With reports cost-of-living pressures are influencing health decisions, patients are demanding
more from their eyecare professional. Insight investigates how optometrists can optimise their business while still offering a stand-out service.
There’s a shift in patient behaviour that can signal to optometry business owners they’re in the grips of an economic slowdown. If the patient hasn’t already pushed out their appointment or missed it altogether, there’s more requests to re-lens an existing frame.
It may not seem like a big deal in isolation, but extrapolated out, the missed profit margin on frame sales can be concerning – even to the most clinical, patient-focused practice.
Sanctuary Lakes Eyecare, a thriving independent in Melbourne’s west that recently expanded its store footprint, hasn’t been immune.
“People are still wanting to be health conscious so they’ll still gladly have scans done as part of their eye test and so forth,” principal optometrist and founder Mr Jenkin Yau says. “But we’re noticing they might put off getting new glasses if there’s no clinical need or ask us to re-glaze an existing pair if the script needs updating.”
And although it causes some short-term pain, he’s happy to oblige knowing that a long-game approach – with loyalty in mind – is a winning formula for independents.
After starting the practice from scratch 20 years ago with university mate and optometrist Mr Jason Chen, Sanctuary Lakes Eyecare has ridden the economic ups and downs and is living proof of the resilience built into optometry businesses.
But with high interest rates, which are beginning to come down, higher occupancy costs, and cost-of-living pressures on consumers, no one in the industry is denying it’s a tougher trading period during the past 18 months.
Perhaps the recently-released ‘Health Insights Special Report (Part 1)’, commissioned by NAB bank, paints the picture best. It shows a modest 2% decrease in the number of Australians visiting an optometrist in the past 12 months. But 39% of consumers didn’t visit the optometrist because they couldn’t afford it, and a further 28% have put it off due to a lack of time.
At the same time, patients are perceiving optometrists cost more compared to the previous year (49%, up from 40%). This was particularly prevalent in rural towns, where 58% said prices were more expensive. Despite those concerns, people still felt optometry provided great value for money.
For Sanctuary Lakes Eyecare, making tough decisions and optimising the business functions have ensured its viability.
Take, for example, when Yau and Chen agonised over closing a second location they operated from 2008-2019.
The practice in question was also in a shopping centre and up for a major refit and lease renewal. The investment couldn’t be justified, so with the support of ProVision – which it is a member of – they consolidated into the original flagship practice in 2019 at Sanctuary Lakes Shopping Centre and haven’t looked back.
“The challenges of running two practices with two sets of staff to cover and two sets of shopping centre hours was quite onerous,” Yau says. “In hindsight, the timing could not have been more fortunate, with COVID impacting only a few months later.”
In fact, they’ve only looked up, knocking out a wall to expand the flagship into part of the shop next door. They’ve grown the footprint by 50% and created two more consulting rooms to enable further optometry capacity.
Ten years ago, comprehensive myopia management and dry eye services were added to their repertoire. This diversification has helped carry the practice during the downturn.
But they’re equally focused on the details. Patients are greeted by name. There’s always a familiar face – staffing tenures range from three (the lowest) to 17 years. Eyewear data exposes the hot and cold sellers. Plus, every second Tuesday between 10-11am, front-of-house staff send patient recalls.
“One of the big things we’ve implemented is putting staff in positions to take responsibility of much of the administrative tasks and responsibilities, like recalls, marketing and recruitment,” Yau says.
“For a long time, we as owners tried doing too much of it ourselves, but there’s only so much time you can devote without it eating into your clinical time.
“For the last few years, we’ve also ensured we have a healthy working capital, so we can weather economic downturns. We’ve also managed to accumulate and replace equipment without taking on too much debt, whilst continuing to showcase to patients ongoing evolution and progression.”
Protecting the business’ interests has been vital. Shopping centre landlord negotiations can be tense. The recent expansion almost didn’t happen because of “a gulf in agreeable terms” and it took more than six months to reach an agreement. Recently the electricity was switched to an embedded network and they needed to haggle for the lowest initial terms.
“The shopping centre environment can be a difficult one, because they’ve often got visibility of your sales, making it challenging to negotiate lease renewals. Often there’s fit-out clauses to consider too,” he says.
“But the flipside is you’ve got a larger number of people walking past your door, so there’s less marketing dollars you need to devote.”
At the end of the day the practice’s success is quite simple.
“Continuously looking to do the right thing over a long period – for our patients and our staff – has been our driving force for growth,” Yau says. “But also getting to know, or establishing your target market, and not trying to be all things to all people has been the most sage advice I have come across.”
Optimising your practice
A large part of Mr Mark Corduff’s work involves market appraisals when practices are preparing to sell. He’s seen first-hand how small alterations now can dramatically change a business’ trajectory.
“The most common focus areas that require attention are the wage percentage, gross profit on product, and occupancy cost,” he says.
“These are big ticket items that can make a significant difference to a practice’s bottom line. By improving these, not only will practices have more cash in their pocket each financial year, but with the increased profitability they are also improving their practice value, so it’s a win-win.”
