providing more profit for the owners of the

Patient Referrals

This is a huge and largely untapped goldmine in your practice but very easy to improve. Happy patients are willing to refer if you just ask them. Mastering this area can really expand a practice and your income if you integrate the promotion of referrals into your daily marketing activities.

The excellent optometric practice:

  • Will continually ask patients to refer their friends and family and will provide them with brochures, information packets, online resources and referral cards for this purpose.
  • Teach every referring patient exactly what to do to refer new patients to the
  • Acknowledges every patient when a referral is
  • Has an increasing general trend of patient
  • Knows who the top five referring patients are and has the staff work to support their referral
  • Promotes the importance of referrals in all of its optometry marketing materials and the entire staff promotes referrals in their daily work.
  • Surveys patients for their opinions and
  • Would have an online presence that would stimulate referrals through videos, testimonials and other informational tools to register new patients.

Personnel Efficiency (Human Resources)

Many of us do not hire people who are proven to be productive and once we hire them we spend too little time training them to succeed on their new job. This applies to new doctors or the administrative staff. A practice that is growing will likely need to hire a new doctor. Weakness in your ability to pick the correct candidate and train them to be productive will greatly inhibit your practice’s viability. This also applies to hiring and training your administrative staff. An untrained receptionist who cannot get patients to keep their appointments or collect all the money due across the desk is worthless to you even if she can do everything else. An inefficient staff only makes YOU work that much harder.

The elite clinic:

  • Would be experiencing expansion in gross income as well as take-home pay due to the competence and productivity of each of its staff members.
  • Trains all of the staff in clinical and administrative functions on an ongoing basis.
  • Has each doctor complete patient records before moving on to the next patient and has all other administration of the practice well-organized.
  • Affords the owner a position where he/she would not be taking work home and would not have to check in when on vacation or away from the practice, knowing that the work is getting completed correctly.
  • Enjoys smooth management since all staff members would be doing their jobs expertly and as a team.

Stress

Owning and running a private practice can be a challenge. Working with staff, patients, regulators, vendors and others can take a toll on one’s outlook and relationships with family and friends. It is true that the more one enjoys what he does, the more successful he will be. However, some situations can put one on an emotional rollercoaster, creating worry and anxiety from stressors such as debt, low income, problematic personnel and patients or regulatory threats.

The optimum clinic:

  • Would have an environment where the stress is quite low and morale is high.
  • Has a productive group where everyone has the intention of expanding a successful practice and deriving the personal satisfaction of a job well
  • Has the owner looking forward to going into work every day and excited about the future business plan.
  • Is where everyone is having

If this is not what your practice looks like, then you are losing a fortune in lost income due to unnecessary stressful factors.

Management Principles

A business must be managed by someone who knows what they are doing. A person who runs a business is known as an executive or manager and has tools of the trade just like the methods you use to treat patients in optometry medicine. The successful practice owner knows and uses these tools and techniques; the unsuccessful one does not. There aren’t any other explanations.

The elite clinic:

  • Makes abundant gross income and operates in the upper tenth in profitability compared to other professional practices in its
  • Acts as a cohesive team where the mission and goals of the practice are known and agreed-upon by all staff members and patients.
  • Has an excellent credit
  • Enjoys increasing profits and
  • Has enough cash reserves to handle periods of low income, avoiding the cycle of boom and bust that often happens with a small business.
  • Derives the most value from all assets and personnel in the practice.
  • Operates on merit, where the more productive staff members are rewarded with a standard and known bonus system.

Owning an elite practice is much more fun and interesting than struggling with the multitude of problems that manifest at the low end of the scale in each of these areas. We think you’ll agree you would prefer to own a successful business rather than an unsuccessful one.

Now that we know what an elite clinic would look like, we can compare our current state of operation to determine what needs to be done to attain that higher status.

The Six Fundamental Metrics

You were never trained in optometry school how to run a company or understand the concept of Return on Investment (ROI); these six fundamentals will bridge that gap to make you successful and prosperous.

Now let’s take a look at some of the metrics that will measure our ascent to the elite status of private practices:

Fundamental Number 1: You Should be Taking Home at Least 35% of Your Gross Income.

