Making Your Optical Profitable

Jul 12, 2019
9 min read
1,340 views

We all want to see our business' profits grow, but increasing frame costs can hurt our patients and ultimately become a larger problem. Thankfully, there are other options that can help make your optical profitable!

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I own a private practice in a booming Dallas suburb. My first year in business I spent $20K on frames, sold two-thirds of them overpriced, and made a ton of gross income. Unfortunately, I yielded very little net income. My second year I spent $3K to refill my entire optical; my patients now pay little to nothing, and I am extremely profitable!

You want to profit from your glasses frames, but you feel stuck ⁠— the frame companies make you buy too many frames at too high of a price. Plus, insurance reimbursement is getting lower. In these situations, many offices resort to overcharging their patients, but here are three ways you can maximize your optical frame profit margins and help your patients pay less.

Frame income

Frame income comes from two places:

  1. What the patient pays out of pocket for frame overage at the time of sale
  2. What the insurance pays for wholesale frame allowance on the frame

Since the insurance reimbursement amount is fixed, most opticals raise the price on their frames and charge their patients more out-of-pocket to make a profit. They believe it’s the only variable that can be adjusted to increase profits. They’re wrong.

Frame expenses come from two places:

  1. What you actually paid for the frame
  2. The cost of leftover frames of the same brand that won’t sell

When an optical has dusty old frames from brands that they’ve otherwise discontinued, that means they’re stuck with frames that they still paid money for. This is yet another piece of the frame profitability puzzle. By minimizing your actual frame cost, and minimizing dusty, stagnant inventory, you can dramatically increase profits without hurting your patients.

I’m going to review four ways to approach frame sales based on the following example:

You have a patient who has an insurance benefit of a $150 “allowance towards a frame.” In this scenario, the insurance will actually pay you their wholesale frame allowance of $65. We are also going to assume, for any given frame family, that the minimum buy-in is 12 pieces, of which 8 will sell very easily, and the last 4 do not sell very well. Let's dive in!

The “Big Brand” Model

This is the most common model used by optometrists and opticals, but it's the worst for your business and the least profitable. Under this model, the frame dealer will demand a minimum buy-in and have strict rules about regular purchasing to maintain accounts with them. They will charge you a wholesale price that is nearly equal to what most insurance benefits will pay you for the frame. They will give you a very small discount⁠ — up to 20% off of wholesale.

If you want to learn how to open an optometry practice cold check out our guide and follow the tips below to start off on the right foot!

Let’s do the math

Ordering frames and pricing

  • What you pay for a frame: $75 (11% off of its Frames Data value of $84)
  • What you sell the frame for: $210 (a 2.5x markup from wholesale)
  • What your patient pays: $48 (after applying their $150 benefit and the 20% off the $60 balance)
  • What the insurance pays you: $65

Per sale

  • Money in: $48 (patient) + $65 (insurance) = $113
  • Money out: $75 (cost of frame)
  • Profit: $38

Totals:

Total investment: $900 (12 frames at $75/frame)

Total profit from the purchase (an average of 8/12 frames sold): $304

Total liability from the purchase (an average of 4/12 frames unsold): $300

Total profit: $4

The only way to survive using this model is to grossly overcharge patients. You’ll be forced to mark up frames by 3.5x and drives them to services like Warby Parker.

Profitable Model #1: Pre-Wholesale

This is a new model that is shaking up the eyecare industry. Frame manufacturers cut their costs by not marketing to patients and not having many field reps. They sell directly to opticals after manufacturing their products, so opticals get them at the price a wholesaler would pay before selling them to a retailer.

Manufacturers are able to give you brand new, warranted frames at more than 50% off of wholesale frames’ data value. Vision insurance companies have not adapted to this model yet; they assume that you paid wholesale and are simply being reimbursed. You can make a majority of your frame profit directly from the insurance company, allowing you to keep patient costs down and remain profitable.

Let’s do the math

Ordering frames and pricing

  • What you pay for a frame: $10 (Frames Data value of $65)
  • What you sell the frame for: $165 (a 2.5x markup from wholesale)
  • What your patient pays: $12 (after applying their $150 benefit and the 20% off the $15 balance)
  • What the insurance pays you: $65

Per Sale

  • Money in: $12 (patient) + $65 (insurance) = $77
  • Money out: $10 (cost of frame)
  • Profit: $67

Totals

Total investment: $120 (12 frames at $10/frame)

Total profit from the purchase (an average of 8/12 frames sold): $536

Total liability from the purchase (an average of 4/12 frames unsold ): $40

Total Profit: $496 (Because there is no minimum buy-in, you can also opt to only buy your favorite eight frames, and sell all eight!)

