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How to maximize your gross profit by strategically pricing your optical products

INTRODUCTION

It’s no surprise that retail pricing is one of the most crucial elements in running a successful optometric practice. In fact, according to the Review of Optometric Business, “retail sales of vision devices account for nearly two-thirds of gross revenue.” This means that for a practice that typically brings in about $500,000 in annual gross revenue (nearly the median for independent practices), product sales are responsible for about 52.5 percent of the gross profit margin.

 

Increases in profit margins, even those that seem minor, can make a lasting impact on the success of your business. Since other expenses like overhead do not grow with profit margins, all extra gross profit is funneled to the bottom line, therefore growing net income.

 

CURRENT MARKET STATE

Pricing decisions can make or break your business depending on the strategies utilized. Pricing too low can harm your gross margin and net income, but pricing too high can lead patients to buy eyewear from other retailers at lower prices.

 

While there are limits to how eye care providers can price their products without risking their capture rate, it is important to note that these providers also tend to price their products too low. Many organizations fail to realize that they can price their products at a retail price premium compared to chain practitioners and online providers. Independent ECPs can demand these premiums simply because they are able to provide patients with a higher level of service and are often more personalized than their chain competitors. 

 

Patients at these independent ECPs tend to be highly loyal to these providers, more than patients of chain practices. They enjoy the feeling of reassurance that they have built up a lasting relationship with their doctor, and are therefore less likely to consider other options when buying their optical products. This remains true even if prices tend to increase slightly for eyewear; the patient’s loyalty outshines the price increase.

 

Another factor to consider in the market is that patients don’t necessarily go out of their way to research eye care product prices. Patients rarely consider product price when choosing a provider. We see this ring true regarding eye care mass retailers like Costco and Walmart. While some independent ECPs feel the need to lower their prices in order to compete with these retail giants, it’s vital to note that very few patients actually frequent these establishments for ongoing eye care.

 

PRICING MISTAKES

Even though many ECPs don’t measure the gross margin that they receive on product sales, this figure is actually a crucial element in calculating your pricing start point. On top of that, many ECPs don’t even utilize a standardized procedure to price their products. Their pricing decisions may be based on several factors like comparing their own prices to a similar practice’s, inconsistent markup formulas, or sales rep recommendations. 

 

All in all, the most effective way to set prices is to find out the gross margin targets for specific product categories and then price the products so that these goals are consistently met. It is also imperative to recognize the effect that wholesale pricing has on gross profit margins. Organizations should be monitoring wholesale pricing and shifting their product prices accordingly to maintain their gross profit margins. 

 

Another mistake that organizations often make in pricing is not monitoring their capture rates. This ratio can be very indicative of how pricing affects consumer behavior. For example, a lower capture rate might mean that a practice’s retail pricing is too high.

 

GUIDELINES FOR PRICING YOUR EYEGLASSES

The Management & Business Academy reported that the median gross profit margin earned on eyewear is approximately 61 percent or 2.9 times the cost of goods. 

 

Here are five steps for effectively pricing your eyewear:

  • Start by calculating your eyewear’s current gross profits and gross profit margin.
    • Be sure to go back at least six months in your sales history to ensure that any short-term deviations are taken into account.
  • Compare your margin to the industry standard.
  • Identify the gross profit margin of your most vital products and product categories.
  • Set margin goals for these vital products and product categories.
    • A good rule of thumb is to utilize a higher goal for lower-end products and then decide whether or not to obtain smaller margins for your higher-end 
  • Use the previous figures to calculate your retail pricing for eyewear.

 

GUIDELINES FOR PRICING CONTACT LENSES

Lower profit margins can be expected on contact lenses, partially because price comparison is much more straightforward for advertised contact lenses. The median gross profit margin based on retail soft lens prices is around 47 percent.


Here are six steps for effectively pricing your contact lenses:

  • Start by calculating your soft contact lenses’ current gross profits and gross profit margin.
    • Be sure to go back at least six months in your sales history to ensure that any short-term deviations are taken into account.
  • Compare your margin to the industry standard.
  • Identify the gross profit margin of your most-sold lens brands.
  • Set margin goals for these best-selling contact lenses.
  • Use the previous figures to calculate your retail pricing for eyewear.
  • Establish the annual supply pricing.

MAINTAINING AND GROWING CAPTURE RATES

On average, the standard capture rate of eyewear purchases at independent ECPs is around 70 percent, and for contact lenses, the figure is about 80 percent. Capture rates should be carefully monitored, as they can be good indicators of changes that need to be made. For example, a low capture rate could indicate that patients feel that prices are too high.

 

To calculate these capture rates, keep track of patients who either request their eyewear prescription to switch to another provider or patients whose prescription has changed but still haven’t bought new glasses. At the end of each month, divide the number of these “walk-out” patients by the number of eyeglass prescriptions fulfilled. Any ratio of about 25 percent or higher could mean an issue that needs to be resolved. For contact lenses, this ratio is 10 percent or more.

CONCLUSION

Pricing eyecare products in your practice is a task that requires careful consideration and planning. A poor pricing strategy could cause profit loss and stunt your business’ growth. Finding frame providers that give your practice the best quality at competitive prices, like A&A Optical, is a surefire way to help ensure the success of your organization. With an expansive product catalog, great prices, and partnerships with brands like New Globe and Aeropostale, A&A can help propel your business forward and ensure that you consistently maximize your profit margins.

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