The main financial purpose of private practice is to make a profit without the “glass ceiling” of a corporate overseer giving you pre-set limits. You are, in fact, an entrepreneur and should, in fact, be thinking like one. Embrace that entrepreneurial spirit!

To gauge your level of prosperity, a well-run optometry practice should permit the owners to take home just over one-third of the gross income on an annual basis. That means if you are generating $600,000 in gross income, then you should ultimately bring home more than $210,000 in salary and profits.

This may seem high. But it’s actually not. Still, the average household is taking home much less than that. This number is based on a practice that has a very healthy mix of both eye and medical exams. As you derive more income from the medical side of the practice, your cost of goods is pushed downward. Because of the low overall expense to provide medical services, this higher profit margin is blended with the optical side to create a higher net profit and take-home income.

Another factor that has a huge impact of profitability is management. If there are profitability issues, then one reason is that the average private practice is not utilizing a proven business management system. In the typical scenario, we build and grow our practices and everything seems fine until we suddenly notice a drop- off or leveling in profits. Our expansion hits a wall and rather than doing the standard actions with personnel, marketing, financial management, etc., we look for “tips and tricks” from our peers to help instead of a coordinated system. These “emergency” measures are implemented to make more money until the next “emergency” appears—and on it goes for a lackluster career in private practice.

This haphazard approach ends up costing much more in lost profits than it ever would to pay the consultant fees. If the consultant was a good one, the return on investment would be much more than the cost anyway—and this would be most noticeable in your bottom line.

For example, let’s say you paid a consultant $30,000 for consulting you on proven practice management techniques. Over one year, you experienced an additional $60,000 in gross income. That is a 100% profit in one year to your practice and will repeat itself year after year from now on. There is no other investment that gets those kinds of results. This is the number one reason why practices do not reach their potential. You were never trained in optometry school how to run a company or understand the concept of Return on Investment (ROI); these seven fundamentals will bridge that gap to make you successful and prosperous.

Fundamental Number 2: No More Than 22% of Gross Income Should be Going to Employee Salaries and Benefits.

As we do financial planning for our optometrist clients, we often find that they will pay their staff well and deprive themselves of the fruits of private practice ownership. It is known that a happy staff is a productive staff, but what’s the point if they’re not working for a prosperous owner?

All investments within a business must make a profit: this includes marketing, property, equipment and staff. When any of these areas do not produce to their greatest potential, other productive areas in the practice attempt to make up for those inefficiencies and the general activity becomes less profitable.

The bottom line is this: If more than 22% of your gross income is going to staff salaries and benefits, then something is wrong with the business model and it needs to be fixed in order to produce more profit. You either have too many people on staff or they are not producing at a profitable enough level to justify the expense. A thorough review of your salary expenses compared to the gross income generated by each staff member can help sort this out.

Fundamental Number 3:  No More Than 24% of Gross Income Should be Going to Employee (non-DVM) Salaries.

As we do financial planning for our DVM clients, we often find that they will pay their staff well and deprive themselves of the fruits of private practice ownership. It is known that a happy staff is a productive staff, but what’s the point if they’re not working for a prosperous owner?

All investments within a veterinary business must make a profit: this includes marketing, property, equipment and staff. When any of these areas do not produce to their greatest potential, other productive areas in the practice attempt to make up for those inefficiencies and the general activity becomes less profitable.

The bottom line is this: If more than 24% of your gross income is going to staff salaries, then something is wrong with the business & financial model and it needs to be fixed in order to produce more profit. You either have too many people on staff or they are not producing at a profitable enough level to justify the expense. A thorough review of your salary expenses compared to the gross income generated by each staff member can help sort this out.

Fundamental Number 4: More than 25% of Total Office Visits Should be Medical Visits.

Any optometry practice can focus on delivering any service for which the doctor and staff is trained to deliver. And, as with any professional practice, there are some deliverable services that are more profitable than others.

The medical visit is simply more profitable than the optical visit. If you have been trained on how to deliver certain medical services, it makes sense to deliver those instead of outsourcing them to an ophthalmologist since they can be done cost-effectively.

