Page 29 - 2015 Best Practices of Spectacle Lens Management

Retail The average mark-up of spectacle Mark-up on Spectacle Lenses by Type

Pricing lenses varies by lens type with (% of independent optometrists)
higher mark-ups taken on single
vision lenses. For progressive
continued Single Vision Progressive
lenses the average mark-up Polycarb Polycarb Poly AR Polycarb Polycarb Hi-index Photochromic
multiple is 2.7 times cost. AR Hi-Index AR AR AR
2.5x or less 20% 17% 22% 36% 38% 38% 38%
2.75x 13% 23% 21% 26% 23% 21% 22%
3.0x 28% 29% 30% 24% 25% 26% 24%
3.25x 10% 9% 7% 8% 7% 8% 10%
3.5x or more 30% 22% 21% 5% 6% 7% 7%

Total 100% 100% 100% 100% 100% 100% 100%

Average 3.1x 3.0x 3.0x 2.7x 2.7x 2.7x 2.7x

Source: MBA Prescription Eyewear Survey, March 2012
What’s at Stake Impact of Margin Increase on Eyewear Gross Profit

The table at right illustrates the impact of Annual Practice Gross Revenue
achieving a higher gross margin percentage $500,000 $750,000 $1 million
on eyewear sales. In a $750,000 practice,
increasing gross profit margin from the typical Annual Eyeglasses Sales $220,000 $330,000 $440,000
$201,300
$268,400
$134,200
Annual Eyewear Gross Profit
61 percent to 67 percent produces incremental (61%)
profit of approximately $20,000 annually, at the
same sales level. Average Eyewear Gross Margin Annual Eyeglasses Gross Profit
63% $138,600 $207,900 $277,200
Practices seeking to increase their profit 65% $143,000 $214,500 $286,000
margins do so by raising prices. Because this 67% $147,400 $221,100 $294,800
has no impact on cost-of-goods, all of the 69% $151,800 $227,700 $303,600
added revenue drops to the bottom line. The
table at right shows the revenue and profit Impact of Retail Price Increase on Eyewear Sales
impact of three levels of eyewear price increase
Source: Essilor AR Coating Pricing Survey-Independent Versus Retail Chain, 2007 (+5 percent, +10 percent and +15 percent), Annual Practice Gross Revenue
assuming that pricing of both frames and lenses $500,000 $750,000 $1 million
is increased. In a practice with $750,000 annual
gross revenue, a 10 percent price increase (with Annual Eyeglasses Sales $220,000 $330,000 $440,000
Annual Eyewear Gross Profit
no change in product mix, number of units (61% COG=$88.54/unit) $134,000 $201,300 $268,400
dispensed or cost-of goods per unit) results in
a sales and profit gain of $33,064. The gross Total Eyeglasses Pairs 969 1,454 1,938
(Average Retail Price =$227)
profit margin of a typical practice taking a 10
percent eyewear price increase would move Average Eyewear Retail Sale Annual Eyeglasses Sales
from 61 percent to 66 percent with the average $238.35 (+5%) $130,961 $346,561 $461,922
mark-up increasing from 2.6 to 2.9 times cost- $249.70 (+10%) $241,959 $363,064 $483,919
of-goods. A 66 percent gross profit margin is $261.05 (+15%) $252,957 $379,567 $505,915
equal to that of independent practices at the Average Eyewear Retail Sale Annual Eyeglasses Gross Profit
75th percentile of profit margins.
$238.35 (+5%) $145,161 $217,864 $290,322
$249.70 (+10%) $156,159 $234,364 $312,319
$261.05 (+15%) $167,157 $250,831 $334,315

Source: PAA projections
What Goes Wrong

• Gross profit margins are not monitored, and no targets are established. Few practices ever calculate their gross profit
for eyewear. Practices may know their lens mark-up formulas for direct-pay patients, but not what their actual eyewear revenue is after vision
insurance discounts. When lenses and frames are purchased from many sources, it can be laborious to compute purchases, which is necessary
to calculate profit. If margins are not measured, it becomes impossible to make informed judgments about pricing.

Best Practices of Spectacle Lens Management 2015 29