Cutting Optometry Practice Costs is Harder Than You Think

It’s the beginning of the year, which means many Books & Benchmarks clients are asking to review their 2024 results. It’s a fun time because that means I get to celebrate their successes and talk about what’s next for their practices and how they can increase their income and free time while reducing the stress of ownership in 2025. 

Since I’ve been asked several times, “Are there areas where I should be cutting costs?”, let’s talk about cost management in optometry practices and how it impacts profit growth. 

Permission to Spend Freely? 

In over a decade of consulting with independent optometry practice owners, I can only think of a handful of times when I’ve felt like a practice was flagrantly overspending. Many of these instances involved overspending in an owner’s personal life, not even the practice. 

In my experience, the vast majority of practice owners need permission to invest in growth. Most are afraid to take on new costs to expand their offices, hire more staff, or add an OD. 

Remember, our benchmarks are based on a ratio of expenses to revenue. You can reduce the percentage in two ways: 

1. Reduce the expense.
2. Increase revenue. 

Some practice owners I really admire, Scott Colonna and John Ormando, had a rule in their practice to spend 5%–10% of their time managing costs and 90%-95% focusing on growing revenues. I think this is a great approach. 

How “Cutable” Are These Expenses? 

Let’s review the 7 Key Expense Areas and see if there are obvious ways to cut them:  

1. Cost of Goods Sold: Yes, at least on frames. 
2. Non-OD Compensation: Good luck cutting people’s wages! Unless you’re ready to part ways with an employee, this one’s locked in. 
3. Occupancy Costs: Your rent is not easily changed.
4. Equipment Costs: Most equipment is necessary for delivering patient care. 
5. Marketing: Typically, 1%–2% of revenue, so even if you did cut it, it won’t make a huge difference. 
6. General Office Overhead: This is an area worth exploring for potential savings. 
7. OD Compensation: This one’s more difficult to adjust. 

All in all, most practices don’t have many areas where they can cut costs. As an aside, look over that list again and ask yourself, “How many of my staff actually control or influence those expenses?” Then you’ll understand why we don’t think staff need to manage or know about profits. 

Low-hanging Fruit 

There are two areas that are worth examining regularly: Cost of Goods Sold (COGS) and General Office Overhead. 

For COGS, keep in mind that spectacle lens and contact lens costs are generally only incurred after a patient orders glasses or contacts. It’s important to periodically review your lab bill and contact lens statements to confirm you’re getting all your discounts and rebates, but most of these costs are downstream of revenues. 

Frames, on the other hand, are a huge opportunity to tighten up on spending. Actively managing your frame boards prevents optical staff from aimlessly spending money on frames. Effective frame board management means: 

1. Intentionally allocating board spaces across a variety of styles and price points. 
2. Focusing on a few frame collections rather than carrying a little of everything. 
3. Tracking frame turns, removing poor-performing lines, and beefing up strong performers. 
4. Thoughtfully experimenting with new styles and prices. 
5. Taking a physical inventory of frames at least once a year, ideally 2–4 times annually. 

If there’s money walking out the door in your practice, chances are it takes the shape of frames that parked themselves in a random drawer. 

Then there’s General Office Overhead (GOO). It’s worth reviewing these expenses every six months to spot any unnecessary costs. Here are some areas I generally look at: 

1. Professional fees: Are we paying too much to outside advisors relative to the practice benefits? Yes, every practice will have accounting and legal fees, but these generally shouldn’t run much higher than $20,000 per year in most cases. 
2. Meals and travel: The big question here is whether they should even be in the practice’s books or be reclassified as personal distributions. 
3. Expenses that belong somewhere else: For optometry benchmarking purposes, we typically remove depreciation, amortization, interest, and taxes from GOO and put them under “other expenses.” 

An Audit Starts with Good Data 

My constant refrain is that most practice owners just need to know their overhead looks normal, so they can focus on growing their patient base and expanding their products and services. 

But to know things are normal, you need an accurate and well-organized picture of your current overhead. If your P&L isn’t providing the insights you need, consider letting Books & Benchmarks take over your financial reporting. This way, your practice can devote more time to your staff and patients, while you get the peace of mind of knowing you have a solid understanding of your practice’s financial health. Contact us today to learn how we can help!