Blog
Blog
 
 
 
 
 
 
 
 
 
 
 
Blog
IDOC actively shares industry-focused articles, blog posts, podcasts, videos and other thought leadership with our members and other optometric practitioners. Below, you will find links to our growing library of educational materials and multi-media assets written and created by IDOC's team of seasoned industry experts.
Nathan Hayes | 5/29/2019
DO YOU KNOW IF YOUR COGS IS HIGH?

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:

  • Variable Costs – costs that go up and down based on how busy you are – COGs and non-OD Staff.
  • Fixed Costs – what you have to pay to open your doors, regardless of patient volume
  • Practice Net – which we’ll define as all the pay and benefits available to all the doctors in the practice.

For a typical practice, these three broader categories will be distributed as follows:

high cogs

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):

  • Traditional, retail-heavy practice: 30% COGS / 18% non-OD Staff
  • Medically oriented practice: 21% COGS / 27% non-OD Staff
  • Medicaid / all-medical practice: 15% COGS / 33% non-OD Staff

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:

  1. Schedule an account review with IDOC. Getting better discounts isn’t usually the issue, but this would be the very lowest-hanging fruit to look for. We’re constantly negotiating, so make sure you’re getting the most out of us!
  2. Review your markups and professional fees. Remember, Cost of Goods is a percentage of total revenues. Usually, it’s the revenue side of the ledger that’s at issue. Raise your fees regularly!
  3. Double check your inventory. Sometimes, the issue is simply that a practice is buying more frames or contact lenses than it is selling to its patients. Be sure you have processes and protocols for when you bring in new frame lines or buy inventories of contact lenses.
  4. Review your receivables. Also, because Cost of Goods is a percentage of collected gross revenue, check your A/R aging report.
  5. Add services to offset costs. For practices that sell more contacts than glasses, it becomes even more important to make sure your fitting fees are appropriate. But also look at dry eye or other specialties that can offset your lower-margin contact lens sales.

Want help evaluating your practice?  Your IDOC consulting team is here to help.  Don’t hesitate to email me at nhayes@idoc.net or set up a time to talk.

Nathan Hayes
Practice Finance Consultant
Nathan Hayes joined IDOC with a solid background in the eye care industry and serves as IDOC&rsquo;s Practice Finance Consultant. Before Prima launched in 2011, he spent five years in business development for Red Tray and HMI Buying Group. Nathan graduated from Vanderbilt University in three years, with a degree in Spanish and a minor in mathematics. <br/><br/>After graduating, he spent a year working abroad. During that time, he worked for two firms in San Jose, Costa Rica. He interned with Grupo Juridico de San Jose, working in environmental policy to protect a threatened parcel of land, then he worked as a project manager for a US-owned precision machining shop. Nathan then spent 6 months working with street children and orphans in Mexico. <br/><br/>Before getting into the healthcare industry, he was an Assistant Store Manager and completed the Corporate Training Program with Haverty&rsquo;s Furniture Company in Atlanta, GA. Nathan and his wife Heather have a son, Daniel, and a daughter, Hannah. In his spare time, Nathan enjoys reading and outdoors activities - especially cycling and hiking.
 LinkedIn
Trending Blogs
 
 

10/15/2020 | Author: Geronda Wollack

A friend of mine was out in the job market and applied for a job as a Dental Assistant. She called me for some advice around interviewing, and during our conversation, she mentioned a shocking reality. She said, "Geronda, there were a few companies that I was interested in, but the job... Read more


9/24/2020 | Author: Maddie Langston

By now, most of us are familiar with online reviews and understand their reach and influence, particularly on Google, Facebook, and Yelp. As a marketing consultant at IDOC, I work with optometry practice owners and managers to increase the number of new patients at the practice, retain... Read more


9/11/2020 | Author: Geronda Wollack

During a phone call with my favorite sister (now, let's not share this with anyone else), she shared the following sentiment with me, "I was just as excited for my kids to go back to school this year, until I realized that I have one kid staying home and doing virtual learning and the... Read more


8/13/2020 | Author: Maddie Langston

Let’s say one day after an exam and a visit in your optical, a patient reviews their experience on your Google business listing and Yelp.

The review includes many details which makes it clear to anyone reading that they visited the practice, had an exam, and worked with an optician.... Read more


8/7/2020 | Author: Ximara Vega

Take a step back and think about your business. Are you in tune with the performance of your optical? Are you achieving your desired results? If not from you, where are your patient’s purchasing their eyewear? Why? How do your offerings compare to your competition? Investigate, by... Read more


8/7/2020 | Author: Nathan Hayes

“I’m shockingly flush with cash. My checking account balance is fantastic.”

This isn’t what I expected to hear on the tail end of the most prolonged economic catastrophe of our lifetime. But many practices, after leaning out all their expenses during the... Read more


8/7/2020 | Author: Nathan Hayes

“I’m thinking of selling my practice.”

“Should I sell my practice now while prices are at all-time highs? How long does the private equity phenomenon last?”

Practice owners often focus on market trends in the pricing of practices when deciding when and whether to sell. Let me... Read more


7/17/2020 | Author: Patricia Basile

Careful frame and lens purchasing habits are needed in an unpredictable time.

Many optometric practices are experiencing a surge in eyewear purchases due to pent-up demand and the ability to... Read more


6/23/2020 | Author: Patricia Basile

Capture rate is a key performance indicator; possibly the most significant component in measuring and increasing revenue per patient. Capture rate can be influenced by several factors. The good news is that you can have an impact on all of them.

Multiple Pairs:... Read more


4/7/2020 | Author: Maddie Langston

If your optometry practice is currently closed due to COVID-19, there are certain updates you should make on the listing to communicate to your community the temporary change in your practice operations. Google has prioritized the “Read more

© 2020 IDOC. All Rights Reserved