Management control for the optical practice: the numbers to look at every month

The problem of many optical practices is not that they do not have the numbers. It is that they look at them once a year, when the annual accounts arrive from the accountant, and at that point those numbers serve one purpose only: calculating taxes. For deciding, they have arrived too late. The season is over, the frame order has already been placed, the extra employee has already been hired.

Management control is the opposite of this: looking at a few numbers, always the same ones, every month, before deciding. You do not need dedicated software and you do not need a controller. You need one hour a month and a table that is always filled in the same way.

Why once a year is not enough

The annual accounts are a tax document. They put twelve months together, mix the good season with the bad one, and do not distinguish between the sunglasses sold in July and the progressive lenses sold in November. For the tax office that is fine. For someone who has to decide whether to renew the assortment, raise the prices of a category or invest in a campaign, it is almost useless.

An optical practice lives on short cycles: the sunglasses season, the September return, the holidays, the suppliers’ promotions. If the numbers are read twelve months late, every correction arrives the following season. In the meantime you have been working by feel. And feel, in retail, is almost always optimistic about revenue and pessimistic about margin.

The eight numbers to look at every month

You do not need thirty indicators. You need eight, and they must always be the same, so you can compare them with the previous month and with the same month of the previous year.

1. Revenue by category. Not the total: the total hides everything. Prescription frames, ophthalmic lenses, sunglasses, contact lenses, services. The total can grow while the category with the best margin falls.
2. Number of transactions (customers served). This is the number that says whether the practice attracts people. If it falls and revenue holds, you are selling more to fewer people: it works as long as those people stay.
3. Average ticket. Revenue divided by transactions. It grows when the consultation works, when the second pair is proposed, when lenses are explained and not only sold.
4. Gross margin by category. The selling price minus the cost of the product, for each category. It is the number the annual accounts never give in this form and it is the most important of all: it says which categories pay the bills and which consume them.
5. Stock: value and turnover. How many frames are on the shelf, at cost, and how many times a year the stock "turns". Stock that does not turn is last year’s revenue sitting on the shelves.
6. Fixed costs and break-even point. Rent, staff, utilities, software, loans: the monthly sum is the minimum revenue, at the practice’s average margin, below which the month is a loss. Whoever knows their break-even point knows by mid-month whether to worry.
7. New customers and returning customers. How many of the month’s transactions come from people never seen before and how many from people already on file. It is the number that measures relationship work, the one I talk about in CRM for the optical practice. Without a customer file in order this number does not exist, and that is already a piece of information.
8. Cash collected, not only revenue. Deposits, balances, instalments, reimbursements from insurers and schemes: the month’s revenue and the month’s cash are two different things. A practice can close an excellent month of sales and not have the money to pay the supplier.

The numbers have to be read together

Each number on its own tells half a truth. Management control begins when you put them in relation.

Revenue goes up and gross margin goes down: you are selling with more discounts, or the mix has shifted towards less profitable categories. The average ticket goes up and transactions go down: the consultation works but the practice attracts fewer people, and the problem is communication, not selling. Stock grows and turnover falls: you are buying for the sales rep, not for the customer, and the topic is choosing the assortment. New customers grow and returning ones fall: the promotion brings people in, but the relationship does not keep them.

The annual accounts say how it went. The eight monthly numbers say what to do.

One hour a month: the method

Management control almost always fails for a trivial reason: it does not get done. Not because it is difficult, but because it has no fixed day. The method is simple and must be respected without exceptions.

• One fixed day, for example the first Monday of the month, one hour, door closed or before opening.
• One single table, with the eight rows above and three columns: the month just closed, the previous month, the same month of the previous year. A spreadsheet is fine. The management software has to provide the raw data; the table is filled in by hand, because filling it in is the moment you understand.
• Three questions, always the same: what has changed compared with last month? What has changed compared with last year? What do I decide this month as a result of these numbers? If the answer to the third is "nothing", the hour was still worth it: you decided not to change, knowingly.
• One single decision a month. Not five. Whoever changes five things does not know, the following month, which one worked.

The most common mistakes

Looking only at revenue. It is the most visible number and the least useful on its own. An optical practice can grow its revenue for three years and close the third at a loss.

Comparing only with the previous month. October against September says little: seasonality weighs more than management. October against the previous October says much more.

Delegating everything to the accountant. The accountant does another job, and does it twelve months late. The monthly numbers must be looked at by whoever decides, that is the owner, together with the people who work in the practice.

Waiting for the perfect software. The management software is there to extract the raw data. If today it does not provide all of them, start with the ones it does: revenue by category, transactions and stock are provided by all of them. The rest gets added.

To work on the numbers of your own practice with a method and a regular comparison there is Trade Up, the six-month programme, in Italy, and The Charismatic Practice elsewhere. The other articles on the theme are in the optical retail strategy area; among them, Pricing and Ten strategic suggestions for the optician entrepreneur. The topic is collected on the page Management control for the optical practice.