Rational Pricing Revisited, Part 2
The Business of Contact Lenses
Rational Pricing Revisited, Part 2
By Clarke D. Newman, OD, FAAO
In my last column we talked about a rational method to determine what to charge for the products you prescribe. This month we'll talk about reducing the cost of goods you purchase.
One of the best ways to reduce the cost of a product is to buy a cheaper product. That is easier said than done. When you compare one contact lens to another, the wholesale price should be one of the last things you look at when choosing the product for a patient. However, when you have two products that are very comparable in clinical performance, you might lean toward the less expensive of the two.
The next way to lower the cost of goods is to buy in bulk. Essentially, there are two ways to buy in bulk. First, you can buy and inventory. The second way is to buy a bank. I think lens banking makes a ton of sense for both prescribers and manufacturers.
When you buy a large inventory, you invariably run out of some powers while having too many of others. You can get close when estimating what powers to purchase in an inventory, but you cannot get it exactly. My experience has been that you invariably need some powers that you don't have and you have powers that seem to sit on a shelf. With a bank, you don't have those problems. You order the powers you need, when you need them. There are no restocking fees or mailing costs for exchanges.
Also, there can be positive or negative tax implications when your inventory value moves up or down from your previous yearend basis. That can factor into the costs of inventorying or banking a bunch of multi-packs. From what I can gather from tax accountants, a bank is considered an inventory if you are on an accrual system of accounting.
Inventory sitting on a shelf or in a bank affects your cost of goods. If you have many lenses in inventory, your cost of goods is lower than your accounting suggests. Inventory on a shelf is also easier to steal, and must be accounted for through proper inventory control.
A minor issue regarding a real inventory as opposed to a bank is lens expiration. While you should be turning over inventory long before it expires, you invariably have some product that gets dusty. Make sure that you run your inventories to ensure that the products don't expire. Send them back before they expire on exchange. It only takes a few boxes of expired product to wipe out the dollar advantage of a bulk purchase.
Finally, when tying up money in inventory, do remember the lost opportunity costs of having money tied up in inventory instead of tied up in Berkshire Hathaway. Make sure that you are not being “penny wise and pound foolish.”
Group Buying Power
The next way to lower the price of goods is to use a buying group, such as OOGP or Optical Distributor Group (ODG), or to belong to one of the optometric networks, such as Vision Source or Vision Trends. Even some of the management collectives, such as Cleinman Performance Partners, have some group discounting for goods and equipment. Being a part of these groups is a great way take advantage of bulk purchasing without the whole bulk of that purchase being in your office.
When ordering contact lenses from a buying group, do batch ordering so that your order comes in one box instead of 10. These shipping costs really add up. So, watch it! CLS
|Dr. Newman has been in private practice in Dallas, Texas since 1986 specializing in vision rehabilitation through contact lenses as well as corneal disease management, optometric medicine and refractive surgery. He is a Diplomate in the AAO and a consultant to B+L and AMO. Contact him at firstname.lastname@example.org.
Contact Lens Spectrum, Volume: 27 , Issue: June 2012, page(s): 50