Cost of Goods is the highest expense category for many – if not most – independent practices. And most owners feel like they’re spending too much or just don’t know – how does my Cost of Goods (COGS) compare to other practices?
I’ve heard practice management lecturers say that every practice’s Cost of Goods ought to be less than 25% of gross collected revenues. Which is true for some – but certainly not all – practices. Instead of telling you what your practice SHOULD look like, here are several thoughts for how to evaluate Cost of Goods, and some ideas of how to lower them if COGS are high.
The Big Picture
Even though we often talk of 7 Key Expense Areas, we can sum those up in three broader categories:
For a typical practice, these three broader categories will be distributed as follows:
You really can’t evaluate Cost of Goods without also considering staff. For instance, here’s how Cost of Goods and non-OD staff typically break down in several ‘styles’ of practices (assume +/- 3% on each percentage):
One key implication of this is that if your COGS / non-OD Staff percentage is high, the issue might not be Cost of Goods at all. Your staff costs may be the real drag on profitability.
But assuming your Cost of Goods is out of line, here are five things you can do to help lower it:
Want help evaluating your practice? Your IDOC consulting team is here to help. Don’t hesitate to email me at email@example.com or set up a time to talk.
Hayley Stewart, IDOC Financial Services Manager
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I’d like to share an incredible customer service experience I had recently.
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The Science of Selling
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“You might as well ask me to describe the essence of music, or the color of starlight.”
Did you make any New Year Resolutions? Well, I did. I do every year, and in keeping with my obsession with goals and metrics that I have professed here repeatedly, I write them down... Read more
For starters, I’m not a licensed psychologist, I just play one as a practice management consultant. It’s been my observation that whenever human beings come together in an environment where they are required to work together and interact, inevitably some tension and conflict will arise.... Read more
Your schedule has gotten busier and you’ve hired an associate OD. While you would like to keep the associate’s schedule filled most of the time, it’s not uncommon for an associate to have some gaps in his or her schedule – at least in the beginning. This often leads to some resentment by the... Read more
Before anyone panics, I am not suggesting that most practices go out and spend $80,000 or $100,000 on a COO tomorrow, or that your manager is due a large raise for 2018. I typically only recommend that type of role for multi-location practices grossing over $2M-$3M per year: practices... Read more
Sometimes it’s not the inventory you choose to carry or the reps you choose to indulge. It’s not the pricing or the shipping or the cadence of your reorders. As we head into the tail end of the holiday season, I can’t help but think of the process of opening presents.
Everyone has... Read more
Texting is an incredibly tempting mode of communication for marketing-minded businesses competing for the attention of consumers, primarily because the open rates on a text from businesses to consumers are incredibly high (98%) compared to other forms of communication (email is around 20%,... Read more
“Ya gotta have a goal, do ya have a goal?!” – Kit De Luca, Pretty Woman
Wise woman. While it’s never too late to begin, I do recommend, even as we focus on maximizing the potential of the Holiday... Read more
“How many frames do I need?” “How many frames should I carry?” “How much stock should I have in inventory?” It doesn’t matter how you phrase it, at least 1/3 of my consultations start the same way. I’m going to make this all very, very easy for... Read more
If you are in a competitive area, you’ve already learned that marketing is a necessity to attract brand new patients to your practice. It’s easy to confuse marketing tactics – sending email, creating Facebook posts and advertising in a community magazine, for instance –... Read more
A practice owner pulled me aside at our most recent conference in Denver to start thinking of an exit plan. I always ask two questions when these discussions come up:
“How long do you see yourself continuing to own your practice?”
“How is your retirement savings coming... Read more
A consumer-centric culture with a focus on customer service is becoming increasingly important for brick & mortar businesses. While I do believe most practice owners strive to deliver on great service, it requires a team effort. I often hear owners tell me they want to be known in their... Read more
Most businesses have polices that employees are required to follow. In general, office policies are a good idea. Policies provide structure for how to conduct business and create consistency around processes and operations. But in a service-based industry, well intended but rigidly executed... Read more
With all the talk of private equity roll-ups and regional alliances, many practice owners are concerned that if they aren’t a large, multi-office, multi-doctor practice, they don’t have a future in independent optometry.
Is that... Read more
One of the interesting mysteries that I get to unravel in many practices is the mystery of tight cash flow. Sometimes it’s obvious – a small practice with low profitability, for instance. But other times it’s not.
First off, what is tight cash flow? Here’s my simple definition:... Read more
Doctor: Would you like to order your contacts today, Mrs. Smith?
Mrs. Smith: That’s OK. I’ll just take the prescription and get them online.
What happened here? You just did a thorough, high-tech eye exam... Read more
For practices looking to grow, there are basically two paths: see more patients or generate more revenue per patient. Ideally, a practice will do both. One thing I consistently hear from ODs is that it’s hard to generate high revenue from contact lens patients. Even when selling annual... Read more
Can you find 20 or 30 minutes a week to hold a staff meeting? You might be surprised at the impact that it has on your optometry practice.
Your staff is your most valuable business asset. Your investment in optometry marketing, technology, office design, etc. will fail to deliver an... Read more
The very phrase can cause irritation, anxiety and bewilderment in the minds of owners who understand that they should somehow be participating in the conversations across the various social media platforms – but which ones are the best for optometry practice... Read more
While there is more than one way to achieve success, there are a few common traits that successful independent optometry practice owners have in common.
They refuse to accept the status quo. While others remain stagnant, ignore trends, and complain about the... Read more