CL PRACTICE PROFITABILITY
Increase Your Contact Lens Profitability
Forget the pricing game. You can boost your contact lens profits by offering what your competitors don't.
By S. Barry Eiden, OD, FAAO
We must constantly adapt to an ever-changing world to survive and achieve success. This is especially true in the world of contact lens practice. Only a few decades ago, few options existed for prospective contact lens wearers in terms of where and from whom they could obtain their contact lenses and eye care. Today, the choices abound: Private ODs, MDs, independent optical shops, corporate optical chains, free-standing HMO healthcare centers, retail department stores, retail discount club stores, pharmacies and a plethora of Internet and mail-order lens distributors.
The exponential growth of these options, along with the development of pre-packaged disposable contact lenses, have commoditized contact lenses in the minds of today's lens wearers. The competition for contact lens patients, along with patient perception that "a contact lens is a contact lens," has created extreme pricing pressures that have led many eyecare practitioners to feel that contact lens practice is no longer worth the effort.
How do today's successful contact lens practices thrive in this business environment? What strategies do they employ to allow them to maintain growth and profitability when many are turning away from contact lenses as a viable profit center in their practices? Are there secrets out there, or have we just lost our way?
"Differentiate or Die!"
At our practice, we believe the answer lies in creating a clear choice for our patients. We must differentiate ourselves from all other eyecare options available to our patients. I urge you to read a truly enlightening book entitled Differentiate or Die...Survival in Our Era of Killer Competition by Jack Trout. It provides an excellent review of concepts of differentiation and how many well-known businesses have used them.
Many different ways exist in which we can differentiate ourselves from our competitors. Let's review some of them and the implications associated with each.
Price Differentiation Many of today's successful businesses base their entire business plan on being the "low price leader." Especially for independent practitioners, this is a loosing battle. We can't continue to lower our fees to meet or beat those of our competitors who have far lower overhead and much better wholesale cost pricing based simply on the volume they do. If independent practitioners choose this approach, then they'll ultimately work much harder for far less profit.
Convenience Here we have the potential to match or even outperform some of our large-scale competitors. We can provide extended office hours to meet our patients' needs. We can provide direct-to-patient lens delivery or maintain lens inventories so that patients don't have to return to our office for their contact lenses. We can provide diagnostic lenses to replace damaged or lost lenses or to serve as a short carry over for patients who run out of lenses before their scheduled annual exam. We can employ technology that allows patients to order replacement contact lenses from our practice Web site or via associated Web portals.
Many ways exist for independent eyecare practitioners to differentiate themselves based on convenience. But in today's highly competitive world, convenience is, to a large degree, a given in the consumer's mind. Thus, we must go further in differentiating ourselves.
Service Quality About a decade ago, "service quality" and "customer service" were the buzz words in the business world. "How can we exceed the expectations of our customers/patients?" was the challenge that businesses needed to meet.
As important as this concept still is today, it's also a given in consumers' minds. Your patients will no doubt become upset if they experience poor service quality at your practice; yet excellent service may not "wow" them as it might have a number of years ago.
Products As part of our practice's policy of differentiation, we believe it's important to use state-of-the-art contact lens technologies and to always, in some way, stay one step ahead of our competition in this area. Mass contact lens merchandisers tend to be followers in lens technology, not leaders.
Contact lens technologies constantly change, and we must always remain at the forefront in terms of what lens and lens care technologies we present to our patients. Bring new designs and developments into your practice and present new options to your patients regularly, even if they don't request change or express problems with their current lens modality.
Diagnostic and Therapeutic Technologies Along with contact lens products, we must stay current with diagnostic and therapeutic technologies. Being at the cutting edge of technology is a powerful tool in the effort to differentiate your practice. Take a look at your current instrumentation and evaluate your examination protocols. Have they remained essentially the same for many years? Does your equipment seem somewhat dated? You'd be surprised how sensitive patients are to your office environment and the technologies you employ.
If you regularly update the technologies in your practice as part of your differentiation strategy, then you should regularly hear from your patients that they're impressed by your dedication to current technology. If you haven't been hearing such comments from your patients, then you likely aren't achieving your goal in this regard.
Expertise The most effective way to battle the prevailing attitude of commoditization in the contact lens field is to differentiate yourself as an expert of contact lens sciences. You can't overstate the power of the specialist -- but don't let it be an empty statement. You must base it on your true dedication to the field. You must continually educate yourself in the newest developments. You must be willing to fit complex cases.
You must also accept that you can't be everything to everyone, and that by specializing in contact lenses, you may need to refer out certain patients who have other eyecare needs to other practitioners who specialize in those areas. Or perhaps you could bring associates into your practice to cover those areas.
Differentiating Your Practice
How do you go about the process of differentiation? What steps do you need to take to make your mark? Four key steps make up the process:
1. Define who you are. Take a long and hard look at yourself and your practice as it currently exists and consider how you'd like to see it.
