Eye on Equipment
Calculating Your ROI
By Susan P. Tarrant

Return on investment (ROI)--how quickly will a purchase pay for itself? No one in the business world makes a capital purchase decision without taking this into consideration. In optical, in-house edging equipment has an ROI that can be calculated relatively easily. By finishing a large portion of your lens jobs in your office rather than paying a lab to do them, you can reap savings. And, if you're realizing savings that are bigger than your equipment payments, you're going to reach your ROI.

"Our numbers tell us that 70 percent of a doctor's income comes through dispensing," says Bret Davis, national sales manager for Briot-Weco USA. "Therefore, the only way to compete and increase profits is to either increase prices or decrease the costs of goods sold."

Since not many practitioners are happy to increase prices in this tough market, they should be looking at ways to decrease their cost of goods. And what better way than to eliminate much of their lab bills by handling edging in-house?

According to Tom Fefer, ABOC, western U.S. sales manager for Santinelli International, approximately 50 percent of the optical retailers he meets are still not doing their edging in-house. We asked a number of edging equipment representatives about how they present ROI to ECPs considering taking the plunge into in-house edging.

Everyone crunches the numbers differently, so it's impossible to say definitively how much you will save on your lab bill or that you will pay for your equipment through savings in X months. If you invite six sales reps to discuss your return on investment, you will get six different "worksheets" of how the equipment will save you money. Plus, there are variables such as the types of lenses sold by practices, the volume, and the type or brand of equipment being considered.

However, while the numbers may vary, the experts agree on this: Bringing your edging in-house can save you approximately one-third of what you're currently paying in lab bills, and making a return on your investment is a surety.

But how do you figure what you will save by not sending lens jobs out, and how do you figure that into the mix of the money you're spending on your equipment loan or lease?

Most of our experts start by looking at a practitioner's lab bills.

"Summarize and assess your lab bill over a certain period of time, usually six months," suggests Susan Polson, director of marketing for National Optronics. Itemizing your lab costs will allow you to break down the amount of money you spend for each step of a lens job.

Tyrone Johns, sales rep for Gerber Coburn, also starts his ROI conversations with prospective customers by looking at their lab bills. He emphasizes that the numbers are very different for each customer. "Lab bills are such a variable," he says. "The charge for one step can vary as much as $15 per job, depending on the lab you're using. Some practices have better relationships with their labs than others, so some may be getting better prices."

Whatever your lab is charging, Johns, along with other equipment experts, estimates that one-third of that expenditure can be brought back into your practice once your in-house equipment is up and running.

Once you've determined how much one-third of your lab bill is, the remainder of the equation is easy. "Your equipment costs are going to remain fixed over the next five years, or however long your loan or lease is," Johns says.

Fefer uses as an example an in-house, start-to-finish edging lab, including polishing and tinting abilities, and a practice whose lab bills (prior to buying the in-house equipment) were $3,000 a month. "We can say with confidence that one-third of that bill, approximately $1,000, will be shaved off." A typical loan or lease payment would be about $750, so $250 is left in the practitioner's pocket.

"The numbers are powerful," Fefer says. "When all is said and done, the practitioner realizes that, from the first month forward, he won't even have to dip into his pockets to cover the monthly payments for that edger. Plus, there's the knowledge that every payment made on that equipment is tax-deductible." (See side bar above.)

Given the reduced expenditures for sending jobs out to the lab, Davis, says that "one and a half jobs per day will make the daily payment on a lease for your edging equipment." That's strictly to cover your equipment payments. If a practice has productivity closer to the average, say five or six jobs per day, "you've got your ROI in one year," he says.

USING EDGING TO GROW

A practitioner should be doing enough volume at the time of start-up to leave him with some profits once his materials and equipment payments are made. Fefer says the entry-level volume for bringing edging in-house is three private-pay jobs per day. He specifies private-pay because some managed care companies require that jobs be processed at specific labs.

Instead of a fixed number of jobs, Johns uses the figure of $3,000 in monthly lab bills as the starting point for making an in-house lab feasible and profitable. But if you're just under that number, don't nix the idea of in-house edging.

"When you're thinking about equipment, you should be asking yourself if your business has been steadily increasing," Polson says. The investment can be an aid to growth.

It all sounds great on paper; but what about reality? Here's what the experts had to say about the common concerns they hear from practitioners.

Staffing. The days of needing to hire a skilled lab tech to run your equipment are gone, thanks to today's fast, efficient, and user-friendly machines. "There is no need to hire a dedicated employee to run the lab," says Fefer. Existing staff can handle the job, up to a volume of 20 jobs per day.

If you're doing about five jobs a day, "you do the jobs throughout the day, or set aside 30 minutes in the morning and 30 minutes in the afternoon to do lens jobs," Fefer says.

Davis of Briot-Weco says that staff costs pre- and post-edging are a wash. "If you're not currently edging, your office is on the phone 45 minutes to an hour a day with the lab."

Space. "Unless your office is a closet, there's no issue of space," says Gerber Coburn's Johns. "Most of the equipment is a self-contained unit, so plumbing and electrical investments usually are not needed." Usually, any spare space in the back office suffices.

Breakage. A misconception among those considering buying edgers is that if they break a lens in-house, it's costing them money. That's not true, Davis explains. A CR 39 lens will cost $12 to send out for edging. It costs the ECP about $3 to buy the lens blank and edge it. "You'd have to break three for every one lens you get right to lose money," Davis says.

With the quick ROI and additional ways to serve patients, it's easy to see why edging in-house makes sense. Yet the equipment reps say they are still met with some skepticism at times.

"It sounds too good to be true, so they don't want to take the risk," says Davis. "Or, they had a friend who edged years ago and got out of it. They've heard horror stories."

But it's a new day in edging equipment--one that our experts say has brought an ease of use and financial viability that warrants consideration.