Where an independent optical practice loses margin: discounts, dead stock, incomplete sales

An optical practice’s margin is not lost in one blow. There is no day on which someone decides to earn less. It is consumed in three precise places, every day, in gestures that look normal: a discount given at the till because "that is how we do it", a frame that sits on the shelf for a year, a sale closed at the first pair when the person would have bought two. None of these gestures appears in the annual accounts. All three appear in the bank account, twelve months later.

In Management control for the optical practice I put gross margin by category fourth among the eight numbers to look at every month, and I wrote that it is the most important. Here I explain where that number gets consumed and how to recognise each leak before it becomes a cash problem.

First leak: the undifferentiated discount at the till

I call it the undifferentiated discount at the till: the discount that rewards nobody in particular and follows no rule, but arrives at the end, at the moment of paying, the same for everyone and for any product. It is the most visible leak and the least seen. Visible because it is on the receipt. Not seen because nobody adds it up. The 10% "because they are a long-standing customer", the 15% "because they took the lenses too", the rounding down "to close", the lens price aligned with the offer of the chain next door: each one looks small. Added up over the month, they are the difference between a practice that earns and one that works for its suppliers.

In the practices I have analysed I have seen discounts of this kind from 10% up to 25–30%, applied at the till with no criterion. At those levels the discount does not reduce the margin: it cancels it. The practice’s net margin, what is left after fixed costs, is eroded completely.

The point is not whether to give discounts. It is who decides, and when. In most practices the discount is decided by whoever is at the till, at the moment of closing, under the pressure of a person who hesitates. At that moment the discount is a shortcut: it avoids having to explain the value. The result is that the practice pays, with its margin, for the lack of an argument. I wrote about it in Pricing: the problem is almost never the number, it is the absence of a rule.

How to recognise it. From the management software you extract the average discount applied in the month, by category and by operator. If it cannot be extracted, take a week of receipts and do it by hand. The number that comes out is almost always higher than the owner imagines.

What to do. A written rule, known to the whole team, that says which discounts exist, for whom and in which cases. Everything else is not done, and whoever is at the till has a sentence ready in place of the discount. The discount stops being an individual decision and goes back to being a management choice.

Second leak: dead stock

A frame that has been on the shelf for a year is not a product. It is the practice’s money sitting somewhere it earns nothing, and meanwhile it has paid rent, electricity and display space. Stock is where margin is lost in silence, because there is no receipt to tell the story: the loss only shows when those frames are written down, sold off or thrown away.

Dead stock is almost always born of a decision taken for the sales rep, not for the customer: the minimum order, the complete collection "because otherwise it does not perform", the brand taken because the competitor had it. On choosing what to carry I wrote in Choosing the assortment: here what counts is the economic consequence. Every extra frame that does not turn lowers the turnover of the whole stock and ties up the money that would be needed for the frames that do turn.

How to recognise it. Two numbers, the value of the stock at cost and the turnover (how long it takes for the stock to renew itself completely). Then a third, the most useful: the list of frames on the shelf for more than twelve months, with their total cost. That list, read aloud, changes the way the next order is placed.

Which turnover. The general target is for the whole stock to renew itself within a year. By category it depends on positioning. A commercial, fashion-led assortment has to turn faster, because a trend frame ages in one season. A more researched, technical assortment can take longer, because its value does not depend on the season. Sunglasses must turn as fast as possible: they are the category most tied to the moment and to fashion, and the one that loses value first.

What to do. Before every order, look at the list of dead stock. Decide what to do with it, with a rule for timing: at six months it moves to the window or changes position, at twelve it is sold at a price decided by the practice and not by the customer, then it goes. And the new order is based on sales data, not on the catalogue.

Third leak: the incomplete sale

The third leak cannot be seen because there is nothing to see: it is revenue that was never born. The person comes in for a pair of prescription glasses and leaves with a pair of prescription glasses. They were not offered the second pair, nor sunglasses in their prescription, nor the coating that would have solved the problem they mentioned during the eye test, nor contact lenses for the sport they play on Saturdays. Not out of ill will: because the sale was closed when the person said yes to the first thing.

This is the biggest leak of the three, and it is the one gross margin by category makes visible: if the "second pair" or "prescription sunglasses" category weighs little on revenue, it is not because customers do not need it. It is because nobody told them about it. Consultative selling, the kind described in Eyemage, is not a technique for selling more: it is the way of not leaving half-finished a person who trusted you.

How to recognise it. The number of items per receipt and the weight, on the month’s revenue, of the "completion" categories (second pair, prescription sunglasses, contact lenses, coatings). If the practice’s average ticket grows only when the price of the frame grows, the sale is incomplete.

What to do. Make the completion proposal a fixed part of the consultation, not an individual’s initiative. Every person who buys a pair of prescription glasses hears, always, about the other two or three solutions that concern their day. Not as an add-on at the end, but as part of the eye test: the questions about the person’s life are asked first, and the proposal follows from them.

Margin is not defended by raising prices. It is defended by no longer giving it away in three places.

The three leaks go together

Whoever gives undifferentiated discounts usually also has dead stock, because they buy without a rule, and sells incompletely, because consultation has been replaced by price. They are not three problems: they are one single lack, that of a management method, seen from three sides. That is why the answer is not a campaign or a course on selling the second pair. It is a monthly reading of the numbers that makes all three leaks visible together, and one decision a month on one of them.

Experience says where to start. It is not unusual that, at the beginning of my consulting work with a practice, after Trade Up, the first initiative is a training day dedicated to one thing only: the techniques for reducing or eliminating the undifferentiated discount at the till. One day, one leak. It normally brings an immediate increase in margin, even of 20%. Not because you sell more, but because you stop giving away what you have already sold.

To read these numbers every month with a method and a comparison there is Trade Up, the six-month programme, in Italy, and The Charismatic Practice elsewhere. The starting article is Management control for the optical practice: the numbers to look at every month; the others are in the optical retail strategy area. The topic is collected on the page Management control for the optical practice.