The Business of Contact Lenses
Making GP Lenses Work—Financially
BY CLARKE D. NEWMAN, OD, FAAO
If you don’t know what it costs to keep the doors open and the lights on, then you don’t know what fees to charge to cover that cost and to provide a decent return on that investment. As always, if you cannot make a go of it without charging significantly more than the market will bear in your area, then your costs are too high.
Calculating Chair Cost
To start, figure out the “chair cost.” If we know what the chair cost is, then we know what to charge to break even. And, if we know that fee, we can simply add our profit on top of that.
If we are trying to set up our fee structures so that we can make prescribing GP lenses profitable, we have to know our chair and material costs. The chair cost is basically all of your fixed costs—rent, insurance, salaries, office supplies, telephone, advertising, etc. Many of these costs vary month-to-month, but are fixed over a fiscal year. So, look at six to 12 months of expenses. Then, divide the fixed expenses by the number of hours that you and the other practitioners in your practice spend caring for patients. Remember to remove your administrative time or you will skew this number downward and charge too little.
If you gross $800,000 in 12 months, and your cost of goods sold and profit are each running around 30%, then your fixed costs are $320,000. If you see patients for an average of 6.5 hours per day, and you work 21.5 days per month for 12 months, then your patient-care hours worked are 1,677. If you divide the $320,000 by 1,677, you get a chair cost of $190.82 per hour, which is typical. You can also determine your chair cost by calculating it based on examinations done, but that is a discussion for another time.
Your professional fees must generate almost $200 per hour just to cover expenses. If you want to put food on the table at home, then you have to make more than that—closer to $250 to $300 per hour if you want to reach your projected margin. So, price your patient encounters accordingly. Figure out how much time you and your staff spend prescribing and dispensing GP lenses, and set the fee based on your chair cost.
Cost of Materials
The second part of making a profit is controlling material costs. The invoice cost of the GP lens is just part of the equation. You also have staff time invested in verifying and delivering lenses to patients. Then, you need to figure out how many lenses per patient it takes for a particular type of lens to achieve success. You also need to factor the warranty program for a lens into the fee charged to the patient. If you get unlimited remakes, then the number of lenses needed to achieve success is not as relevant. However, sometimes even “free remakes” show up with a bill to cover significant amounts of shipping and handling fees.
If your chair cost is $200 per hour, and you spend 10 minutes (Note: Staff time equals half of practitioner time, so five minutes) verifying and dispensing a lens, and it takes 1.5 lenses per eye to achieve success, then the fee for a lens costing $37 should be $37 + ($200 per hour x .0833 hours) x 1.5 = $80.49 plus your profit. CLS
Dr. Newman has been in private practice in Dallas 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, AMO, and Alden Optical. Contact him at email@example.com.