This may be a new way of thinking if you have built your existing practice on providing optical exams and follow-up services. If this is the case, look for ways to position your practice to deliver on the medical side. Adjust your marketing and promotion to reflect this advance in your clinic’s services. Build referral activities that focus on attracting patients that need medical services that fit your skill set.

If you can create a practice where more than 25% of your total office visits are medical in nature, you should experience a significant increase in your gross income and profit.

Fundamental Number 5: Over 70% of Your Patients Should Be Returning for Their Annual Preventative Eye Exam

Preventative eye care is a necessity for an optometry practice. We all know that already. However, the public is given the idea that they only need an exam every other year because that is what the insurance companies will reimburse. This type of marketing is tough to overcome because the public has been indoctrinated into the idea that insurance will pay for everything.

Promoting annual eye exams not only sustains a practice but it is also a needed public service. With the equipment available today, problems with the eyes can be detected early and treated before they become full-scale emergencies. This reality has to be promoted more effectively than the perception grooved in by the insurance industry.

A campaign promoting the value of an annual exam should be undertaken to communicate to all of your patients, past and present. The annual exam could be positioned as an annual “verification” that everything is good or could be done to create awareness of some new affliction. Either way, a continuing promotional effort is needed to keep your patient demanding preventative eye care.

One of the most effective ways to support this campaign is to write a weekly blog or article that is then placed into your social media profiles and email marketing blasts. Tell stories about how a person’s sight was saved from early detection. Show case studies and statistics. And so on… The more your patients hear from you regarding your expertise and recent developments and discoveries in your field, the more they will be aware of the benefits of good vision in the living of their lives.

Fundamental Number 6: You Should be Spending About 5% of the Gross Income of the Practice on Marketing Expenses.

We know that marketing is the lifeblood of a business and, as a private practice optometrist, it is the difference between a robust, booming company and one that whimpers along until the doors close.

Here is the typical scenario: You need new patients, so you promote and spend money on digital marketing and other marketing activities.

When done correctly, these programs create a host of new patients who come in the door. Everything is fine now since there are a lot of patients to treat—that is, until they complete their treatment programs. Income then slumps, and a whole new surge of marketing activity ensues. New patients come in, income goes back up, and the cycle of boom and bust continues on and on.

The only way to break this rollercoaster ride is to actively market your practice constantly regardless of the number of patients you are treating.

The first action is to perform an analysis of your marketing programs. This would be a breakdown of the cost versus the income generated by each marketing campaign. When you determine which programs generate the greatest return on investment, those efforts would then be strengthened. Any program not earning a decent rate of return is then discontinued.

The next action is to allocate money every month toward the most profitable and effective marketing campaigns. How much should you allocate each month? Around 5% of gross income.

This allocation would be done after paying yourself first but before paying rent, salaries, and other monthly bills. It should also be accounted for separately so that it isn’t erroneously spent on something else.

You see, without a constant marketing and promotional effort, you will not have a constant flow of patient visits to expand the practice. This leads to overpaying for staff and overhead and a vaporization of your profits, not to mention the emotional rollercoaster ride.

Part of the marketing effort is the establishment of a killer referral system. For a professional practice, 70% of your patients should come from referrals. But you must be referable. That means that you have your marketing materials in such a state so that your credibility shines through and that your patients know to use them with their circle of influence. This is how you separate yourself from the competition.

In our experience working with optometrists, this is truly one of the major differences between a stable, profitable and expanding practice and one that isn’t.

Parting Words about Prosperity in Your Practice

I have summarized here just six of the many standard metrics that should be used in a practice to measure its production and profitability. Obviously, there are more ways to measure productivity for your practice, as well as ways to increase profitability if you find your numbers lacking. The goal is to personalize these methods and put them into practice sooner rather than later. If you don’t like the measurements you’re taking, don’t stop measuring; just start producing better numbers to measure! After all, your practice is your key to financial prosperity at home—the engine that provides the money to help you achieve your life goals.

If your practice doesn’t work for you, then by default you work for it and it will consume you if not controlled, measured and molded to suit your needs. Hopefully, these six simple measurement tips give you some insight on how to improve the quality of your practice and make your participation in it much more enjoyable.