Managing Your Dispensary in 4 Hours a Week (or Less)
An expert explains how to take control of your optical and ensure profitability -- without overtaxing your schedule.
By Arthur De Gennaro

Does this sound like you? Your dispensary's revenue and profits are level or falling and you're not sure why. You still haven't studied last month's profit and loss statements. Your dispensary has been short at least one employee for weeks. You feel like your dispensary is out of control.

Unfortunately, this is the plight of many solo practice ophthalmologists, managing partners and practice administrators. It's not that they don't want to take control of their dispensary; they just don't know how. And, even if they know how, they never seem to have enough time to do what needs to be done.

In fact, you can take control of your dispensary and manage it successfully in 4 hours a week or less. How? By:

• positioning your dispensary using strategic planning
• delegating
• monitoring your dispensary's sales and productivity
• setting performance standards
• creating sales forecasts
• creating accountability.

Some of these processes, such as planning and creating sales forecasts, only need to be done once a year. Once those are handled, the remaining processes can be managed in 4 hours a week or less.

Let's take a closer look at each of these strategies.

What research did you perform before you built your dispensary? If your answer is "none," you may have a dispensary that's not well-positioned. Positioning is a marketing concept; it means shaping the size, nature and content of a business entity to respond to factors such as the age, income, sex, geographical location of and purchasing patterns of its target customers/patients.

For example, the chart below shows local demographic data gathered by a real practice. As you can see, this practice has been faring slightly worse than the national average among younger patients, and somewhat better among those older than 65. Unfortunately, this practice is situated in a county populated largely by young couples who have school-age children. The data suggests that after age 36 many residents move away.

Before the practice conducted this research, the dispensary was primarily positioned to meet the needs of middle-aged and senior patients, paying only passing attention to children and young adults. After doing this research, the practice repositioned the dispensary to serve younger adults, limiting the number of frames that would be primarily attractive to middle-aged patients. The practice also decided to work harder at developing a contact-lens specialty and began to offer refractive surgery.

Strategic planning also involves examining your dispensary's strengths, weaknesses, opportunities and threats (a SWOT analysis). Specifying these factors gives you a platform for maximizing your strengths and eliminating or minimizing your weaknesses.

The most common argument against creating a strategic plan is "I don't have enough time to create one." But imagine what your child's education would be like if teachers didn't take the time to plan their lessons. If you don't plan, the result is likely to be poor performance.

Delegate

There's a management axiom that says, "A man doesn't build a business and then an organization to run it, a man builds an organization and the organization builds the business." In other words, hire a team of competent dispen-sers and administrators; let them build the business. You can't do it yourself.

Remember: You're acting in a purely executive capacity. Once you've delegated a task, make sure the person you've delegated the work to gets the job done.

Monitor the numbers

While assembling a competent team is essential, it's also necessary to build a reliable stream of management information that will tell you how your dispensary business is doing on a daily, weekly and monthly basis. This means:

• setting up a series of reports that monitor the dispensary's key performance factors
• learning what the numbers mean
• learning how to react to them.

Here are some of the key items you should be monitoring:

The capture rate. This is the most important statistic you can track, primarily because optical shops are heavily unit driven. A very small increase in the number of units per week causes a dramatic increase in dispensary revenue.

The national average capture rate for dispensaries in ophthalmology practices in the United States is 60% of prescriptions written. Any performance that's much lower than this signals the need for immediate intervention.

Sales history. Creating a sales history gives you a look at the development of your business up to now. This is most valuable if you annotate it with any events or changes that affected sales, such as special promotions, changes in personnel, physical moves, and so forth.

Average unit sale. Increasing this number, which usually means selling more high-end products, can increase profits without your dispensers having to see more patients. To accomplish this, a dispenser needs to acquire a substantial amount of product knowledge and know how to convey product benefits to patients in a way they can understand.

However, you shouldn't just look at this number. If your average unit sale figure becomes very high, it could be a sign that other numbers -- such as your capture rate -- are dropping. (In other words, you're making more money per patient, but the high-end products and prices are keeping some patients from buying anything.) Also, the more managed care patients you serve, the lower your average unit sale number will be.

Add-on sell-throughs. This is the percentage of premium lens materials and lens treatments your dispensary sells. It's important to track this because in most practices the major growth in average unit sales during the past several years has resulted from these sales.

Tracking these numbers will help you set reasonable performance standards for your opticians. This data is also helpful when deciding what lens brands and designs to carry, and at what prices.

Multiple pair rate. This measures your optician's ability to sell more than one pair of eyewear to a patient, a good indication of his level of customer service ability.

Cost of goods sold. This number should be less than 33% of your dispensary sales; anything higher is suspect. Unfortunately, I've observed that many practices are tolerating overly high percentages of cost of goods sold, eroding their profit margins. Examine how much you're charging for premium lenses and lens treatments. Be sure to get your full margin.