2. Identify your differentiating quality. What is it that makes your practice different from the rest? Why should patients come to your practice and potentially pay more for eye care and materials vs. your competitors?
3. Establish credentials that support your differentiating quality. For example, if you differentiate yourself by your expertise, then make sure you have the credentials to back it up. Make sure you have the educational background, the research and patient care experience, etc.
4. Communicate your differentiating quality clearly and strongly. Let everyone in your community know how you and your practice stand apart from others in the area.
At our practice, we've approached differentiation in a number of ways, including dedication to technology and emphasis on specialization in the contact lens field. Along with this, we've established a multi-specialty group practice to cover other key areas of eyecare specialization such as pediatrics, binocular vision, low vision, medical and surgical treatment of eye disease and refractive surgery.
We believe the perception of expertise is critical to our differentiation. Our doctors have all completed residency or fellowship training, are affiliated with respected eyecare educational institutions and are involved in research and development. They also lecture and publish regularly. We place high emphasis on regularly communicating these differentiating factors to our patient base through office brochures and print materials, telephone on-hold messages, newsletters, mailings and, most effectively, via our practice Web site.
Specific Steps to Ensure Profitability
Beyond the primary philosophy of differentiation lie numerous other steps we can take in contact lens practice to ensure profitability:
Proactive Patient Management In proactively managing patients, you need to do more than simply react to patient symptoms or complaints. You need to instead continually probe for ways to improve your patients' function and quality of life. You must perform comprehensive diagnostic evaluations to discover opportunities, present a variety of treatment and management options and provide ongoing recommendations of the most appropriate treatment modalities available -- even if a patient doesn't present with obvious signs or symptoms or with a request for change. Proactive practitioners continually present the newest technologies to their patients.
Proactive patient management involves superb patient education as well as practitioner expertise, experience and confidence. The net result impacts profitability in two main ways:
First, patients perceive a need and a purpose for regular eye care, not simply to get more contact lenses -- or worse yet -- to pick up a contact lens prescription for an alternative supplier to fill.
Second, new technologies that you employ in proactive patient management generally command relatively higher prices, thus allowing for the maintenance of more acceptable profit margins.
Riding the Wave This concept fits in directly with proactive patient management. As you present new and alternative technologies to your patients, your competitors aren't standing still. If the technologies that we present are useful and valid (and we surely hope they are), then most of our competitors will catch on to them -- especially to technologies that they can mass merchandise and that don't involve a high level of technical expertise to use.
When competitors do catch on, it's time to shift your paradigm and move on to other newer and hopefully better technologies. That's "riding the wave" -- you catch a new wave in technology, you ride the wave with associated higher profitability until the wave of differentiation fades, and then you look to catch the next wave of newer and even better technology.
Performance and Valuation of Contact Lens-related Professional Services If you're dedicated to providing the highest quality of contact lens-related eye care, then you should and must begin to value these services and charge your patients appropriately for them. Mass merchandisers see their opportunity in the sale of materials at high volume and often low profit percentage. Independent eyecare practitioners can't survive utilizing this philosophy.
We spend time and use our expertise to determine what contact lens modality will function best for our patients. In managing them, we stress the importance of appropriate aftercare. The net result is that we spend a significant amount of time caring for our contact lens patients, but we often undervalue and undercharge for these services.
A key way to increase profitability from contact lens patients is to conduct and charge for a contact lens diagnostic evaluation every time you perform a comprehensive examination. A contact lens diagnostic evaluation includes assessing lens fitting characteristics, examining physical and physiological effects of contact lenses on the eye, performing a contact lens over-refraction and performing a variety of ancillary diagnostic procedures (such as corneal topography, tear film analysis, pachymetry, etc.) that help you evaluate lens performance and effect on the ocular and visual systems.
I suggest that you also create levels of complexity for diagnostic contact lens evaluations. Each level has an associated fee commensurate with the level of complexity. At our practice, we use five levels of diagnostic contact lens evaluations. We use the lowest level for routine cases in which we evaluate habitual lenses that require no changes or refits. We charge higher level diagnostic evaluation fees for cases involving new fits or refits, based on the time spent and complexity of the case.
We charge fees for diagnostic evaluations in addition to the fee for the comprehensive eye examination. This becomes especially important in maintaining profitability for our contact lens wearers who have vision plan insurance. Typically, most vision plans allow practitioners to charge separately for a contact lens diagnostic evaluation (although many apply a percentage discount off of usual and customary fees). Many contact lens specialists treat patients based on referrals from other eyecare practitioners. These patients often have recently undergone a comprehensive eye examination. We use the higher level contact lens diagnostic evaluation procedures to cover the initial visit for such patients.
