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The Key Performance Indicators in Optometry

It has been said, those who don’t know where they are going, usually get there! Knowing your performance indicators, is vital to the strategy of creating a profitable optometric business. The indicators that I reveal here, are not cast in stone, but they are meaningful, because they are based on the many optometric accounts we have managed over many years, as an accounting firm. Indicators will be influenced by several factors such as whether you are located in a mall, shopping centre or your own building, your target market in terms of income group and your mode of practice to mention a few. The important thing to take away from reading this, is the inherent value of knowing your own indicators and getting the right management information at the right time. It simply does not make sense to review your business performance after a  lag of several months. Performance indicators will provide you with two very important management tools. Firstly, it will provide a target to aim at and secondly, it will give you a measure of your performance. Should things not be going well, you want to know about it as soon as possible, so that you can stop the leak and fix the problem.

Turnover

You should prepare a turn over forecast for the year ahead, month by month. Every month you should measure your performance against your prediction.

Average sales per invoice

Turnover per month divided by the number of transactions. This number should be greater than R1200. This is a very important management tool, because it reflects on your pricing, discounts and how well your staff is selling. One should always strive to improve this number.

Turnover growth 

Year on year should be greater than 9%.


Sales as a percentage of turn over should be:


Profit

This is also a vital management tool, because it enables you to control your product margins across all the products that you sell.

Your GP% should be 68% or more.


Variable expenditure

This is expenditure that vary, based on turnover such as Franchise fees.

Rent can be a variable expense when landlords have a turnover clause.


Fixed Expenditure


Cash Flow

Of the sales that you make, the money can be sitting in debtors, stock, or in the bank or used to cover expenses, or drawn out of the business by the owner.

Cash flow can be influenced by the following:

Debtors in days – nowadays this can be as low as 15 days:

Stock Turn should be more than twice per year. The formula is:

Creditors in days

Should be at least 45 days


Liquidity tests

Acid ratio:

A company with a quick ratio of less than 1 cannot currently fully pay back its current liabilities.

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term. To gauge this ability, the current ratio considers the current total assets of a company (both liquid and illiquid) relative to that company’s current total liabilities. The formula for calculating a company’s current ratio is:

Current Ratio:


Conclusion

The key to managing your practice, is to have your Key Performance Indicators available on a month to month basis. Ultimately you should know them off the top of your head.

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