Total profit from the purchase (8/8 frames sold): $536

Even if you did elect to buy four frames that you don't sell, you’re now missing out on $40 instead of $300. Your total profit is over 100x more profitable that it would be using the “Big Brand” model, and your patient is paying 4x less per frame.

Some companies that currently operate using this model include Eight to Eighty, New York Eye, Modern Optical, and Montana Sun.

Profitable Model #2: Consignment

This model tends to get a bad reputation for producing narrow margins. However, it’s also true that you can buy a large number of frames at discounted rates and pick the right consignment company then you'll hit gold.

You can find a distributor with frames that patients like and still get a significant discount off of wholesale value. The magic in consignment is two-fold:

  1. You invest nothing up front
  2. When you can’t sell some frames, it doesn’t cost you a penny to get rid of them

You pay NOTHING and get 12 frames put on display. When a frame sells, then they charge you.

Let’s do the math

Ordering frames and pricing

  • What you pay for a frame: $48 (Frames Data value of $69)
  • What you sell the frame for: $172 (a 2.5x markup from wholesale)
  • What your patient pays: $20 (after applying their $150 benefit and the 20% off the $22 balance)
  • What the insurance pays you: $65

Per Sale

  • Money in: $20 (patient) + $65 (insurance) = $85
  • Money out: $48 (cost of frame)
  • Profit: $37

Totals

Total investment: $0 (12 frames at $0/frame)

Total profit from the purchase (an average of 8/12 frames sold): $296

Total liability from the purchase (an average of 4/12 frames unsold ): $0

Total Profit: $296

Once you sell eight pieces, and you’re left with four frames that you can’t sell, you can simply send them back because of the consignment model! This model is 70x more profitable than the “Big Brand” model, and your patients are saving more than 50% out of pocket ($20 vs. $48/pair). Some popular consignment companies include Independent Rep, Legre Eyewear, New Millenium Eyewear.

Profitable Model #3: Clearance

This “Nordstrom Rack” model is another unique (but very narrow space) that can set an optical up for massive success. There are currently at least two optometrist-owned companies that offer this option online (optometristsunited.com via email specials and wholesaleeyeglasses.com). These distributors take big brand frame models that are nearly discontinued and offer them at 50-90% off of standard wholesale prices.

This model saves so much money on the up-front cost of frames that if one breaks, you can give your patient an entirely new frame, and you'll still be profitable. Patients are set to expect big brand prices, so low prices tags can surprise them and put them at ease. Even if though lower price tags will make patients think you’re undercutting a big brand across the street, you’re able to make triple the profit, and the patients love you.

Let’s do the math

Ordering frames and pricing

  • What you pay for a frame: $34 (60% off of its Frames Data value of $84)
  • What you sell the frame for: $210 (a 2.5x markup from wholesale)
  • What your patient pays: $48 (after applying their $150 benefit and the 20% off the $60 balance)
  • What the insurance pays you: $65

Per Sale

  • Money in: $48 (patient) + $65 (insurance) = $113
  • Money out: $34 (cost of frame)
  • Profit: $79

Totals

  • Total investment: $408 (12 frames at $34/frame)
  • Total profit from the purchase (an average of 8/12 frames sold): $632
  • Total liability from the purchase (an average of 4/12 frames unsold ): $136

Total Profit: $496

There is no rep, and frames are non-refundable, non-warrantee, and non-exchangeable. Even though you are still purchasing 12 pieces at $34 each, you only purchased them for a total of $136. You’re still coming out over 100x more profitable than you would be using the “Big Brand” model, and the patient is paying the same amount.

Summary

Do not be bullied by Big Brand frames and their politics. Don’t fall into the trap of “independent” frame companies that charge you the same price as large chains, force you to buy the same number of frames as the chain companies, and offer the same miniscule discounts as the chain companies.

You will spend less and have less risk when you use pre-wholesale, consignment, and clearance models for purchasing frames. You’ll also keep your cash up front, charge less to your patients, and make significantly more total profit. Your patients will love you. Don’t hurt your patients to make money, and don’t commiserate in frame politics. Explode your frame profit and disrupt the industry!

About Bruce Colton

Bruce Colton, O.D. earned his degrees from BYU and UHCO, where he taught Microbiology and did stem cell research with the NIH to help cure macular degeneration. He loves fitting sclerals, prescribing prism, and performing minor surgeries. He has done years of humanitarian work in Argentina, China, and Guatemala. In his free time, Dr. Colton plays with his 3-year-old daughter and newborn son, and takes his wife on romantic dates.