I can't overstate the importance of ongoing contact lens aftercare. Your initial determination of contact lens design serves only as a starting point. Appropriate contact lens aftercare includes scheduled or unscheduled monitoring visits to ensure that the lenses provide optimal vision, are acceptably comfortable and allow for appropriate physiological response. Don't assume that if a patient is asymptomatic and doesn't contact your practice with specific symptomatology that his response to contact lens wear is acceptable.
The number of aftercare visits or the period of time included in a contact lens aftercare program varies according to the specific case as well as to your professional philosophy. As with diagnostic contact lens evaluation procedures, we've created various levels of aftercare programs specific to whatever lens modality we prescribe. For example, we have three levels of keratoconus contact lens professional aftercare services. We charge a specific level at the time of the initial evaluation based on our determination of the complexity of the case.
We also provide aftercare services for patients who continue in habitual designs. At our practice, we've incorporated the term "P.L.C.," which is an acronym for "Professional Lens Care," to describe our aftercare programs for patients in established lens modalities. Typically included in the P.L.C. program is up to 12 months of unlimited professional contact lens services (which include a scheduled six-month visit plus any other scheduled or unscheduled visits during that time period), a 15 percent discount on contact lens material fees, discounted contact lens solutions and care systems and a 15 percent discount on any materials in our optical dispensary. We have two levels of P.L.C.: One for spherical and basic toric hydrogel and GP lens wearers and the second for all continuous wear, multifocal and complex lens design wearers.
P.L.C. fees, along with appropriate professional fees, have added another level of profitability to our contact lens practice. We present the P.L.C. option to all contact lens patients who are continuing in their current lens designs, but our disposable and frequent replacement lens patients typically show the greatest interest because they understand that if we find prescription changes at the six-month visit (or any other visit), then we can exchange any lens inventory the patient may have. Our continuous wear patients also show strong interest in P.L.C. because we emphasize to them the importance of frequent and regular professional eye health monitoring visits at least every six months.
Competitive Contact Lens Material Pricing If we're going to use contact lens materials that are available at alternative delivery sources, then we must consider the issue of competitive, yet appropriate, pricing of our materials. I'm not saying that you need to meet or beat the price that Internet and other discounters provide. I do, however, mean that you must create a perception of value in your patients' minds. If you're going to have higher material fees (and we must to a certain degree to maintain profitability), then you must justify this to your patients. You can achieve this via customer service techniques such as tear and loss warranties, replacement disposable lenses for when patients use them up before their next scheduled visit, disposable lens exchanges for cases of prescription changes, etc. Even so, patients are willing to pay only so much more for these conveniences and services. Realistic pricing of commodity materials in a competitive environment is simply a reality that we must deal with.
To price contact lens materials at a level that ensures some acceptable degree of profitability, use the concept of "gross profit percentage." The "gross profit margin" includes the fees you charge minus the cost of materials. The "gross profit percentage" is the gross profit margin divided by the fee you charge then multiplied by 100.
For example, if your material fee is $180 and the cost of materials is $56, then the gross profit margin is 180 56 or $124. The gross profit percentage is 124 divided by 180, which is 0.69; multiply this by 100 and you get 69 percent.
We continually evaluate our gross profit percentage on all materials, allowing for variations in acceptable levels depending on frequency of usage (for example, we expect a lower profit percentage on more frequently replaced lenses such as daily disposables). Unless you keep your gross profit percentages in line, the meaning and value of looking at gross sales numbers becomes irrelevant.
Fit More Contact Lens Patients Who Don't Wear Lenses Available through Mass Merchandisers If you've committed yourself to contact lens specialty practice, then a natural practice progression is that you'll see more patients who have special contact lens needs. Typically, lens designs available through alternative delivery sources don't adequately serve the needs of such patients. Patients who require GP custom lenses (spherical, aspherics, multifocals, torics, etc.), custom-design hydrogel lenses or who wear corneal reshaping lenses are all patients who won't go to alternative lens suppliers. These patients appreciate the quality of professional services that you provide for them and they also understand the importance of specialized lens designs unique to their needs. They're typically willing to pay the appropriate fees necessary to meet those needs.
We work in a highly competitive business environment. Commoditization in the contact lens field has created an attitude of non-differentiation on the consumer's part, often driving them to contact lens sources that offer the lowest price. To overcome this, differentiation is the key to success. Determine what your differentiating quality is. Make sure you reflect that quality in everything that you do in your practice. "Shout it out" by communicating it in as many ways as possible. Remain focused on how you're different and don't let yourself be detoured by situations that challenge your commitment. But also be ready to respond to the ever-changing world in which we practice in.
We must provide value for our patients, but value doesn't necessarily mean the absolute lowest price available. Patients perceive value when they obtain services and materials that meet or exceed their needs and expectations. Determining what type of value you want to provide for your patients takes great effort, but it's well worth it. By providing value, you can satisfy your patients and provide an appropriate level of profitability for your practice.
Dr. Eiden is president of a private group practice
specializing in primary eye care, contact lenses and
Contact Lens Spectrum, Issue: December 2004