Payroll percentage. How many people do you need to operate a quality dispensary successfully? This is a tough question because the answer is heavily dependent on the degree of individualized, personalized service you want to provide. Roughly speaking, payroll percentages below 18% could foreshadow breaches in quality care, while percentages higher than 20% signal the need for more review.

However, if your payroll percentage is high, don't assume you need to cut staff. Sometimes investing more in staff salaries can be a way to invest in better patient care and build business through referrals. Also, high payroll percentages can result from low average unit sales, poor closure rates and inappropriate retail pricing. Consider the whole picture -- and your goals -- before taking action to reduce the size of your staff.

When you review these numbers, try not to get too hung up on comparing your numbers with other practices'. Every practice measures things a little differently, and accounting errors do happen. The most useful comparison is with your own previous numbers, so you know for sure that you're "comparing apples to apples."

Reviewing these numbers, and taking corrective action, if necessary, should take you about 2 hours each week.

Set performance standards

What performance standards have you set for your opticians to meet? For example, suppose an optician:

• has a 75% closure rate
• earns an average of $184 on a complete pair sale
• has a multiple pair sale rate of 9%
• sells progressive lenses to 37% of his multifocal patients.

Would you rate that performance poor, average or outstanding? What would you reference your answer to, if you were asked to defend it, or if the employee didn't agree with your assessment of the work? Again, the answer lies in knowing how other dispensaries fare in these areas.

It's essential to set work standards based on real statistical data. And once your standards are set, you need to measure performance and create reports that show how your optical staff is doing in terms of meeting those standards.

This type of performance measuring and reporting should have three attributes. It must be:

• quantifiable
• verifiable (by both parties)
• objective.

If these conditions are met, even a heated discussion can be resolved by referring to the numbers.

In addition to comparing your opticians' work to a standard, you can also compare it to "best in class" numbers -- the percentages achieved in the most successful practices. For example, in terms of selling multiple pairs, "best in class" performance falls near 30%. (I know some doctors will find this hard to believe, but it's true.)

You should review this kind of information regularly and make it part of each optician's personnel file. It's particularly useful at performance appraisal time, when it should be part of each optician's written plan of action. Also, overall compensation should be at least partially dependent on success in reaching your goals in each category.

Create sales forecasts

Yogi Berra is famous for saying, "If you don't know where you're going, you'll probably end up someplace else." In his landmark book, The Seven Characteristics of Highly Successful People, Steven Covey puts the same idea in different words: "Begin with the end in mind." For our purposes, this means envisioning what your dispensary will 'look' like in a given period of time. Then, working backwards, you detail the policies, procedures and programs that will get you to your goal.

You can do this by creating a forecast. Your forecast should propose what you think will happen -- and what you want to happen -- over the course of a given time period, usually 1 year. It should also say how you expect this result to happen. So, if you forecast a 6% sales increase over the next 12 months, you'll also need to propose a means to achieve that goal, such as increasing prices, achieving a higher average unit sale, achieving a higher capture rate or providing sales training.

This forecast will give your dispensing staff a target to aim at and a road map to follow to get there. Closely monitoring progress toward your forecast will provide emphasis, create excitement and reinforce the immediacy of the work at hand.

Create accountability

One of my favorite management axioms is, "People respect what you inspect, not what you expect." It's no different in your dispensary.

To create accountability:

Assemble the information you've collected. Put it into digest form, on one sheet of paper if possible.

Learn what the numbers mean. How do they compare with national benchmarks and practice forecasts?

Think about how you want to react. When the numbers are above or below desired levels, how will you respond? If you chose to intervene, what specific action will you take? What results do you expect your actions to obtain? How will you know if your intervention was successful?

Meet with your key staff people. Share the numbers. Give everyone a chance to discuss what the numbers mean and how they will personally respond to them. Ask for specific action plans and timelines. Who will be responsible, for what and by when? Who will follow up to see that the work is done? Write these plans down and stick to them.

The meeting should take no more than 1 or 2 hours.

Hold follow-up meetings. At these meetings, review progress toward the goals and determine what, if anything, needs to be done.

Four hours well spent

Reviewing the numbers you're tracking and meeting with your staff periodically should take about 2 hours each week. What about the other 2 of the 4 hours?

Visit the dispensary. Sit there just as any patient would. What do you see and hear that you like and don't like? Take notes if necessary. You can discuss these at your next meeting.

It really is possible to take control of your dispensary in 4 hours a week. And you'll reap a host of benefits: Your staff will function better; you'll feel more in control; your bottom line will improve. Over time this process will lead you to much higher levels of dispensary performance excellence. And that's something you and your patients will both be happy about.

Arthur De Gennaro is president of Arthur De Gennaro & Associates, an ophthalmic practice management consulting firm in Lexington, S.C., that specializes in dispensary profitability. He can be reached at (803) 359-7887, by fax at (803) 359-3996, or via e-mail at IsForU@aol.com.