Pricing Ophthalmic Lenses: How Much Should You Charge?
Dr. Hayes,
I am a second career guy who graduated from optometry school at 40 and then purchased a very busy practice. We are having some challenges in terms of establishing a new fee structure as the former doc was a bit low on many of his prices.
I seem to be at a complete loss on how to establish a fair pricing formula for ophthalmic lenses. If I listen to one person, they tell me that a standard is 3 times cost, another says just try to make X amount on each job, another says look at insurance reimbursement.
If I follow the advice of the first guy, I end up charging over $800 for a progressive bifocal with A/R coat, this seems criminal to me. If I listen to the last guy, I barely make a profit and am working for peanuts.
I desperately need help with this important part of my business.
Dr. G in Oklahoma
Dear Dr. G,
Thanks for writing and congratulations on being busy.
You are certainly not the first private practice OD to be perplexed by the question of how much to charge.
My first piece of advice is that you can't do an intelligent job of setting your fees in a vacuum or by using any single data point. You have to look at your insurance reimbursements. You have to consider your competition. And, most importantly, you have to calculate your practice overhead.
Like you, I think it is impractical to use a simple multiple such as 3X your lab cost across the entire spectrum of lenses. As you correctly point out, some lenses might price out at $800 retail and others at $30.
Start With The End In Mind
My advice is to start by deciding what you want to net as a percent of your collected gross income.
For example, let's say you plan to gross $600,000 in 2009.
Of that $600,000, what do you want to net? 30% net is about average for private practice ODs. 30% of $600,000 = $180,000.
But, who wants to be average? I would like to see you shoot a little higher, say 35% or $210,000 for your 2009 net income.
You have an established practice with a history of revenue and expenses. So, the next step is for you, or your accountant, to calculate the total dollar amount of your 'fixed' expenses (i.e., rent, staff salaries, equipment, etc.).
Let's say your fixed overhead is 33% of your gross or $200,000.
Simple math tells us your total budget for all your cost of goods (all your frames, contact lenses and ophthalmic lenses) is what is left over. In this case, that is $190,000.
$600,000 collected gross revenues
- $200,000 33% for fixed overhead
- $190,000 31% for cost of goods
= $210,000 35% for net income
At the end of the day, if the numbers above were exactly right for your practice, you would be striving for a 'blended' gross margin of 69% (100 - 31 = 69%) on all your cost of goods. That number will then guide your average mark up on both frames and ophthalmic lenses.
Deciding how much to mark up disposable contact lenses, as you know, is another story.
I hope this helps.
Best Regards,
Jerry Hayes, OD
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Disclaimer: The information and opinions contained on this site are for discussion purposes only and are NOT intended to serve as legal, accounting or investment advice. ©2009 Jerry Hayes, OD. Not to be reproduced without written permission of the author.
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After years in business, I
After years in business, I developed a formula for opthalmic lenses that works for me.
Take your cost of any lenses and setup a fixed markup i.e. 1.5x.
Add to this a dispensing fee for each type of lense i.e SV $80, MF $90, Progressive $120.
Then round up to nearest $9.
An example would be a Zeiss GT2 which may cost $136. Mark it up 1.5 = $204, then add your dispensing fee $120 = $324 , then round up to $329 for retail.
Hope this helps...