What’s The Real Problem? Too Much Staff Or Not Enough Product Sales?
Dear Jerry,
I started cold over twenty years ago and am now the proud owner of a two OD practice that did $1.2 Million in collected gross revenue in 2008.
Our combined net, my take home of $160,000, plus the $80,000 I paid my associate, was $240,000 (20%).
My ‘cost of goods’ are only 22% of gross.
However, my non-OD employee costs run 35% and have never met the guidelines I see published.
Even though we have 5 opticians, 5 techs and 4 front desk assistants, it seems that we never have enough staff to get things done in the dispensary.
I know my employee expenses are high, but I want plenty of well-paid staff and consider it to be my job to see that they are productive enough to earn it.
Here is my question... What do you think is a good average for the number of glasses each dispensing optician should sell each day?
Or, maybe a better question is: What are the dollars in sales per dispensing optician per day?
I ask that because I have more employees today than I did 3 years ago, but we sell the same number of glasses.
I look forward to hearing your thoughts.
Dr. T
To my readers,
Let me start this blog by complimenting Dr. T for having the courage to present the details of his situation and allowing me to offer my opinions and suggestions in a public forum.
He agreed to do that so others can learn from his situation. I am going to use his case to share my practice management philosophy with you and work through his question as if this were a consulting assignment.
Here we go.
Question: What is an average number of glasses a dispensing optician should sell per day?
Answer: That is a difficult number to determine. And, while it would be nice to know, that is not the metric I want you to worry about.
What Do You Really Want To Achieve In Your Practice?
One of my favorite authors is noted consultant Stephen R. Covey, PhD, author of The 7 Habits Of Highly Effective People. If you haven’t read this book, I highly recommend it.
Habit number two is: “Begin with the end in mind”.
When it comes to the ‘business’ of private practice optometry, I coach practice owners to decide in advance what they want to Gross and Net at the end of each year and then plan everything around those numbers.
What’s Wrong With This Picture?
Dr. T’s Collected Gross Revenue is $1.2 Million. He has done a very nice job there and has an excellent base to build on!
However, his total Practice Net is only $240,000 or 20%.
Considering that the average $500,000 gross practice nets 30%, I think a 20% Net is way too low for the type of high-service, Million-dollar practice Dr. T wants to have.
His personal Net is even lower at $160,000.
Yes, Dr. T’s Gross is outstanding. But, consider this: A solo OD grossing just $533,000 and netting the national average of 30% takes home the same $160,000.
The question I ask all my high-gross, low-net readers is, “Why put yourself through that much work if you are going to make the same income as someone running a practice half as big as yours?”
How Much Should Each Employee Produce?
Since Dr. T’s main question is around productivity, let's keep our analysis relatively simple and look at his staffing level.
My ‘quick and dirty’ rule of thumb is that a healthy dispensing practice should produce about $125,000 per full-time (non-lab) employee per year.
Dr. T employs 5 opticians, 5 techs and 4 front office staff for a total of 14. Let’s assume 2 of those opticians do nothing but lab work (unlikely).
That means he has 12 full-time employees providing patient care and admin services.
$1.2M Gross ÷ 12 employees = $100,000 in annual production per employee. $100,000 per employee per year is low in my book.
Does Dr. T Have Too Much Staff?
Divide $1.2M by $125,000 and you get 9.6. That tells me a practice this size should be able to function quite well on about 10 full-time non-lab employees.
In other words, our initial analysis leads me to think that Dr. T is overstaffed by 2 people.
I can appreciate any OD who wants to provide his patients with a high level of service. And, Dr. T did tell us that he wants “plenty of well-paid staff”.
But, plenty of staff comes at a cost. Let’s translate those extra employees into dollars.
$1.2M x 35% = $420,000 in staff expenses for Dr. T’s practice.
$420,000 ÷ 14 = $30,000 average salary per employee. That sounds about right.
Reducing Expenses Raises The Net
What this means is that if Dr. T could produce the same amount of revenue with two less employees — many ODs do — he would increase his personal income from $160,000 to $220,000.
($30,000 x 2 = $60,000 + $160,000 = $220,000)
Subtracting that $60,000 in overhead would have the effect of raising the net of his practice from $240,000 (20%) to $300,000 (25%).
25% is still short of the 30% Net I want to see. But, $60,000 a year is real money. It could fund his 401k, help put two kids through college each year, or make a nice house payment.
Takeaways
When looking at your practice metrics from a purely business standpoint, the two numbers that really matter are Gross and Net.
Professionals always put the welfare of their patients first.
But, part of being a successful practice owner is learning how to manage your overhead in a way that allows you to earn a reasonable profit in the process of providing a high level of care.
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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Dr. T If you haven't
Dr. T
If you haven't already, you should consider adding ERM and going paperless (or at least chartless). Since adding our computer system over a year and a half ago, our staff went from being a little overworked and behind to having quite a bit of extra time on their hands (although, I always have something for them to do). We had good growth last year and have not had to add any new staff - I thought we were at maximum production per staff member before the addition of the computer system. The extra efficiency our system added helped my opticians reduce errors and get more done at a faster rate.
He could also realize
He could also realize additional savings in payroll taxes, benefits and workman's comp. insurance by reducing his staff by two. I know he could do it; I have three non-optical staff and one optical staff with a $700K gross.