With so many metrics to choose from, it’s hard to know where to begin. However, focusing on revenue—the money your practice receives—is a great place to start. Revenue forms the foundation of your business profitability, and the flow of incoming cash begins to describe your practice metrics.
For the purposes of this article, we’re going to define your revenue as net collections (money in the bank”).
Total Revenue is the gross income your practice earns from providing eye care services and selling eyewear and accessories. It’s a key indicator of financial health and can help you predict how stable your business is. In the case of optometric revenue, you can actually use this top-line number to begin the process of identifying and addressing potential problems.
Optometric Revenue is Unique
At first blush, it may sound like checking total revenue is so simple it can’t actually be useful. After all, you could just open up your checkbook to look at your deposits, and you’d have a fair idea of what your incoming revenue is. However, optometric revenue is more nuanced than you might expect. It requires diligent and insightful handling to leverage it successfully when diagnosing your practice’s financial well-being.
Optometric practices are unique because they both provide medical care – which is one type of business – and maintain a retail arm, which is another type of business model entirely. These two revenue streams produce income differently. The experiences, interactions, preferences, and purchasing decisions of your consumers (patients) are distinct from one side of the house to the other. The billing, merchandising, products, and marketing also differ. To be successful, you must manage the process appropriately in each case.
We refer to this model as “having two businesses” rather than being a single unit. If you are managing an optometric practice, and you want to do it well, it’s absolutely imperative that you learn to not only think about these two parts of your business separately, but also track and manage them separately.
Consider this real-life example. An optometric practice is focusing heavily on expanding its medical model profit centers. They are providing specialized treatments to medical-needs patients, and their clinical services are beginning to produce amazing results. At the end of their year, their overall billings have increased by over 20% from the previous year, resulting in a gross gain of over a million dollars. The practice owners are – understandably – ecstatic. They’ve been carefully tracking the increase in revenue, and making needed adjustments to produce outstanding results.
However, since they only monitored their revenue as a whole, they failed to notice that their retail business was simultaneously declining. The retail side, rather than serving all those new patients efficiently with eyewear solutions and keeping pace with the medical services, has under-performed by approximately $800k over the same period of time. The exponential growth in the medical business obscured a rising problem in the retail. The result was a devastating financial loss that never became apparent until it was too late. Where the revenue gains should have been well over 30%, this one-sided decline has cost the practice owners nearly a million in additional collections.
This loss could have been foreseen and avoided – or at least mitigated – by managing and tracking the two sides of the practice separately.
Your Two Businesses
To properly track your revenue, you need to monitor the whole, but you also need to break it down into its two components, your medical business (Clinic Revenue) and your retail business (Optical Revenue).
| Clinic Business | Optical Business |
|---|---|
| Exams | Frames |
| Medical Services | Ophthalmic Lenses |
| Contact Lens Sales | Accessories |
This simplified breakdown allows you to group your revenue by source, and shine a bright light on the success or failure of each business. Creating this clear separation is a crucial first step in figuring out how to optimize the revenue and profitability of each individual business, which will help you manage the whole more successfully.
Tracking Your Revenue
To effectively monitor your revenue, you need all three pieces: Total Revenue, Clinic Revenue, and Optical Revenue. You’ll also need to select a frequency for monitoring. The routine is simple and it only takes a few minutes, but it must be done regularly in order to allow you the opportunity to respond. We recommend taking ten minutes, once a week, to check and record your revenue from the previous week. Along with your revenue, make a practice of noting any unusual activities or events that impacted the business.
TOTAL REVENUE
| Week Ending | Clinic Revenue | Optical Revenue | Total Revenue | Notes |
|---|---|---|---|---|
| 11/25/23 | $12,372 | $15,956 | $28,328 | Closed 2 days for Thanksgiving |
| 12/2/23 | $22,458 | $11,911 | $34,369 | Short-handed in optical |
Do this consistently over a few weeks to establish a baseline and compare your results to past periods to spot trends. The few minutes it takes are the beginning of a healthy habit that will help you grow your business and become more confident in your decision-making.
One connection you definitely want to make is how you’re doing compared to this time last year. Leverage those numbers and compare what’s going on right now to the same time last year. Once a month, take a few minutes to summarize your recent results, and check them against last year’s results. It will help you understand if your practice is growing, or if there’s trouble brewing.
No practice’s revenue stays static from period to period. We expect revenue to shift slightly, and it’s important to understand what contributes to those changes. When you begin to watch the movement of these numbers on a daily or weekly basis, you’ll be able to relate your revenue trends to your office activities when they occur. If you wait 6 months to check your numbers, it will be almost impossible to remember exactly what was happening when that dip in the revenue occurred. However, if you’re looking at your numbers very regularly, you’ll be able to see immediately how your revenue is impacted when you’re short-staffed, or when the recall reminders don’t go out, and so on.
Optimal Revenue Distribution
We are often asked about how much of a practice’s revenue should be coming from the optical or clinic. The answer to that can vary widely, depending on the practice model – medical, managed visioncare, boutique, etc. Each of these would have a distinct revenue distribution that varies from the norm.
For the average practice, performing well, we expect to see a slightly higher proportion of revenue coming from optical sales than from clinical services, because optical sales involve discretionary spending. This means patients can opt to spend more out-of-pocket as they would for any retail purchase. If the optical staff is selling well, they are positively influencing those discretionary sales which elevates overall revenue and profitability. A division of between 50/50 and 60/40 (optical / clinic) is a common result.
Conclusion
In your optometric practice, understanding and managing your revenue streams is vital for financial health and success. Total Revenue is your primary performance metric, encompassing all income from eye care services and sales. However, due to the unique dual nature of optometric practices—combining medical care and retail—it’s essential to track Clinic Revenue and Optical Revenue separately. Tracking these businesses separately helps identify potential issues early, ensuring both sides of your practice contribute positively to overall growth.
By monitoring these metrics regularly, you can spot trends, address problems promptly, and make informed decisions that drive profitability. Establishing a routine for revenue tracking, comparing current performance to past periods will help you understand the optimal revenue distribution for your practice model and empower you to achieve sustainable growth and financial stability in your optometric business.
Mastering your metrics begins with revenue, but it doesn’t end there. As we move forward in this series, you will learn more simple routines to advance your skills so you can build a thorough understanding of your business metrics. Starting with your top-line revenue as a whole and tracking both of your businesses separately will lay the groundwork for a data-driven approach to practice management, setting the stage for long-term growth and profitability.