Corduff is the business services manager at the ProVision independent optometry network. After seeing a spectrum of business operations across the 440-practice network, he has some simple tips so owners aren’t caught out.
He says ProVision practices have reported consistent above-market growth year-on-year when comparing like-for-like practices.
“In general, we are seeing practices faring well within the ProVision membership. While costs are rising across the board, we are working closely with practices ensuring that where possible, costs are saved as well as ensuring the focus remains on growth,” he says.
“Range reviews are a fantastic exercise to ensure the seasonal ranges are both compelling for patients, but where wholesale costs have risen that these are carefully considered as part of the practice’s pricing strategy.”
Corduff says there are several areas practices can save money. Each requires some focus and administrative work, but can pay dividends.
Here’s his hot take on each:
Wage costs – when reviewing salaries, ensure “offers are competitive but not exorbitant”. Rostering needs to efficiently tackle patient demand so the business isn’t paying for unnecessary hours. Twenty percent of the practice’s income is a “great” benchmark, but some go as high as 40% due to the nature of their business.
Shipping and delivery – this big item has grown in practice P&Ls over the years. “There are compelling offers from couriers and Australia Post, you just need to reach out to ensure you’re set up with the most cost-effective package for your practice.”
Debt and financing – optometry practices should seek to pay off smaller loans with higher interest rates as a priority, and for the bigger loans it could be time to refinance. “You can discuss your loans with your current provider or outsource to a reputable mortgage broker who will scour the market to get the best deal for you and take away the administration and negotiation.”
Marketing – he says there are plenty of cost-effective strategies driven from a practice level “that don’t cost the earth”. Corduff encourages practices to “think local” and create content and social media posts tailored to the local market, and don’t forget to leverage the existing database, which can often be untapped. “Often a cheap and cheerful grassroots approach can deliver excellent results.”
What’s your occupancy rate?
Mr Philip Rose has a slightly different take on things.
While acknowledging practices can make cost-saving adjustments – like SMS recalls rather than by post – he says practices need to be “thinking about the topline”.
In essence, securing more frequency of purchase from new and existing patients.
Revenue across the Eyecare Plus independent network grew above 7% on average in the past year, a “healthy result” given the economic environment, according to Rose.
Those practices who fared best had made consistent community engagement a focus.
“In general, practices aren’t overstaffed, so it’s hard to save on human resources costs. Do you change your product mix? Do you buy cheap product and sell it at a higher price? What’s that going to do for your company long term?” he says.
“Ultimately, if you’re not attracting new and existing business to purchase more frequently, then you’re not helping your top line. The top line needs to grow in order for your bottom line to grow. Like a hotel, what’s the occupancy rate in the consulting room, and that of your staff front-of-house? Do they have 20% downtime per day? Well, work out how to fill that.”
Eyecare Plus’ own frame usage rate has remained steady, but Rose notes some patients are putting off care and wearing their specs for longer. But interestingly, the network grew its average second pair sales, indicating patients who do purchase are spending more.
Cross-pollination is one way practices can deepen their community engagement, whether it be the local golf club, gym or non-competing retailers.
“Could that window display in the shoe shop be augmented by some glasses? Can yours be augmented by some shoes from a nearby shop? It’s this kind of thing that engages with your local community, gets your name on more Facebook feeds, and ensures you’re never forgotten,” Rose says.
Sponsoring local clubs and creating social media content – even if it feels a bit cringeworthy – are all cost-effective marketing tools.
“The key word is ‘consistent’, that’s consistent communication and engagement throughout the year, not just for ‘use it or lose it’.
“Even though someone’s purchased six months ago, you don’t know if they’re going to come in and want another purchase.”
Making the landlord your business partner
Dealing with landlords can be fraught if the business owner hasn’t done their homework. Fortunately, this is in Corduff’s wheelhouse and having him in their corner for negotiations has resulted in serious savings and stress relief for ProVision optometrists. In the last 12 months, he has saved more than $2 million for practices.
For example, shopping centres are coming down harder on practices to refit their premises as per their contract. Sometimes this might be changing the lights or refreshing the signage, but other times it’s a full $300,000 refit with a shutdown period.
It’s the kind of surprise that could cripple an unsuspecting business.
His top tip with leasing agreements is to allow plenty of lead time. There’s usually a three-month window – six to nine months out from expiration – when commercial tenants can exercise an option to extend their lease.
“But if you miss that window, then they can either move you on, or you’d be up for a new lease altogether, so it should be taken seriously,” Corduff says.
“You should commence negotiations on renewals between 12 and 18 months out from expiry. The later you leave it, the less chance you have to secure a deal that works for you – not your landlord. That’s why ProVision has a lease database for their members to proactively approach landlords at the right time to ensure the best outcome.”
His second tip is getting clarity on what the lease needs to look like to support the business.
