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
Associate Director, Financial Services
Nathan Hayes joined IDOC with a solid background in the eye care industry and serves as IDOC’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.

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.

Before getting into the healthcare industry, he was an Assistant Store Manager and completed the Corporate Training Program with Haverty’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
 
 

5/19/2022 | Author: Steve Vargo

As research for launching a new service called IDOC Specialty Services, I interviewed several industry experts of various specialties. At the end of each call, I asked everyone the same question: “What prevents more ODs from succeeding with a specialty?”

Their answers were insightful.... Read more


5/3/2022 | Author: Amy Alvarez

The pandemic has caused many changes in private practice, affecting everything from the way we see our patients to what we expect from our employees. Although some of these changes serve us well, others may feel like a barrier. While attendance issues are not new... Read more


4/15/2022 | Author: Lana Greene

Do you ever wonder if the same amount of effort goes into selling eyeglass frames vs. selling lenses and treatment options? I certainly do. Speaking from experience as an optician, I remember always being so excited when new lens technology was released. I couldn’t wait to fit our... Read more


4/8/2022 | Author: Steven Festa

Alright, I will come clean on something very few people knew about outside my family.  I’m OK with sharing this with the world now as it helps prove a point about the importance of being present in local searches.

Ever since COVID started, my wonderful wife had started... Read more


4/4/2022 | Author: Jelissa Brooks

Expanding your staff is an exciting step in independent practice growth. If you’ve recently added a new OD to your practice, get the word out to your audience through social media!

Promoting a new associate OD through your social media channels is an effective strategy in... Read more


3/15/2022 | Author: Nathan Hayes

In case you haven’t noticed, the Consumer Price Index was up 7.5% in January, as compared to 2021. In short, this means that a basket of goods like food, energy, and other consumer goods cost 7.5% more in 2022 than the year before.

Practice owners feel the squeeze in multiple... Read more


2/28/2022 | Author: Steve Vargo

Are you experiencing burnout in your professional career? It’s okay, you can admit it. You’re not alone. In fact, studies have found that approximately 50 percent of physicians are suffering from burnout.

Twelve billion dollars. That’s a conservative estimate of the cost incurred to... Read more


2/17/2022 | Author: Amy Alvarez

The last few months have been filled with rising wages, steep job competition, and continued uncertainty. Practice owners are being approached by staff about pay increases and are receiving higher wage requirements from job candidates. Many businesses are advertising their starting pay,... Read more


2/7/2022 | Author: Lana Greene

I often hear from ODs and opticians that their patients are taking their prescriptions and purchasing eyewear at Costco, Warby Parker, or other online retailers. Rarely do I hear the reason why. Finally, the opportunity was in front of me so I could ask questions to a consumer regarding the... Read more


1/24/2022 | Author: Steven Festa

Does hearing SEO make your eyes glaze over a bit and cause your mind to wander? If you answered yes, then you are not alone. While tough to grasp initially, SEO is important for your practice, and as providers of Read more

© 2022 IDOC. All Rights Reserved