eyecare by the numbers

Are You Ready?

Alan H. Cleinman

During the next dozen years, the U.S. population will both grow and age. Our current population of 315 million will swell to almost 350 million by 2025.

More important, the segment of our population aged 65 or older will increase by 50 percent, from 12 percent to 18 percent. That’s another 25 million people added to our market’s primary demographic.

That’s more progressive lenses, more glaucoma patients, as well as more diabetics. Success is virtually guaranteed…or is it?

DIGITAL CONSIDERATIONS

These new market entries will have matured in the digital age. Many have a different view of the purchasing process. Some have barely experienced life without connectivity; they have a clear understanding of what experiences they enjoy, what they dislike, and what they’re willing to invest in your products and services. When faced with a decision, they look to the likes of Google, Facebook, and Twitter for answers.

These market conditions are ripe for the advancement of disruptive technologies— technologies that will turn the eyecare world upside down. We’re seeing the beginnings now in the form of downloadable eye exam apps, patient measuring tools, in-store screening kiosks, wearable computers, and advancing access to eyewear delivered from non-traditional sources.

We’re aware of research into a medical “cure” for presbyopia. We’re experiencing the beginnings of a wave of retail consolidation as regional and even national players consume individual practices. And, threatened by healthcare reform and its effects on both access and profit margins, some vision plans are making the move to sell eyewear directly to consumers, bypassing the traditional eyecare professional distribution channel.

MARKET EXPANSION

The market for eyecare and eyewear is clearly expanding. Not only is the population growing, but there are indicators that consumers are purchasing more of our industry’s products. But from whom will they purchase?

Entrepreneurs from both inside and outside of the optical industry see opportunity in eyecare. They’re developing ideas, executing plans, and attracting investment. In the coming decade, we will see ever-increasing competition from a variety of directions.

WHAT’S GOING ON?

Though these are complex market conditions that can be overwhelming, the reality is that many eyecare professionals don’t have a clear enough understanding of what’s happening in their own business to effectively address these opportunities and challenges when they present themselves.

As one example, during the past five years, while practice revenues have grown for the majority of ECPs, several key underlying benchmarks indicate that chasing revenue is not an Rx for success.

■ MARGINS HAVE ERODED. Collection percentages (the difference between gross charges and collected charges) have declined by an estimated 20 percent or more in the past five years alone. The result is less profit in relationship to activity, and less capital to invest.

■ UNIT VOLUME HAS DECLINED. While average revenue per patient has increased, the actual number of exams performed per practice has declined. As a result, the profits derived are from fewer patients and the drive for increased revenue puts pressure on revenue per patient.

■ CAPTURE RATES HAVE DECLINED. While about 70 percent of eye exams are performed by ECPs, lenses per exam have declined by 15 percent. The result is higher reliance on the medical side in an era where reimbursements are being driven downward.

What’s disconcerting is that, against this backdrop of market turmoil, many ECPs don’t really know what’s going on in their own business. Focus is on revenue growth, despite the fact that there’s little understanding of what activities really generate profits.

ECPs are feeling an economic squeeze and blame competition, but don’t look at their own businesses to identify and realize the opportunities in front of them.

From our studies, it’s clear that the 80/20 rule applies—that 80 percent of profits result from 20 percent of activities. As margins erode, tighter business controls are required in order to retain profitability. “Seat of the pants” management will not provide the insight necessary to understand and realize tomorrow’s opportunities. EB

Alan Cleinman is the founder and CEO of Cleinman Performance Partners (cleinman.com), a business consultancy specializing in the development of high-performance optometry practices. The opinions contained herein are those of the author and do not represent the opinion of Eyecare Business or its publisher. ©2013 Cleinman Performance Partners, Inc.