“Whether you’re looking to upgrade your fit-out then it’s time to discuss landlord contributions. If your rent has been climbing at 5% per annum, then it’s time to bring your base rent down and reduce your annual increases. If you’re looking to sell your business, buyers want security of tenure so look to attach options in your future term to protect you and have your lease attractive for potential buyers,” he says.
His third pointer is knowing what’s negotiable within the lease. Often Corduff gets a call from a prospective greenfield owner seeking advice on a lease they’re about to sign but a thorough negotiation realistically takes a couple of months.
Some key terms to be familiar with include the ‘base rate’, which involves understanding the specific market rate and optimal occupancy cost.
‘Annual increases’ are also vital – CPI was relied on while inflation was under control but 3% is safe in the current market, but not always achievable, he says.
‘Incentives’ are another thing to push for, such as landlord contributions and rent-free periods for fit-outs, as well as flexibility in the ‘lease term’ – “last thing you want is to be trapped in a long-term lease in the event something in your business changes”.
The more complicated areas to keep an eye on include ‘percentage rent’. Corduff says this should be removed where possible because there’s “no point being penalised by your landlord for running a great business”.
“Also, other items like outgoings, exclusivity, marketing contribution and the hours you are required to trade are other things you should be looking at closely because they’ll cost you long term.”
Coming armed with knowledge about the local leasing market with references to fall back on is key when negotiating with landlords.
“The key to remember is that the relationship between you and your landlord should ideally be a business partners. Treat negotiations with respect, don’t get emotional and keep in mind that it should be a win-win for both parties,” he says.
“With all of the above, your landlord will know you mean business.”
On fit-outs, Corduff says practices need to keep in mind that the cost of both materials and labour have increased in recent years.
“Ensure that at least three quotes to complete any works are obtained – this will provide peace of mind and the best return on investment,” he adds.
The multiplier effect
As a business coach with 30 years of industry experience, there’s no such thing as an average day for Mr Brad White, who coaches more than 30 ProVision members.
“Essentially my job is to fact find and understand areas of strengths and opportunities and then lead the practice owner to find those solutions and own that space,” he says.
One of his big crusades has been getting practices to unlock the potential of their practice management systems (PMS).
“It’s designed to hold patient records and history, but it can be so much more than that,” he says.
Patient recalls, business performance statistics, and key patient details can all be used to help the practice fill its appointment book, highlight strengths and weaknesses and create that personal touch.
“KPI” is a term that might cause independents to recoil – but those who embrace them are setting themselves up for success, White says.
“They’re a super measure for understanding your strengths, and uncovering areas of opportunity to build upon,” he explains.
“For example, they can provide insights into what the patient journey looks like. If offering holistic eyecare is one of your values or mission statement, and then your second pair percentage is at 9%, are you really offering this? To me, the answer is unlikely. Are patients asked about whether they need sun protection or what happens when their glasses break?”
Practices can pull many metrics, but there are a few that can be compared year-on-year to understand the practice’s financial health.
For White, they are: top line sales, consultation fees, conversion rates, average selling price of frames and lenses, discount percentage, own frame usage (re-lensing), and multiple pair sales.
“New patient percentage, for me, is a huge measure, because without new patients, it shows you’re not engaging effectively with your market, which can impact the business’ sustainability,” he says.
“Discount percentage is another key one. Sometimes money can be given away unnecessarily, or sometimes the owner is not aware what’s occurring in the dispensing space. At the end of 12 months, they might see a sales line of $800,000, an amazing number, but then dig deeper and there’s a discount line of $80,000. Then you realise you’ve given away 10% of your sales.”
Keeping a detailed record of the patient in the PMS is some of the lowest hanging fruit, according to White.
Knowing when they came in last, the type of lens and frame they left with and their occupation. Acknowledging the patient by name (before they state who they are) and asking how their specs have been going for the past 12 months are all simple interactions that culminate in a memorable experience.
“My dad always used to say ‘treat people how you’d like to be treated’. That’s what the practice management system allows you to do: stay engaged and show a level of care and empathy that patients may not have received elsewhere,” White says.
“We want to shift that patient journey from being transactional to being highly personalised.”
The PMS should also be used to drive patient recalls. SMS reminders can be scheduled every three, six, 12 and 24 months, but White says the key is to vary the language.
He’s a firm believer in sending a check-in message four weeks after collection of specs, and to remind them of complimentary cleaning and adjustments at any time.
“But I’m also a believer that 12 months after you’ve collected your specs, you should get an anniversary text message,” he says.
“Some patients might only come in every two to three years and in between that time they might see an ad for another provider. If the independent can create multiple touch points over that three-year journey and stay front of mind, it can go a long way towards patient retention.”
So what’s the common thread in those practices doing well, despite the market conditions?
“They have built a vision, mission and values statement, which they stand for, and is the baseline conversation when new staff enter the practice,” White says.
“Generally, they would have built a patient journey around that too, one that’s very clear in the practice’s mind, which extends to their service and product offering. The communication to the patient is so clear, the follow-up messaging and recalls around that patient is very structured, controlled and personalised. And they continue to develop and train knowledgeable staff – that’s how a well-run practice looks.”
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