In May, I debated the current state of the Contact Lens Rule and the Fairness to Contact Lens Consumers Act with a staff member from the Federal Trade Commission and the general counsel of 1-800 Contacts before the Washington, DC Bar’s Antitrust Section. Their claim was that more needed to be done to improve competition in the contact lens marketplace. My claim was that the price competition in the marketplace is robust and that the primary failure of the Rule and the Act is poor enforcement against unscrupulous sellers.
Recently, I had an event in my practice that proved the first of my points. First, let me disclaim any attempt at discussing prices. I am not discussing fees, nor am I encouraging any group of competitors to do anything in concert—especially regarding the setting of fees. My fees are set independently of any other competitor, and so should yours be.
A Lesson in Price Competition
With that said, in the spring, I reviewed my prices compared to my competition—private practitioners, big box stores, pharmacies, corporate sellers, and online sellers. I have my staff shop our most popular products based on sales, and we fill in the rest with other sources of market analysis. We also check price lists from our vendors and pull invoices to make sure that what they say we are being charged is what we are being charged.
Buying group discounts, lens banking, and any number of other things can alter the price you pay at wholesale when you compare it to the published price list of a lens manufacturer. Fortunately, our research has consistently shown that the prices being quoted to us by the manufacturers are very close and reliable. You should still do this work because our margins are very thin, and a small mistake can make a big difference.
So, what happened? Well, I found that I was consistently below market compared to almost all of my competition on most of the most popular lenses. So, I made some adjustments in my fees to get me in the middle of the market—and my lens sales dropped like a brick. It made a shocking dent in my summer cash flow within a month of the changes.
Now, my staff has no scruples about speaking their minds. It is our practice culture; plus, this cash flow dent was affecting their bonuses. So, when I questioned my staff about their thoughts, they immediately told me that it was my fault for raising our prices. We re-evaluated, adjusted the prices downward, and our lens sales perked right back up. My patients are very consumer savvy, and I simply have no wiggle room at all on this issue.
The real message is that you have to watch your balance sheet and your cash flow. If you don’t pay attention to those numbers, then things will get out of hand very quickly. Watch your fees relative to your competition, but set them rationally based on your costs and your practice margins. I actually found a few lenses for which my cost had changed dramatically, and I was basically charging cost for a few lenses. It is hard to earn a living that way.
I find it helpful to track this information with a spreadsheet. It makes large-scale fee adjustments easy, and you can see trends. This can help you fix your mistakes before they fix you. CLS