Profit Calculator Optomertrists making a healthy and profitable independent Optometry sector is the key to the future and ongoing delivery of top quality eyecare profitability of optometry businesses running a successful and profitable optomotry business

Profit Calculator

A healthy and profitable independent Optometry sector is the key to the future and ongoing delivery of top quality eyecare. The article that follows on this page looks in some depth at the issues surrounding ’profitability in practice’ from an Optom’s business perspective. For Optoms wishing to review their own profitability percentages Optovision has developed a ’Profit Calculator’ for all to use - to access a copy simply click on this link.

Profitability in Practice

If there is one thing that threatens the well being of the independent full-scope optometry sector it is that optometrists lack a real focus on running their practices as businesses. We are all focussed on providing quality eyecare for our customers - and that’s fundamentally important - but just as important for the future of our independent sector is that we show as much diligence in running successful businesses. A successful, profit-focussed practice will do more than anything to ensure the future of what we deliver in terms of top quality eyecare.

Over the coming months we will look at how Optoms can focus on profitability by constantly reviewing their pricing, their cost of sales and their general expenditure - without reducing the quality of the service they provide to customers. Product choices, negotiating over product costs, margin management and pricing all form part of a seemingly complex picture. However, if you can get to grips with the basic concepts of business management it is not that hard to master and implement changes in your own practice that will deliver a healthy profit.

This article, as a taster of what is to come in future months aims to look very generally at the basic concepts surrounding bottom line profit management - how you can boost practice profits without reducing the quality of eyecare provided.

To start things off I have a simple question for you - if you increase your annual revenues by 5% and reduce your expenditure by 5% what is the impact on your bottom line profit? Do a quick calculation in your head and what do you get? Most people I ask this question to answer `10% more profit’. Now, while you may not be one of those people, the real answer often astonishes practice owners.

Imagine a practice that last year had revenues of $1,000,000 and total expenses of $800,000, leaving a Net Profit of $200,000 or 20% of revenue.

If that practice in the current financial year increases revenue by 5% (to $1,050,000) and reduces expenses by 5% (to $760,000) then Net Profit will rise by 45% in total - to $290,000 or 27% of revenue. It gets you thinking doesn’t it.

Depending on the current profitability of a practice, the numbers differ so below we have set out what three differing practices look like - one with 20% Net Profit (Practice A), one with 15% Net Profit (Practice B) and one with 10% Net Profit (Practice C). The turnover itself does not matter - the percentage results will be the same whether your practice turns over $300,000 or $3m per annum. The key here is to look at the items highlighted in red ink.

Practice A	P&L
	Last Year	Next year increase / (decrease)	TOTAL NEXT YEAR	% difference
Increase Sales	1,000,000.00	50,000.00	1,050,000.00	5%

Reduce Costs	800,000.00	(40,000.00)	760,000.00	-5%

Net Profit	200,000.00	90,000.00	290,000.00

Net Profit as % of Revenue	20.00%		27.62%

%age increase in net profit				45%

Practice B	P&L
	Last Year	Next year increase / (decrease)	TOTAL NEXT YEAR	% difference
Increase Sales	1,000,000.00	50,000.00	1,050,000.00	5%

Reduce Costs	850,000.00	(42,500.00)	807,500.00	-5%

Net Profit	150,000.00	92,500.00	242,500.00

Net Profit as % of Revenue	15.00%		23.10%

%age increase in net profit				62%

Practice C	P&L
	Last Year	Next year increase / (decrease)	TOTAL NEXT YEAR	% difference
Increase Sales	1,000,000.00	50,000.00	1,050,000.00	5%

Reduce Costs	900,000.00	(45,000.00)	855,000.00	-5%

Net Profit	100,000.00	95,000.00	195,000.00

Net Profit as % of Revenue	10.00%		18.57%

%age increase in net profit				95%

Suffice to say, the less profitable a practice is, like Practice C above, the more it has to gain in terms of boosting its profitability by taking action over expenses and revenue. Practice C is quite clearly doing a number of things wrong. A glance would suggest that the owner is either paying far too much for products or probably has far too much overhead expense associated with the practice - most likely a combination of the two. In addition, if this is the case, there will usually be some lack of focus on pricing and other revenue related items.

The purpose of producing these tables is to help Optoms, whether they be the equivalent of Practice A, B or C to start to think like business managers. As Optoms we are all most keenly aware of the need to deliver quality eyecare to our customers - but we should not put this ahead of making a healthy profit. It is our profitability that will preserve a healthy independent full-scope optometry sector - and guarantee quality eyecare long into the future.

The author is a full-scope optometrist and has a thriving practice in Melbourne’s CBD.